Latest / Federal Retirement Advisors | FedLegacy / Does FEHB Cover Long-Term Care in Retirement? What Federal Employees Need to Know
Transcript
- William Smith: When you're in retirement, there is the risk of a bill that none of us know whether it's coming. And we've all seen it with either our grandparents, our aunts, our uncles, friends' parents. and that bill is long-term care, right? We're all gonna get old one day. We don't know how we're gonna go. We don't know if it's gonna be a slow process, a long process, but whatever it is, we gotta make sure. That we have a plan. And so tonight, what we're going talk about is how we navigate long-term care and retirement as federal employees and how we navigate FEHB and Medicare, right? All those top that this this topic is super important. We talk about in our retirement readiness assessment is one of the five things that we make sure we address when we're meeting with clients when we go through their financial plan in retirement. And so Today is one of my least favorite topics just because it's so much complexity, it's so much change, it's so much things that we can't control. And so what I would do today is I'll do my best to take all my years of experience in in helping clients go from being fifty years old to seventy years old or sixty years old to eighty years old and their spouses aging and things like that. And from what I've seen and help you create a better plan for you and your spouse, or whoever's in your family. We'll do that today. so one of the things that oftentimes gets misconstrued is people think that FEHB, which is your federal federal employer, federal employee health benefits, covers long-term care. They make most people say, well, I I I have Blue Cross, Blue Shield, or you know, whatever the the the platinum plan is, and you pay a whole lot from it for it. But the reality of it is your FEHB is very limited. The FEHB does not cover custodial, they call it the term is custodial long-term care, right? And that what that means is your health insurance will not cover a nurse coming through your home and helping you with everyday things like bathing, dressing, eating, things like that. Right? It will cover you for a lot of things, but it will not cover you with those things. Another misconception is that Medicare will do that, right? Medicare part A. Medicare probably will do it up to a hundred days and then you're on your own. But at day twenty one, they start charging you two hundred and seventeen dollars a day as of this recording. So just imagine you've already gone through the hospital, you've been in the suspicion space. Day twenty one, you start, you start, you you know, you you have to start now paying twenty seven two hundred seventeen dollars a day, which is a significant amount of money. And that only lasts up to age 100. I mean to day one hundred. And so the only thing that you can do in this case is you must make sure you have you have some type of plan financially to bridge the the the remaining of that I wouldn't even want to call it a gap, but the remaining of that time. Now you could do Medicaid, but again, or some type of nurse home facilities. But in that case, you have to give up everything you own in order to do that. And so the government knows that, you know, peop Everybody knows that for the most part. I mean, we live in America, we see it all the time, right? And when you see people struggling with long with with healthcare costs and things like that, was that's why it's such a big topic. You know, you don't want to and and you want to be treated well. You don't want to go to a facility that's not up to par. And so one of the things I talk about with a lot of our federal employees is this. You have an option, right? You can get the federal long-term care plan when it's available, you know, because it's it it goes in and out. and so, or you can get your own private long-term care policy. That's that that's an option too. The problem with those policies are, well, is what we've experienced is the costs can continue to go up for those. And you don't know when that next cost increase is going to be. The the the federal long-term care pot plan has been on it like these seven-year contracts. And every seven years, the contracts renew. And the problem with it is you could start paying one thing, and then seven years later, your premium is increasing. And I've experienced that with a bunch of clients. And it And the thing about it is, you have no control over it. And so when you need the care, you need to care. You don't want to be thinking about what the next contract negotiation will be with the government. And that's how John John Hancock and the federal government get fell out because the John Hancock needed to increase the prices. The government wanted to keep the prices suppressed, but with the cost of health care, it became an issue. And so consistently, this has been an issue with the federal long-term care plan. Now, if you got it, that's great. I'm not saying canceling anything like that. I'm just saying you have to be able to manage the potential cost increase that will occur. And historically, there have been cost increases. So one of the things that we talk a lot about when we're meeting with clients is this as federal employees, you all have it good. And the reason why I say you all have it good is this because you have your pension, because you have your social security, you can afford what we like to say self-fund long term care in most cases. And I'm not saying do this blindly. You know, I'm not saying that. Obviously, you want to meet with somebody, meet with an advisor, somebody to walk through your plan yourself. And if you want to meet with us, we can do it. But one of the things that I've seen a lot of federal employees do is self-fund long term care. What I mean by that is this. And I'll show an example of it in a second, because I think at a drive at home and the visual of it will will make a lot of sense. Is because you're not using your TSP, you can afford to allow your t your your your TSP to grow. In case you run into a long-term care scenario. Now, there's all types of calculators out there that can that can help you understand how much your long-term care can be in your specific state based on average costs. And you can calculate that based on inflation as well. So that way you can know, okay, well, if I run into a situation, I need to have X amount of dollars set aside in case I have a long-term care scenario, right? And of course we do that for clients. And we look that's one of the first things we look at. And I will say this. In majority of cases, for clients that have a decent amount of money in their TSP, of course it depends on their bills and things like that, you can self-fund long term care. And I'm gonna show you an example of a lady that had $515,000 in her TSP. We showed her a way to self fund her long term care and we put that in motion. One thing you want to know about long term care, though, is how they work functionally. When you have a long term care policy, on each and we and we we offer long term care policies, just so we're clear. When you have a long-term care policy, there's a dollar amount that oftentimes is the top line spend. And so even within a long-term care policy, there's an amount of money that if you go over, that pop that plan will expire. And so you just do the same thing with your TSP. You just make sure you have X amount of dollars set aside in case something happens to you. Super important because again, if you haven't gotten it yet, you're getting close to retirement. One of the things I hear all the time is. Ms. Smith, I want to buy long-term care, but it costs so much. And I get it. You know, it's not one of those things you buy in your 40s, you know, because it's something you know you're not gonna need until almost 40 years later. And so if you wait it, that's fine. Get it. One of the options is to self-fund your long-term care. So what I want to do is I want to show you what that looks like. I'm gonna share my screen. And this is just a this is this is a real client. We changed the name and obviously. But this is a real scenario. And so if you ever meet with us, we take you through what we call this this is this is our retirement analyzer software. And so we put we we meet with you, we put all your information in this software, we update this software as as as as as we as we progress through your retirement. Of course, we you know we we left the numbers, we deleted all the things that didn't matter. But anyway, so here's her pension, her first supplement pension. you know, her first supplement ends at 62. And all that. So we got that there. And then we have her TSP. Now, when we met with her, her TSP was invested pretty conservatively. She had it, she had it all in the G fund or large majority of it was in the G fund. So she wasn't getting a long a large return. And this is the reason why when you have, when you, when you when you when you when you retire, we often talk about making sure you have an your your TSP invested in a way that you're outpacing inflation. Why that's important is because as you get older, especially when it comes to long-term care, long-term care can get quite expensive. And long-term care usually outpace, the cost of medical care usually outpaces inflation by itself. The baseline inflation number, which is, let me see, the baseline inflation number over the last hundred years has been 3.27. So the TSP, I mean the G fund over the last 10 years has been below that number. Okay. And so what you want to do is you want to make sure that and and so just imagine the G fund is bel is below three point two seven over the last 10 years. And then the cost of healthcare is above the normal s normal the normal inflation average. So you're you're you're getting double screwed really because your your your your your money's is is slow, inflation is higher, but then you got your Medicare, your medical costs are higher than inflation, right? And so So you have to think about that type of stuff. And so what we do is we look at how much a person has, how long is going to last them. Now in her situation, she did not need with her expenses at 4400. And you know, like you as you see here, her her her fixed income covered her, covered her bills, right? No problem. No problem at all. Once Social Security kicked in, everything, you know, she had a she had a Her her her her income is sixty three hundred. Her expenses fifty two, right? We can ignore this gap. This is a this is when we were cleaning it up a little bit for to raise personal data. You know, don't worry about this negative right here. That's not, but this is her real number here, right? And so as you can see, her expenses are higher than her her I mean her income is higher than her expenses. No problem as far as her fixed pension and her and her and her and her Her fixed pension and her social security. So her fixed her fixed income is higher than her expenses and her TSP can sit over here and grow. Now, what we did was when we first met with it, it was like, okay, if you have your money invested like you have it, let's go to our long-term care tab. Okay. And so we go to our long-term care tab. This woman is set to retire is retiring in Maryland. And so we look at so so our system automatically inputs Maryland's rates at the time. Okay. Now we also put an infl the cost increase of inflation in there and all that, right? And so now what we do is we project down to the year 80 when she could possibly start you utilizing the long-term care. And as you can see, the average cost of long-term care in Maryland by year five, she's run out of money. God forbid any other emergency happens before then, she's in trouble. Okay. And so for us, when we see this red line, especially so soon after the four year, because we we usually calculate long-term care for four years, because if you're in long-term care for longer than four years, I mean, that's pretty much the longest she'll be in that type of care for in most cases. but you see here, so that means if everything goes perfect, she'll make it just past that four-year. And so what we do is what we talk about all the time when we talk about our f your financial house and things like that. And so for her, that was her big that was one of her biggest issues. And so what we always talk about is making sure you have different type of buckets. You want to have a growth bucket and a protected bucket. And a lot of times what we we keep that in mind because we want to make sure that you have money that's consistently growing out past inflation, meaning like your your TSP C fund, right? With the last 10 years, it I believe is at like 15%. Now the risk to it is if you're taking income and the market's dipping in the years you take income. That could be problematic. But if you take if you if you put it for long-term growth, oftentimes you can I mean not oftentimes, but as it grows over over time, that account continues to increase, as most of you all have seen as you've been working. If that account increases over time, over a longer period of time, you have a lot more money there to utilize when it comes time for retirement. And so we go to her s when we go to her case. As you see now, we've eliminated the red now. And again, this is worst-case scenario. Now, if something would have happened to her, she still has money set aside. Little tweaks make a big difference, right? Now, this is without her having a long-term care policy. This is in case something happened. If she, I mean, I hate to say it, she could die in her sleep or suddenly or whatever, and not need any of this, and her family just gets all the money that she has there. Okay. But What I'm saying, what why am I saying this? As federal employees, because you all have a pension and social security, you can allow your spendable asset, in this case your TSP, continue to grow throughout retirement. Unlike someone in the private industry who all they have is social security in their pension. Long term care becomes extremely important to them because if you take away, like for example, If we were to delete, and this is most people's reality, if we were just to delete this, and delete this, most people are living like this. They got their they got their social security and they got their they got their 401k from their job. If we were to do that. You see the difference here? Well, they wouldn't even have been able to retire early like this. They would have retired down here. And then now you have they retired at 65 with a higher Social Security. They got the pen. Well, let me, yeah, they got their pension, but the money just doesn't last. And so in these situations, you need, you need your, you need your long-term care because long-term care prevents. If something happens here, it prevents that money from running out, right? And so, cause they need the money for other they need the money for income. They need it to stretch longer, right? The whole retirement strategy changes when you delete a pension out of somebody's retirement account. This is why as federal employees, you guys have it, have it way different. And so I'll stop sharing my screen now, but As federal employees, it's super important that you put money towards your TSP. Because the more money you put towards your TSP, the more options you have in retirement. And this is why I always talk about there's retirement advice for federal employees and there's retirement advice for everybody else. For everybody else, they gotta be way, way, way, way more conservative than y'all have to be. Because they need that that that 401k money to last their entire life. Very different. You all have a lot more flexibility. You all can build a lot more wealth. You all can do a lot more lot dip a lot of different things. And so and so that's the long-term care conversation. Long-term care is a big topic when it comes, when it when you see, you know, when you see it from financial advisors, the news, and things like that. The reason why it's a big topic is because for non-federal employees, That 401k, they can have, I mean, they could have 800,000 million in their 401k. But as soon as they retire, that 401k has a slow leak every month because that's paying them every single month. And that same thing that's paying them every single month, long-term care, I mean medical emergency here, boom. They got to go to that same bucket and draw down that same bucket that's paying them income. And so long term care policy stops that a bit because, well, not stops the leak. But it it it stops the double leak. And so that's why it's such a popular product. But as federal employees, it's very different. Now, again, I'm speaking general advice. I don't know everybody's situation. Would love to meet with you, talk to you more about it. But I'm just speaking in general when it comes to federal employees and some of the questions that come up for a lot of federal employees. So that's the long-term care thing. Let me talk about H F-E-H-B a little bit here. So When it comes to your federal employee health benefits, as you know, or maybe you don't know, FEHB is one of the best health insurance programs out there, especially for retirees. The reason being is the government still pays 70% of the premium. Now, you might be thinking, it still feels expensive. It does. I mean, healthcare is just expensive because of what it is, but it's still cheaper than it would it will be if you got it on your own. Right. Still, they still pay 70% of the premium, which is great. Now you got all different type of plans, all that all that, all that, all that is dependent upon your income, what your health is, you know, all those different things factor into that. But people always ask, is it a decent plan? I think it is, based on what the comparison is, for most companies. Right. Most companies are paying twenty-five to fifty percent. Government pays seventy, which is pretty good. Now, some of the simple questions that you brought all may already know. If you have a spouse, if you have a spouse, they have be on there for five years before you retire. Or you you you have to be on there five years before you retire, those type of things. and then we also talk about the survivor benefit. If you don't do survivor benefit, Then your spouse will have to go get their own coverage. They won't be able to be covered by FEHB when when you pass on. Okay. But that's another thing when it comes to life insurance and and and TSP. If you're leaving them your TSP and you're leaving them a big balance, it won't matter as much. if you're leaving them life insurance, they can, you know, they might have a higher health insurance cost, but you give you leaving them three, four hundred thousand tax free, you know, some so you have to balance what's most important to you on that. But those are some of the things that you have to think about when it comes to healthcare. Now, one of the other questions we get a lot about is if I have my FEHB, do I need Medicare Part B? Now, this is truly a personal decision. I know people that just they take the hot the most expensive FEHB and they just go with it and they say, I don't need, I don't need to pay that extra money every month. Medicare Part B and I don't feel like dealing with all the the the the cost increases and managing all that stuff. Again, I'm not gonna tell you which is better and which is worse. Some people like it that way, some people don't. Some people prefer the part B because Medicare pays it pays first, F E HP pays second. It you know, you get to waive all your copays, Medic part B weighs all your copays. it's a much bigger network. Those are some of the things, some of the reasons why people do Part B. It's just, it's just pure peace of mind. And again, that's based on your income. Some people might not want to pay it. But the reason why people do pay for it is the peace of mind because you get everything covered. Outside of long-term care stuff, though. But you mean you get the top-of-the-line coverage, the peace of mind coverage. That you don't often get with most FEHB plans. Some you do, but there's still limited networks and things like that. With Medicare, you don't have that issue. One of the other issue, one of the questions that we get a lot is, what if I'm still working, I turn 65? Do I have to take Medicare? No, you do not have to take it at that point. But once you retire, you do have to enroll in it. If you don't, then you get a 10% penalty. after the first after the to twenty twenty first month and then after that, after the next year it's another is a twenty percent penalty. And so you have to enroll once you retire, unless you will be penalized. another question that we get around this is is if I'm making a hundred and eighty thousand when I retire, two years before I retire and they have the two year look back, do I do I have to pay at that at that income. No. I mean it unl yes. Yes, if you don't file a form. There's a form that that that you have to file. And I can't think of the name of the form. I I I think we talked about it last week. It's just slipping slipping my mind. But that form, when you when you send it in, it's just you just you just list loss of job or retirement as a life changing event and it will reduce it down to your current premium to your to your what your current premium should be based on your reduced income. You could do that if you get married spouse passes or something some something that any major event, any life changing event will will allow you to reduce that. But you have to submit that form. If you do not submit that form, they have no way of knowing you're just gonna get charged based on the two year look back. So you have to make sure you do that. Again, a lot of this stuff we cover in our retirement, I mean our TSP finish line process, where we would build out the retirement analyzer for you. Super important topic. I hate the topic though, because things change so consistently. But because things change so consistently, you want to make sure you're on top of things. And as a federal employer, the thing that you could do the best, that's a cure-all for most of your f of your retirement issues. Is make sure you're putting as much into your TSP as possible if you're still working. If you're retired, making sure you have that you diversified into growth and protective buckets. Because if you're all sitting in the G fund in your retirement, that's a problem because now you're getting crushed by inflation. You might not look like you're losing money, but you're getting crushed by inflation, like I showed you in her situation. Or if you're all in the market, you know, two years of negative market dec declines. And you're in trouble and then you're now chasing the market. The best approach I've seen is having a growth bucket and a protective bucket. Now, what that is for you, I don't know. you know, and then we also talk about tax writers and stuff. But when it comes to this, having a growth bucket and a protective bucket is really, really important for healthcare needs because that's exactly where you would go if you have that protective bucket. You can go right there for these health care costs.