When it comes to retirement planning, almost everyone knows about the danger of a market downturn or rampant inflation. But what else is out there that could set you back, and how can you best protect yourself?
To answer those questions, today we’re joined by one of our Financial Advisors here at SHP, Joe Anderson. Joe has coached countless clients through tough financial challenges and helped them solve many complicated problems.
In this episode, we dig into why it’s essential to create a tax plan as you head into retirement, the potential burdens of healthcare, and the tools you can use to protect yourself and your money in the years to come.
In this podcast discussion, you’ll learn:
- Why countless retirees end up with no plan to pay their income taxes.
- How Medicare premiums end up doing serious financial damage to retirement plans.
- How long-term care ends up becoming a huge financial liability for so many people.
- Products and tools you can use to shield your assets or cover gaps in the event of a health event.
- Why a financial plan helps you understand the unknown and make sense of the real risks you could be facing in retirement.
- “If you need long-term care and it’s set up right, those benefits should be tax-free for long-term care. If you don’t need the money, it should be tax-free to the next generation.” – Derek Gregoire
- “If you aren’t leveraging the knowns in your financial plan, then you’re missing out on maximizing that plan.” – Joe Anderson
Transcript - Retirement Planning: Why Taxes and Healthcare Costs Can be a Drain to Your Legacy with Joe Anderson
Derek Gregoire: Welcome, everyone, to the Retirement Roadmap Podcast. As always, brought to you by SHP Financial. I’m Derek Gregoire, joined by my partner, Matthew Peck, and one of our advisors, Joe Anderson. One of the things we’re going to get into on today’s show is really everyone knows about the traditional risks when it comes to retirement, right? Everyone thinks, “Well, I’m worried about the market. I’m worried about inflation.” We’re going to talk about some of the unexpected risks that might be blind spots in some of your plans when it comes to retirement planning. And so, with that being said, hopefully, you know myself and Matt. Joe, is this your first time on the podcast? I think it is, right?
Joe Anderson: It is my first time. Yeah.
Derek Gregoire: Welcome on.
Joe Anderson: Thank you very much. Yeah.
Matthew Peck: Yeah. We’re going to be really tough on you, Joe. You know what I’m saying? I hope you’re ready for this.
Joe Anderson: I’m very nervous.
Derek Gregoire: Yeah.
Matthew Peck: Yeah. We’re going to be grilling you, right? Yeah. Okay.
Joe Anderson: Yeah. That’s it. Bring it on. Let’s go.
Derek Gregoire: So, Joe, how long have you been with us now?
Joe Anderson: Coming on seven years. Yeah. Seven years in November. So, only a couple of months away. Yeah.
Derek Gregoire: It’s been a fast seven years.
Joe Anderson: Yeah, I know. Yeah. You’re not kidding. You are not kidding.
Matthew Peck: Yeah. I know I and Derek, we love telling the story about how Joe was with us in that really, really small little office in Woburn.
Derek Gregoire: Oh, yeah.
Matthew Peck: Great clients who Joe was shadowing me and it was literally like imagine two more people around this table. That’s how intimate it was. So, yeah, that was probably like the first meeting that you ever took or at least…
Joe Anderson: Yeah. I was like that little angel on your shoulder sitting there during the meeting.
Derek Gregoire: Just learning.
Joe Anderson: Right on top of you.
Derek Gregoire: Learning nuggets of information from Matt. And so, like I said, today’s topic, I think we want to look at some of a few things, some of the blind spots in folks that come into our office for the first time, right? Obviously, you’ve been a client. You have a lot of these areas covered. But a lot of folks that come to our office for the first time, whether from TV or radio, they referred to us by a friend, family attorney, or CPA, many times in their mind when I think about like, “What are my big risks?” It comes down to, “Oh, well, inflation’s out of control or the market is volatile,” but if you’re just focusing on those two risks, you’re missing a lot of other potential things, right? It’s like, I wish I could think of an analogy quick but it’s like you’re worried about the rainstorm and there’s bee’s nests all around you you’re going to step on but you’re worried about raining on and lightning on you, right? So, that’s what we see but we’re not paying attention to these other landmines around us. And so, one of those that I would say, Joe, and you can kind of elaborate is taxes, right? So, when just an example and you meet a lot of new folks all the time. What type of tax plan, not clients but people that you met for the first time, do they normally have?
Joe Anderson: Most people have no tax plan. It’s something that everyone is concerned with, right? Everyone wants to save as much possible money as they can and taxes pay as little as possible in terms of their tax liability. But I’m sure you guys can vouch for this. I’d say clients when they come in 90% plus of their assets, they have an IOU to the IRS. And the issue with that is a lot of people don’t conceptually think about it but that IOU, the IRS gets to determine what that IOU is every year. So, if you anticipate taxes to go up in the future like they’re set to do in 2026, you’re missing a potential huge opportunity if you’re not at least exploring some potential tax plan.
Derek Gregoire: Yeah. I think we talked about this in the past but we think of like how different worlds of financial planning intertwine. And what I mean by that is we always say the four key areas of planning are income, investments, taxes, health care, and legacy. And a lot of the risks that we’re going to talk about today, I almost fall into those last three because everyone knows income and investments everyone should have. That’s like the foundation of any plan. Do I have enough money to cover my income when I retire for the rest of my life with inflation and so forth and are my investments being managed properly according to my risk and what my goals are? But when it comes to taxes, health care, and estate planning, those are areas that are often kind of pushed aside, right?
Matthew Peck: Well, think of it this way, too. I mean because Joe is mentioning about the income tax side of things, right, where if you have money and 401(k)s and IRAs and 403(b)s and 457s, the list goes on, those are all pretax dollars. So, people have to be very well aware of their income tax liability or their exposure. But then, as you mentioned, Derek, but houses have to blend, well, then you also have capital gains. And so, capital gains affect obviously your stocks but it also affects are you going to sell your home? Are you not going to sell your home? Do you have rental property that you’re going to do a 1031 exchange on or not do a 1031 exchange on? And what’s better, do I pay the capital gains? Or the last sort of the head of the three-headed monster is the estate or death tax. So, here, just in the tax world of those three worlds within that world, right, so you just keep on drilling down, it shows how on the income tax side you have death or estate tax, which is directly in regards to legacy, same as capital gains, and we’re talking about health care in a moment. But whether or not, again, do you downsize, do you sell your home? And then you’re going to have capital gains or tax consequences. But also, what’s the health care? I mean, do you need to sell your home to fund the care or because the house is just too big for you?
Derek Gregoire: Think about the risks. So, Joe, we talk about the risks around taxes. The other huge risk that could derail any financial situation is around health care. But before we go down to like the health, the full like long-term care aspect in that risk, the other risk you have, man, Joe, is around like when you’re on 65, you have Medicare A, Medicare B, and your Medicare Part B premium is based on your income. So, if it’s under a certain threshold, that’s one number but the more you make, the more you pay. So, then now you have your income plan and your health care plan very tied together because what you do from an income standpoint? What you do from a Roth conversion standpoint? If you’re doing tax planning, now I’m getting really crazy, you can affect what you pay for Medicare Part B. So, you see some clients sometimes, they’re like, “Wait, just because I did that or sold this home or capital gains or I made this income, now I’m paying $300 more per month for Medicare and so is my wife or my husband. Like, what the heck is going on here?”
Joe Anderson: Yeah. I see that pitfall all the time. That’s something that I think a lot of individuals, they see these flashy concepts, “Hey, a Roth conversion, hey, tax planning, hey X-Y-Z strategy.” They go out and implement that without the education behind that. And then they hit this pitfall. I think you hit a perfect one being the Medicare premiums. I’ve seen too many people, they came in, they already converted a certain amount of money. They thought they did it with an understanding the tax liability, not understanding that, as you mentioned, Derek, now they have to pay $4,000 more a year in medical premiums per person.
Derek Gregoire: Yeah. And some people still, in fairness, I have some clients that still enter, they still pay a little bit more because the reason being is if they get to 72 and they have all this IRA money, they’re probably going to be in the higher Medicare premium the rest of their life. Where if we do some tax planning for the next few years, maybe you’ll bring them into a lower threshold down the road, because at 72, if all your money’s IRAs, 401(k)s, the government says you have to take out this much, guess what? It’s fully taxable. That’s going to drive you potentially into a much higher tax bracket, higher Medicare. Sometimes it might make sense to take one step back, to take three steps forward.
Matthew Peck: Well, and I think too, sorry to interrupt you, I mean, a lot of people don’t know about that Medicare or they only discover it when they get there, right?
Derek Gregoire: Yeah.
Matthew Peck: And I always joke around with some of my juvenile jokes like, “Oh, you don’t know IRMAA?” and it’s like, “Who’s Irma?” I’m like, “Oh, IRMAA. It’s like income respecting,” I’m not even sure what the IRMAA stands for but that is the Medicare Part B penalty. And so, again, just stupid IRMAA joke but I’m like, “Oh, IRMAA. How do you not know IRMAA?”
Derek Gregoire: Matt’s good with IRMAA jokes.
Matthew Peck: Yeah, right. I lay it on thick. But just the idea that they’re not aware of that and it plays a big role. I mean, as you said, Joe. It’s like they could be paying almost like $1,000 per month combined depending on if they’re in that really, really high tax bracket or I should say, income bracket. That’s the other frustrating thing and kind of, Derek, to add the convoluted train, it’s like, alright, so you have the tax brackets, which are these income levels, right? And then you have the IRMAA income levels which are different from the tax bracket. So, when you do these types, as you were saying, Joe, like the Roth conversions and whatnot, what applies for one level is different for the other level so you have to watch both of these things when you’re actually implementing it.
Joe Anderson: Yeah. I mean, you nailed it. With the Medicare, it’s on a gross number. There’s no deductions in all these other things so people can do it improperly. It doesn’t mean that you shouldn’t do it. It just means that you need to do it from an educated standpoint, understand the repercussions.
Derek Gregoire: Well, when you’re working with a financial advisor in a team, you want to make sure that they have experience because like I said, let’s say some woman or man that runs a solo operation that says someone comes to him say, “Hey, I heard on the radio we should do Roth conversions,” and they’re like, “A lot of advisors don’t even go down this road.” And that’s what we try to make ourselves different. But let’s say you go to that advisor and he or she is like, “Yeah, that sounds like a good plan. Let’s do Roth conversions.” And what does that even mean? Right? So, it’s not just doing Roth conversions. There’s a whole strategy around what levels do we go to and why. If you’re below 65, we have a lot more wiggle room that we can convert more, maybe pay more taxes but not have to worry about the Medicare Part B premiums because you’re not on Medicare. So, there’s so much that goes involved and the whole idea is what we’re talking about today is the unexpected risks to your retirement and legacy. One of the main risks is taxes.
If right now, like Joe said, you’re signed up, you have this plan, you own part, Uncle Sam owns part. The problem is Uncle Sam tells you how much of that he’s going to own down the road, right? So, it’s like we might own 30% now but, in the future, we’ll make that 40. I think we need a little more money to pay for X, Y, or Z. So, that’s a huge risk because if you’re paying that much more in taxes down the road in retirement, you still need the same amount to live on. So, what that means is you have to take out that much more out of your portfolio to keep the same amount as you’re getting now. So, in essence, you’re literally losing money every year if taxes go up. So, again, if you want to put this in the frame of the market, if taxes go up and you have IRAs, you’re losing money every year in the market regardless of what the market does.
Joe Anderson: To that point too, Derek, I think one other thing with just the tax liability of your money, God forbid, you lose your spouse early.
Matthew Peck: Yeah.
Derek Gregoire: The widow’s tax.
Joe Anderson: That’s it. Your income needs won’t drop in half but your tax liability will.
Derek Gregoire: It’s a great point.
Joe Anderson: To exactly what Derek said, even if taxes stayed identical to today, they’ll still have to pull out more to meet that same net income. And that becomes a huge issue, all of your money’s in pretax form.
Derek Gregoire: Yeah. You might hit 22. You might cap, I think the cap at 24% if married is like 170, 165 plus you get a standard deduction. If you’re single, it’s like 90, right?
Joe Anderson: Yeah. They’re basically all halves. So, 24% breakpoint is 340. It’s only 170. And then as you mentioned.
Derek Gregoire: I’m sorry. Yeah. 24 is 170 to 340. But if it’s half of that and you still like you…
Joe Anderson: Tipping point is 170 and then it goes up 8%. So, it goes from over 170 as a single filer. Now, you’re going up to 32%.
Derek Gregoire: That’s a big jump.
Joe Anderson: Yeah. Just with a simple change in, God forbid, losing your spouse.
Matthew Peck: Yeah. Joe, you have a great point. I mean, yes, your income might change because I think it’s certainly a scenario that is morbid but necessary to run. It’s necessary to run with each individual client in the sense of, okay, what if? What if you pass away versus the husband or the wife or whomever passes away because people be like, “Oh, my expenses will go down,” but they won’t go down by half. I mean, they might come down a little bit because maybe you’re not going out to dinner as much or maybe.
Derek Gregoire: You have one car.
Matthew Peck: Yeah. Right. I mean, there’s definitely some expenses that will come down for sure but it’s not 50% and your taxes will basically go up or at least the tax bracket is putting you in that slot.
Derek Gregoire: So, that’s for you, your family, your kids. The risk of taxes is one of those areas like it’s an unexpected risk because some people just say, “Oh, I’m going to owe what I owe,” and that’s that. But that’s something if you can control a little bit of that today and get ahead of some things down the road, I think you’re going to be in a much better position in 5, 10, 15 years down the road. And I think the window of opportunity to do it is closing because the current tax code is set to expire in 2026, if not sooner, if Congress wants to act sooner. So, that’s an unexpected risk. What’s another unexpected risk, Joe, when it comes to retirement planning?
Joe Anderson: Ultimately, the other one we see, unfortunately, so often is going to be long-term care. Nursing home care. Just too many individuals. People are living longer and longer. Miracles of modern medicine, obviously but they’re not necessarily passing away. Not only, obviously, is that a tax to the Social Security system, which is why tax planning is so important. But exploring your options, whether that’s preventative, things you can do well before, God forbid, that event happens or your emergency-type options. What can I do? That event’s happening tomorrow. Is there anything I can do now?
Derek Gregoire: Yes. As people get sick, they need to go to either home care and nursing home care. That’s a huge risk. Again, grim topic. No one likes to think about it but it’s a big risk because it can change the whole outcome for a family, for a legacy, for a spouse. That’s not only the pain of that but also the financial hardship. So, obviously, there’s a few ways you can do it. One is you can self-insure. If you have enough money and that’s different for everyone, you can self-insure and cover it all yourself. What are some of the other traditional, some of the other options that you can use to cover that?
Joe Anderson: I mean, what you’ll see most often or at least what people consider most often is going to be traditional long-term care insurance. Just, hey, I pay a monthly or an annual premium and they provide me a monthly benefit to pay the long-term care facility. Unfortunately, with those pieces, not only are they expensive and it’s something you don’t want to utilize, it’s like homeowner’s insurance or car insurance where you pay a premium for something you hope you don’t need and you pass away without needing it. Thank you very much. Insurance company says thanks for the premiums. So, obviously, that’s not an enjoyable aspect to it but for me, the bigger concern actually ends up being the increase in premiums that we’re seeing.
Derek Gregoire: They can just change your premiums and like, “Oh, we’re going to be just like the government.”
Joe Anderson: Yeah, exactly. The premiums are not set. I’ve seen up to an 80% increase in one year in client’s premium that came in for a review in terms of, hey, they were working with a previous advisor who sold on this policy. Now, they can’t afford it any longer.
Derek Gregoire: It’s crazy.
Joe Anderson: It’s a huge issue for individuals, especially when they’re in their retirement years on a fixed income. If you’re 80 years old when you might need it, now, you can’t afford it.
Matthew Peck: Yeah. Now you paid into it for 10, 15 years. I mean, Derek, not to date us too, too much but I’m not sure if you remember way, way back when we started working at Bankers Life. They talked about how long-term care, like everyone they projected long-term care insurance that everyone’s going to kind of flock to it and everyone’s going to end up buying it. We’re going to have this big pool, and they dramatically underestimated how to price it. And so, we’re seeing, as I said, remember, just all that sort of hype back in the early 2000s and then how it just was so mispriced and now you’re seeing these at 80%.
Derek Gregoire: Every company.
Matthew Peck: Yeah.
Derek Gregoire: Every company they’ll say, “You can keep the same premium but you’re going to have way less benefits.”
Matthew Peck: They cut your benefits. Right.
Derek Gregoire: When you need them the most.
Matthew Peck: And if you paid in for how many years.
Joe Anderson: And to your guys’ point because of that, too, a lot of companies have left or are leaving the space. Your options even at this point are so limited, there’s only a handful of companies you can even explore. So, the use-it-or-lose-it nature of that along with the risk of increasing premiums really a reason I’m not super fond of traditional long-term care but it is one that you’re going to hear quite often.
Derek Gregoire: Well, depending on asset level too in the family dynamic, the other one we see sometimes is irrevocable trusts or someone says, “Oh, I’ll just throw in a trust and I’ll be good to go.” So, what are the pros and cons there?
Joe Anderson: So, one thing I think people don’t upfront consider when it comes to irrevocable trust planning is you can’t put all of your money in there. People just assume, “Hey, I got this trust. I can just put everything in there.” You can’t put retirement funds.
Derek Gregoire: But you can. It’s just going to be very expensive.
Joe Anderson: Well, as they’re excited, yeah, actually technically you can. The only way you can do it though, as Derek mentioned, is you have to pull out the money, pay the tax liability only.
Derek Gregoire: All at one go.
Joe Anderson: All at one sum, whatever you distribute, and then simultaneously moving forward, you have to pay capital gains or interest taxes on those dollars as they accumulate based on whatever those rates are down the road, which could obviously change, too. So, you’re just limited in the dollars that you can position in there obviously.
Derek Gregoire: There’s a five-year lookback period. It’s been that way for, I think it was three years when we started, Matt. There’s talk it’s going to go longer. The only other thing too is you’re literally trying to qualify for Medicaid or MassHealth in Massachusetts. And again, not a lot of our clients will fit into that position because you have to go through a lot of assets to get to that point where it is a five-year lookback period. And you have to have like if you want to qualify for Medicaid, I’m guessing, I don’t know that to be true, but you might not get the same care as if you’re paying out of pocket or maybe you want to stay at home. So, maybe I guess let’s say you have a really close family and you have an elderly parent or parents and they trust their children explicitly because children can make decisions.
Matthew Peck: And as Joe is saying primarily, all of your assets are in non-qualified or after-tax dollars.
Derek Gregoire: Maybe you have a $700,000 house and 100,000 in the bank.
Matthew Peck: Yes.
Derek Gregoire: Maybe that’s worth looking into. You know, again, there’s risks of like I remember when I first started out, this client, this is like 2004 and I remember meeting with them and they wanted to sell their house or something like that or they want to do something with that house. I don’t remember the exact details. It was in Plymouth and they had put their house into an irrevocable trust and one of their children had racked up like 70,000 or 100,000 child support back payments. And so, when they wanted to sell or whatever they were doing, that had to be paid off first. So, there are some risks in that. We’re just going through the options of what people think out there. Irrevocable trust is an option, if done correctly, can protect the home but there’s a lot of areas you want to explore before you even think about that.
Joe Anderson: Yeah. Just quickly on that as well, with the irrevocable trust, we touched upon estate and legacy planning. It can add additional benefits on that front for estate taxes because you’re separating the asset from your estate but as Derek mentioned, it’s not totally a silver bullet for everybody. Really, where I see it used most is actually vacation homes for people. They probably want that to go to children. Assets helps them look for on paper, pass that asset on to the next generation. And they typically won’t need the trustee while they’re alive if they don’t want to sell it.
Derek Gregoire: That’s a good point.
Joe Anderson: But not a silver bullet.
Derek Gregoire: If you have a taxable estate, that does help get those assets out of the estate through tax planning.
Matthew Peck: And what I was going to say too, I mean, it’s almost certainly by design that there is no silver bullet because there’s plenty that would argue to say, “Look, hey, if you have the assets, you should pay for the care or you should pay for the insurance. So, we should make it difficult because if we don’t, then it just goes on to John Q taxpayer or the rest of us to cover that.” So, at times, it’s extremely harsh and very difficult to navigate. Other times they’re like, “All right, well, I guess I don’t mind that. To a certain extent as a taxpayer, I don’t mind that because, hey again, you got to pump up something here. You see what I mean?
Derek Gregoire: Another one, Joe, we’ve talked about is the different types of annuities. And we’re not saying go out and buy an annuity tomorrow. Just more of we’re looking at the options to help, what are there to cover. How would a potential annuity cover or help cover long-term care?
Joe Anderson: Yeah. So, when it comes to the annuity space, there’s really two types of coverage for long-term care, nursing home protections. One’s more preventative kind of earlier on, something where you purchase an annuity potentially to provide you lifetime guaranteed income but a lot of these options typically will offer you the ability to add what’s called a long-term care rider to that, where it will increase your benefit, maybe double that payment for you for a period of time to help you cover for care. Not a silver bullet, obviously, again, as we then said.
Derek Gregoire: I wouldn’t call that long-term care insurance. It’s more like…
Joe Anderson: Right.
Derek Gregoire: Another help.
Joe Anderson: It’s a back-pocket benefit you don’t pay for. You don’t have to qualify health-wise either, which is a benefit. Meaning if you couldn’t qualify for a life insurance or a long-term care policy itself, no underwriting is involved but it’s not the reason to purchase an annuity, in my opinion. It can just be an added benefit to them. You also see too what are called Medicaid annuities. As Derek said, kind of similar to an irrevocable trust, helps you look poor on paper so that the government steps in and help pays for your care but on top of that, might not necessarily be the care that you want. But it’s more for a spouse, help shield the assets for the spouse who may not be in that home because they can keep a certain amount of money around 137,000 plus their income wouldn’t be subject to the home. So, a way to shield that.
Derek Gregoire: Well, if someone wants to buy, I guess, when it comes to the annuity rule, again, we’re not saying by any means that’s the ultimate rule but if you’re going to purchase something that provides lifetime income, maybe it’s good to get something that also would double that income if you need long-term care, home health care, just to give an added benefit.
Matthew Peck: Right. And it’s just the idea of letting sort of listeners or viewers or whatever know that those are options and just sort of ask those questions like, “Okay. Do those benefits exist on this one recommendation that you’re making, you know, Mr. Advisor?” like being aware that they can be in your back pocket. You don’t pay for them. It’s just part of the package or do you want a slant towards a company that if we’re looking at a company A, B, and C, which one has the better long-term care if that’s sort of like part of your concern? Don’t need to jump back to the Medicaid annuities and even with the irrevocable trust just the compliance I had on but the idea of like just make sure you obviously work with an attorney on that too. I mean, only because specifically the Medicaid annuity, I mean, those are very, very rigid in order to qualify for. And so, obviously, we work with attorneys in our network. But, I mean, they work. Let me talk about implementing properly. I mean, those would have to be.
Derek Gregoire: Great point, guys. Anything we’re saying, though, is not like, hey, we support this one.
Matthew Peck: Right.
Derek Gregoire: These are all just the options. These are different ways to help shield the assets or cover some of the gap if you needed a health care situation.
Matthew Peck: Big time.
Joe Anderson: Yeah. Medicaid annuity as well is just never going to be. It’s an emergency. It’s the only reason you’d select that.
Matthew Peck: Yeah. Big time.
Derek Gregoire: I say in the last ten years, the final one we’re going to talk about, Joe, if I had to predict like what most people like even our clients in general, like, we’re fiduciaries, we handle anything and everything, whether it’s from the insurance or the financial. We use Fidelity as our custodian for our portion of assets that we manage in the market. But when it comes to this fourth option you’re going to mention, it’s probably I would say the most popular among people we’ve seen over the last ten years maybe.
Matthew Peck: Yeah, I’d say…
Derek Gregoire: Because it was used to be long-term care, that’s when we started like my parents still have a traditional long-term care policy with John Hancock. And my dad reminds me when the bill comes every year, “They got that bill in again.”
Matthew Peck: Wait. Is he one that went up 80% that Joe had talked about earlier?
Derek Gregoire: I don’t know if it was 80 but I’m sure it went up a little bit. And since there’s some newer kind of vehicles, I’d say those more in the last ten years or so and most clients, when they come to us, a lot of them have these already in place.
Matthew Peck: Yes.
Joe Anderson: Yeah, right. I mean, this fourth option is really just to help walk back the two biggest drawbacks of that traditional long-term care that I started the conversation with, being the use it or lose it nature of it. We call them a hybrid-type policy but really, it’s a blend of life insurance and long-term care. That life insurance death benefit provides a benefit to your heirs if you don’t utilize that coverage. So, obviously, you didn’t see that benefit but you didn’t pay tens if not hundreds of thousands of dollars in premium for no possible benefit.
Derek Gregoire: So, if you never use it, there’s a death benefit tax-free going to somewhere or someone.
Joe Anderson: Correct. It’s a bucket that death benefit is a tax-free bucket they can utilize to access if they need it. But if not, then it’s a tax-free death benefit to their beneficiary. So, it’s a nice coverage.
Derek Gregoire: And there’s also a pool of long-term care benefits that should they need home health care, assisted living, nursing home, they can draw from that, too.
Joe Anderson: Right. They have to qualify health-wise. You can’t do two of six activities of daily living. That’s typical across all long-term care. But, yes, it allows you to offset that concern of, hey, I passed away at 95 peacefully in my bed. You didn’t leave nothing behind in terms of or see any benefit. The other is obviously just that concern of increasing premiums down the road. So, with a life insurance policy because it is life insurance, technically that premium is set. It’s locked in. But for me, something I like to talk retirees through is structuring this in a way that makes sense to them. Not a lot of people understand that you can structure the payment of those premiums in a timeframe that makes sense to you. I typically write maybe a five or ten pay, somewhere in that range.
Derek Gregoire: Sometimes do it once.
Joe Anderson: That’s it.
Derek Gregoire: It’s all different.
Joe Anderson: You can do it all at once. Even if it makes sense to you, you have the ability to, you could do it over a small timeframe, 5 to 10 years max.
Derek Gregoire: What an amazing topic, long-term care and life insurance. So, this is great. It’s important stuff, though, and totally joking around. It helps…
Matthew Peck: I’m sorry, Derek. Just to add in, I love how you can dial these guys. Not only can you change how whether it’s a single premium over five years, ten years, not only can you tailor the premium aspect of it but I enjoy the fact that you can also dial up and dial down the coverage. You can have ones that have equal long-term care and life insurance benefits, or you can have one that has more long-term care and less life insurance benefit if that’s what the main reason is or that’s what the main goal is. But I just love how customizable I mean, obviously, as you’re saying, you still have to qualify health-wise. But I do really like how – I like how the industry is involved because as I said back in our day but back in our days you had traditional long-term care and that was it.
Derek Gregoire: Joe summed it up perfectly. Like, when we started, it was like, “Yeah. This is the option but if you never need it, all the money is gone and the premiums might go up.” We had to tell people 20 years ago in with this, it’s like, “Hey, we know what we’re putting in, we know what we’re getting. If you don’t need it, the money’s going to someone but if you need it, you have a nice pool of long-term care money that you can utilize for yourself.” That’s almost in a way, it’s kind of like self-insuring. You’re putting in less dollars. Let’s say you’re putting in 100,000 over ten years. I’m making numbers, 100,000 over ten years but maybe you’re getting 400,000 or 500,000 of long-term care benefits that go up with inflation, and then maybe it’s $150,000, $200,000 death benefit. So, it’s like we talked earlier about the world, right? We talked about income, investments, taxes, health care, and legacy. Well, that type of plan that you just mentioned almost has some tax planning because if you need long-term care and it’s set up right, those benefits should be tax-free for long-term care. If you don’t need the money, it should be tax-free to the next generation.
It’s a health care benefit because long-term care is the main reason you’re doing that if someone’s going to purchase one of those. And then finally legacy, if you don’t need the money, you’re leaving a tax-free death benefit to someone. Now, just to make sure when we built it for clients that want these plans or want to look into this, we always build the foundation first, right? We want to make sure you have enough income, you have a cash flow plan, you have an investment plan. And I’ve always told people, like once we get those two buckets in place, then we want to look at these other areas of risk. And as much as we can take care of risk, we’re going to take care of as many things as we possibly can. Right? When you’re taking off in a plane, you’re looking at all the checklists of what could go wrong and you try to alleviate as many things. Is my fuel this? Is my wing? Is everything in place? Just like retirement planning. But eventually, I always tell clients, “If you can’t afford,” let’s say you’re just getting by, and maybe I’m wrong for saying this but I would not want someone to buy something like this and not be able to travel.
Eventually, maybe you’re going to get struck by lightning, and do you take the risk of walking outside during a rainstorm? But to me, if you can cover all your bases and it doesn’t affect you, that’s awesome. But make sure you have like we talked about earlier when it comes to doing Roth conversions, don’t just do this because you think you need long-term care. Make sure you have a plan that, hey, based on our cash flow, based on our investments, based on everything we have, we can afford this and be completely fine and it’s a concern, then do it, right? Don’t just do this without having a full context of someone’s plan.
Matthew Peck: Yeah. And just to add into that, I mean, based on your health, based on your longevity, what about your parents? How long do they live? Do they suffer from Alzheimer’s or any other type of cognitive impairment? I mean, you absolutely have to take a look in the big picture.
Joe Anderson: Yeah. You mentioned it too, Derek, but just considering as well, if the tax planning aspect to it where if you’re an individual like we mentioned earlier that has most of your money in pretax form, you have this required minimum distribution at 72 or 73 you have to take. If you’re a person that doesn’t need all of that money as this distribution, you already have all this pretax money. Maybe start that distribution sooner before taxes go up. Use that small distribution as a part of your overall tax planning. Use that to pay the premium. It’s out of one pocket into the other, provides you new benefit and helps you limit taxes. It’s kind of a win-win.
Matthew Peck: No, it’s a great point, too. I know we’re wrapping up but, I mean, just think about that. Right? Let’s just say you have a client that has 99% of their assets are all in IRA dollars. Then they get sick and then they have to withdraw all of that money at that time, I mean, you’re going to get just killed on taxes and on the cost of health care. So, I like that idea that Joe just floated.
Derek Gregoire: This is great, Joe, because I think our whole thing is we’re always trying to mitigate risk across from the markets, from taxes, from inflation, from long term. And so, when it comes to the traditional topic is, “Hey, I’m worried about the markets and inflation,” but there’s a lot of I don’t want to say like hidden risk but things that aren’t top of mind that should be and have to be addressed. And the two of them we talked about today are taxes, health care/long-term care are so important but, again, it all comes down to having that true financial plan. So, in closing, Joe, it was great. Anything else you want to – any final like closing words or anything on this topic?
Joe Anderson: For me, I just think our five-step planning process, obviously, people focus on the fun stuff, right? Income and investments, spending their money and how are we going to invest it. But taxes, health care, and legacy, obviously, areas we touched upon today, those are based on unknowns. Those are based on the law. That’s changes Congress needs to enact. We all know they don’t move very quickly. If you aren’t leveraging the knowns in your financial plan, then you’re missing out on maximizing that plan.
Derek Gregoire: Well said, Joe. Thanks again for joining us. I’m sure we’ll be seeing you soon here on the Retirement Roadmap Podcast by SHP Financial. Thanks, Matt.
Joe Anderson: Thank you, guys.
No statements made during the Retirement Road Map® podcast shall constitute tax, legal, or accounting advice. You should consult your own legal or tax professional on any such matters. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk, and unless otherwise stated are not guaranteed. Our Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. Our advisors and insurance reps may offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.
Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC.. In addition, other supervised persons of SHP Wealth Management, LLC. are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC. and SHP Financial, LLC. will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.