Paul Winkler: Welcome. This is “The Investor Coaching Show,” and I am Paul Winkler. In here with me is Mr. Ira Work. Man, you ready?
Ira Work: It’s a wet and dreary day. Good place to be sitting, right here.
Do Wealthy People Have Better Access to Healthcare?
PW: I got a question. And if you have a question, you can shoot that question to paulwinkler.com/question, or go to the website paulwinkler.com. Somewhere on there, there’s an area where you can stick a question in there.
I got this really cool question. Stan actually sent this question and I really, really liked it, so I thought I’d start off the show with that.
“Paul, really enjoy your show, listen to every one. ‘Never worry about what tomorrow may bring.’” That’s it.
My philosophy is that the more you educate people, the less they worry.
“We fear that which we don’t understand,” as I always say.
My question said a study said that 70% of people will eventually need long-term care. He said, “I wonder if the data may be not accurate for successful investors. I’m thinking that wealthy people will probably be in better health condition — not alcoholic, not a smoker, not on drugs. Wealthy people would have better access.”
I guess that’s some people, I suppose. We’re excluding Hollywood. Anyway. No, sorry, that wasn’t nice.
“Wealthy people would have better access to healthcare. Do you know what percentage of wealthy people in long-term care there is? Maybe you could see how many of your clients have had long-term care.”
It’s not that big of a percentage. I don’t know the number on that particularly.
But he said, and I love this, “Personally, I will not get long-term care.” He’s talking about the insurance. “But I will use my investments to be the motivation for my children to keep me at home.”
Hey, guys. This is really funny.
“Hey, kids. Guess what? Dad needs some long-term care and it’s, oh, $8,000 a month or $6,000 a month. And by the way, I’m going to be paying with it with your money, because of what it’s eventually it’s going to be.”
IW: Your inheritance?
PW: Yeah. Yeah, your inheritance. He said, “That’s what my mother-in-law did.” And, “It was very effective,” he said.
Spending Money on Healthcare
PW: To answer that, we actually have a crack. These guys in my office, Scott, in particular, and Collins actually did some research on this for me.
I said, “Hey, buddy. Go do some research on this.” So, my crack research staff, this being Scott in this particular case, went and did some work on this. What he found was fascinating.
Because typically, my normal answer, as Stan would know having listened many times, is that I’m really torn on long-term care insurance. Because the problem has been the premiums increasing. It’s guaranteed renewable, which means they have to renew you, but they can increase the premium. We’ve been seeing significant increases in premiums on those policies over the years, and such that it has become unaffordable for some people.
Sometimes what I’ll say is if you’re going to have it, shorten the benefit period maybe. That might be something that you do.
You don’t even find lifetime policies anymore. Shorten the benefit period, maybe to a couple of years or three years or something like that. Lengthen the elimination period, how long before benefits are payable.
I have a client that’s a concierge doc, and he and I got into a conversation about this. He runs a lot of nursing homes.
And he made a point that if you take care of yourself — he just talked about decent eating, decent taking care of your body, exercising, walking, whatever — he says you typically “square the curve,” and you don’t last that long in a nursing home, quite frankly. And you have a better quality of life until you get to that point of death. That’s his point.
This one goes a little bit even deeper though. This is really interesting. The study was from ASPE Research, and they said that older adults with health problems tend to have less wealth than healthier, older adults.
They said the wealth tends to fall when people develop health problems, as you’d expect, because you’re having to spend your money on healthcare.
And he said, “One study, for example, found that over a nine-year median, household wealth grew by 20% for married people, ages 70 or older who did not receive nursing home care.” As you’d expect, their wealth grew because they didn’t spend everything that was coming in. As far as their investments, they weren’t spending it down. Because people tend to be a little hesitant to spend money that they’ve spent a lifetime accumulating.
But if they were 70 and older and they did, it fell 21% for their counterparts, if they went into a nursing home. For single people who received nursing home care, median household wealth fell 74%, and some people didn’t have a lot of assets. You think about why that would be. A lot of people just don’t have a lot of assets, so literally many of them might be only living on social security.
Needing LTSS
PW: But just to go a little bit deeper, because this really gets interesting, he said, “Inadequate reimbursement rates may make residential care communities reluctant to admit Medicaid beneficiaries.” Why that’s important is, for those people out there that are saying, “I want to qualify, I want to spend down my assets, set up a trust to spend down my money so I can qualify for Medicaid,” which is basically welfare, they could be looking at a problem.
Because when you do that, you set up your assets in such a way that you can’t use them for your own care in retirement, and you end up in the government system for Medicaid for poor people. They’re basically saying here that a lot of times they’re really low to admit these people because the reimbursement rates are so low. And that’s when we talk about big government healthcare, right?
IW: Mm-hmm. That’s right, yeah.
PW: That’s the problem with it.
When you don’t have high reimbursement rates and you have a private contractor providing that healthcare, you have a problem on your hands.
He said, “We look at LTSS, which is long-term services and support.” That’s LTSS, long-term services and support, so you’re thinking about money coming in to pay for long-term care.
He said, and this is where that 70% came from that he was talking about in his question, “It was projected that 69% of adults turning 65 in 2005 would need LTSS — long-term services — before they died.” You look at that number and go, “Wow, that’s pretty high.”
What is it that qualifies somebody for needing that help? You’ll typically hear activities of daily living talked about — so bathing, dressing, getting up and down.
IW: Eating.
PW: Preparing meals.
IW: Eating.
PW: Eating.
IW: Toileting.
PW: Yeah, exactly. Toileting, transferencing, those types of terms that you hear.
IW: And dressing.
PW: Yes, exactly. Taking medication might be something that they may have a problem with and they need help with.
When they started digging down into the numbers, they said that the results of their work, their study, were that they found that 70% of adults who survive to age 65 develop severe LTSS needs before they die, and 48% receive some paid care over their lifetime, so about half of people receive some paid care. It said that many older people with severe long-term needs — long-term services and supports needs — rely exclusively on family.
And that’s what I find a lot of times, where family helps out. Let’s say that somebody is married. Typically they wait longer to go into a facility if they have a spouse that’s helping take care of things at home. It says only 24%.
The Length of Paid Care Time
PW: Here’s the key: Most of the paid care episodes are relatively short. And this is something I’ve talked about before. Only 24% of older adults receive more than two years of paid LTSS care.
And I’m going to get to your question in just a second. “Are wealthy people less likely to need the care?” was his question, so we’ll get into that.
Only 15% spend more than two years in a nursing home. Only 15%. You look at that and go, “Wow, it’s only two years.” It’s not as much time that people spend in nursing homes as you might think. There are some people, and I’ll get into that, that spend longer periods of time.
It says the lifetime risk of receiving paid care is not evenly distributed across the population. And this is Stan’s question. It’s not evenly distributed.
It said, “Severe LTSS needs and the receipt of paid LTSS, long-term care, increases with age and are relatively common among women, people of color and older adults with limited education.” So, right there you’ve had the first hint that there are some people that are more affected than others.
And it said, “We estimate that 28% of older adults who do not graduate from high school had severe LTSS needs in 2014, compared to only 9% of those with a bachelor’s degree.” So, number one, they say with a little bit of education, you have a difference right there.
“We estimate that 75% of 65-year-old women develop severe LTSS needs before they die, compared to 64% of their male counterparts.” What happens when people live longer is you find that actually because you’re living longer, there may be a higher need for care, but again, it’s much shorter because you’re living longer. It says that it’s relatively short.
It says only about 15% of older adults receive more than two years of nursing home care.
You look at it and it’s a fairly short period of time. They only had 3% of people that needed long-term care services for more than six years, so it’s very, very small. Paid LTSS last about 1.2 years overall. And they had this subset, that was about it, and then 1.6 years among people, so it’s fairly, fairly short.
Differences Between Durations of Paid Care Time
PW: But here’s where the rubber meets the road and where it gets really interesting. The duration of the long-term care needs differs significantly among groups with people of color, especially non-Hispanic Blacks, and people with limited financial resources before developing disabilities, experiencing much longer spells than other people.
For example, of those without any financial wealth, 43% of them have severe needs, long-term care needs, for more than two years. It’s pretty high, compared to 28% with those with 100,000. They didn’t really have a really high bar. 100,000 is what they were talking about in this study.
Just to break down the numbers: 4 in 10 people with no money — just around 40% with no money — have severe long-term care services and supports. 3 in 10 with over 100,00, and only 15% with $100,00 go longer than six years, so it’s very small.
That’s the broke person number right there, that they only have 15 in 100. If they have over 100,000, then it’s only three in 100 people that have a long-term care episode that goes past six years.
What they also found out, which was interesting, is that when you’re looking at people with these needs, they said, “People with little income or wealth before developing long-term care needs are much more likely to receive some paid long-term care services by 85.” Because typically what happens is that they decline slowly. And health declines slowly because they’re maybe smoking, maybe they have weight problems, maybe whatever health issues.
What happens is that those people are in more need. People with less income and wealth before they become disabled are more likely to spend more than two years in a nursing home than people with more income and wealth. So, Stan, yeah, your thought process is right.
Typically, the higher income, more educated people do not need long-term care as often or for as long, for whatever reason.
23% of adults, with no more than $5,000 in non-housing wealth, receive at least 90 days of Medicaid-financed nursing home care, compared to only 3% of people with more than $200,000. That’s just 3%. That, right there, is really important.
In other words, only 3% of people that have at least $200,000 saved for retirement will actually end up needing any kind of help with Medicaid whatsoever, or welfare. That’s a fairly low number, and it’s a fairly low bar that they’re having right there, at $200,000.
For a lot of people, they’ve got a lot more than that saved for retirement. People that have actually done some prep for retirement and actually sat down and gone through a planning process typically have more than that. Even if you only have that amount, $200,000, it’s only 3%.
Why We Build Wealth
PW: This is a real reason, if we think about it, for why we build wealth. We build wealth, number one, not to end up in a long-term care facility.
If you pay for it yourself, the quality of care is going to be likely much better than if the government is paying for it.
And the other thing that I hear from people all the time — Ira, you can chime in — is that a lot of times people don’t want to be a burden to the next generation, and that’s why they prep.
IW: My mother is one who has said to us, “Just put me in a home. Just put me in home.” She doesn’t want us to take care of her.
PW: But she has the assets to pay for?
IW: She’s got two sons.
PW: Okay, all right. Got you.
IW: She does not have the assets.
PW: She doesn’t have the assets. Okay. That’s why I didn’t know.
IW: She would be one that on the financial side of it would be a recipient of the long-term care, from the number sense.
PW: But she has sons.
IW: Right, right. My brother and I —
PW: — have done well.
IW: We would see to it that she’s not in a Medicaid facility.
PW: Exactly.
IW: Okay.
PW: Exactly. And that’s the part about the family in this research.
IW: Right. But thinking about a higher percentage of women needing long-term care help — that to me does make sense. Because I think about my aunt and my uncle who are millionaires. They took out a policy on my aunt for long-term care, with the thought being my aunt could take care of my uncle in the event he gets sick and needs to be taken care of, but that he would not be able to take care of her.
PW: And I was thinking about that very thing as I was looking at this study as well.
IW: They got a policy on her, and they could well afford the policy.
Do You Need Long-Term Care Insurance?
IW: When clients ask me, “Do I need long-term care insurance?” I’m like, “As a need, you have to realize one way or another, it’s going to be paid for.”
You’re self-insuring, if you don’t have a policy and you’re paying for it out of your own assets.
PW: Mm-hmm.
IW: If your family’s taking care of you, your family’s taking care of you. But there is a cost to that as well.
PW: Mm-hmm.
IW: If you have to bring in nurses throughout the day, that could actually be more expensive than actually going into a facility. The wealthy people don’t need it.
PW: And that’s why facilities exist.
IW: Right.
PW: But I think it’s interesting that maybe if somebody is a little bit more prepared — higher education, has assets — they don’t typically even need it as much. And I think that’s the point of this research.
Why is that? It goes back to what my client that runs the nursing home says: “Square the curve.” If you take better care of yourself, I think that’s a big deal.
The bottom line is, with long-term care, I am not against using it. Typically, if I recommend it, it is shorter benefit periods, just to make sure that you take care of that little thing.
If you look at who typically buys long-term care, the study shows it tends to be wealthier people egged on by their kids who want to make sure that they get a bigger inheritance, which I think is funny. But I like Stan’s idea. Just tell them, “I’m not going to buy long-term care and you’re going to have to take care of me or you’re going to end up losing.”
There you go. Hire your kids. Thanks, Stan, for that question. Go to Paulwinkler.com/question, if you’ve got a question that you want to run by us, or go to the website.
The Thrift Savings Plan
PW: Ira, what you got?
IW: Well, I met with somebody yesterday and we were talking about their future plan for retiring two to three years from now. And it’s a government worker with money in the TSP.
We started talking about the TSP, and she recently moved to a 2030 fund. She was trying to pick and choose her own funds.
PW: With their life, it’s L2030 if you’re in the TSP.
IW: Right. But before that, before she went into this about two or three years ago, she was juggling between the different funds and moving around. She was using some market timing in order to try to get the best returns.
And as she’s starting to get closer and closer to retirement, she said, “You know what? I’m probably planned to retire at the end of 2025 or sometime in 2026.” The person that she spoke to that helps them with the TSP said, “Well, you should just go into the 2030 fund.”
She went through my workshop that we do, where we’re dismantling the myths and we’re talking about different asset categories and so forth. And we talked about the TSP, and the only one real redeeming quality of it, as I see it.
PW: This is the Thrift Savings Plan for those who don’t know what TSP stands for.
IW: And that is the very, very low expense ratio. The fact that it is more of the type of fund we would recommend is because they’re using index funds in that.
We don’t particularly care for index funds for a whole different reason. But the cost is very, very low. And I try to explain that well, part of the reason why it’s very, very low is they’re managing billions of dollars, and Blackstone manages that fund.
PW: And cap weighting it, which is really, really simple.
There’s nothing to it. There’s no thought that has to go into that portfolio.
Yeah.
Problems With The TSP
IW: In looking more deeply at a fund, and I’ve had a lot of clients in this, but I’ve never looked to the degree to find out when it hits that 2030 or 2025 —
PW: — how much in bonds they have.
IW: Oh my gosh.
PW: It’s insane, isn’t it? Yes.
IW: And it all transfers into the L fund. Okay.
PW: It’s insane.
IW: And there’s 74% of it is in fixed income.
PW: It is unbelievable. And I say poorly managed in more than just one way. But yeah. And then even when you’re in the accumulation phase, most of the money’s in the C fund, which is the large company stock fund.
IW: Correct.
PW: And it’s not really well diversified, even if you’re younger.
IW:
So the problem with the thrift savings is that it only has three true asset classes. Three asset classes for stock.
PW: Yeah. Large international, large US and small US. That’s it.
IW: And they have very, very little international even in the 2030 or 40 or 50 or 60 now. And it’s just terrible, how they do it.
PW: And you can choose the outside funds. There’s a way that you can choose outside funds other than their C fund, S fund and I fund. But the interesting thing is that if you look at the expenses when it gets to those, you can only put, I think it’s 25% of your portfolio in those outside funds other than the regular target funds and the C, S and I funds that they have.
But the thing is the ongoing expenses. Every time you do a trade, if you’re managing the portfolio and rebalancing, you get hit with a fee every single time. For those of you that know that there are other alternatives you can go with, it’s just they’re not great alternatives.
It doesn’t mean we don’t tell the people, “Take advantage of it. Do it. Put money in while you’re putting money away.” But it’s not where I’d want to be in retirement.
IW: Right. Well, again, I do the same thing. I tell whether it’s a 401(k) at work or a simple IRA at work, it’s like it’s the easiest way to start saving and planning for retirement because you don’t see that money in your check.
PW: Built-in discipline.
IW: You don’t feel that it’s your money, and you learn to live without it. I have found in working with people that it’s a lot harder when you’re saying, “Well, I’ll just get my money and I’ll set up an automatic, or I’ll just send you money on a monthly basis.” Then the market drops, or you skip a month, or an emergency comes up and you skip a month.
You have the money come out of your check automatically to put into the retirement plan. Plus there’s the fact that with the thrift savings plan or the 401(k) or a simple IRA, you could put a lot more money away, whether it be tax-deferred or after tax on the rough side of it, than you can if you’re going to use an IRA.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
