Transcript Long-Term Care Issues - College for Financial Planning

CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Financial Plan Development Course
Session 6
Long-Term Care
©2015, College for Financial Planning, all rights reserved.
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6-2
Long-Term Care Statistics
• 40% will require long-term stay at least once in lifetime
• 60% will not ever stay in a facility
• If you wait until you can tell if
•
you need it, you won’t be able
to buy it (adverse selection)!
One out of every four 65-year-olds
fail the physical and are rejected
for long-term care coverage
6-3
Long-Term Care Discussion Issues
• The hardest part about long-term care is getting
clients to recognize and address the issue.
• You need to develop questions
that get the client to think
through long-term care issues
and consequences.
• Frequently, it must be addressed
several years in a row before
clients will finally take action.
6-4
Known Issues: Dudellas
• “Long-term care is a concern, but you feel that,
•
financially, you cannot address it at this time.
You are open to discussions about this and
would like to understand how it would fit into
your long-term financial plan.”
Currently, Dudellas have no
coverage.
6-5
Long-Term Care Options
Personal Funding
Insurance
Other
Investments
Long-Term Care
Insurance
Family Support
Income
Accelerated Death
Benefits
Veterans Benefits
Annuity
Viatical Settlement
Medicare
Reverse Mortgage
Annuitization
Medicaid
Remainder Trusts
Life Insurance
Rider
Live with Family
Medicaid Disability Trusts Annuity rider
6-6
Long-Term Care Basics
Not your old LTC coverage
•
Policies have changed and continue to
change. Companies are dropping out and
few are entering. Premium increases vary
widely and can be as high as 50%.
•
Hybrid plans are becoming popular with LTC
riders on cash value life.
•
Covers range of services from home health
care, care at adult day care center, in-home
care, assisted living care, skilled nursing
care, hospice care, home modifications, and
respite care.
•
Geographical costs vary widely and are
projected to rise 5%–6% per year.
•
As Baby Boomers age, new options are
created: wrinkle ranches, communes?
6-7
Guidelines for Clients
Net worth
under
$250,000*
Net worth of
$250,000 to
$1,500,000*
• Self-fund or
• Partnership plan
to protect certain
amount of assets
• Purchase
protection
• Use long
elimination
period
• Calculate need to
protect client
(and spouse
remaining in
home)
Net worth over
$1,500,000*
• Consider selfinsuring
• Calculate need
based on lifestyle
requirements
• Plan to preserve
$1,000,000 asset
base
* exclusive of home value
6-8
Long-Term Care Issues
• What impact would long-term care expenses have on
•
•
either family?
What are advantages and disadvantages of waiting to
address the issue?
How can you help clients prepare to address the issue
in the future?
6-9
Calculation Process
Estimate projected combined expenses of maintaining home/spouse & long-term
care expenses.
• Clients need $75,000 to maintain house with both in residence; remaining spouse would
need $70,000. LTC costs $70,000 so income need is $140,000.
Subtract projected annualized income stream (not including investments).
• Need $140,000 but have pension, Social Security, and 4% of investments = $100,000
Calculate gap (if no gap, not needed).
• Gap is not full cost of LTC but $40,000 per year.
Calculate PV of gap to identify how much coverage.
Software Process: Use software and just increase retirement need or
incorporate a goal during retirement of paying LTC costs so software solves the
gap. Use that to determine amount of coverage needed.
6-10
MoneyGuidePro Assumptions
“I’ll NEVER go to a nursing
home!”
Examine the cost of staying
in own home when client
can’t keep track of
medicine (or when to take
it), or cook, or wash their
hair without help, or worry
about falling, or need
sheets changed.
6-11
Summary of Issues & Recommendations
1. You are currently both in good health with
no indications that long-term care is
needed. We recommend that we postpone
addressing that issue until age 56.
2. You will have paid off all of your debt,
college, and Autumn’s car, and be
contributing the maximum to your qualified
plans at that time and have the premiums
to cover this issue.
3. If any health issue or concerns arise before
then, please let us know immediately.
4. No impact statement will be reviewed for
this recommendation.
6-12
Advantages/Disadvantages
Discuss waiting to implement long-term care
insurance until age 56!
6-13
Long-Term Care Strategies
Partnership plans
Straight benefit plans
Life insurance with riders
Annuities with riders
Self-funding
Plan with family for
care/compensation and
inheritances
• Roth IRAs funded for self
funding
•
•
•
•
•
•
• ?
6-14
Exploring …
Human biases and reasons
behind the executive
summary design.
6-15
Biases That Make Covering Risks Difficult
Normalcy
Bias
• General
refusal to
plan for
disaster
that hasn’t
occurred
before to
the
individual.
Optimism
Bias
Ostrich
Effect
Neglect of
Probability
• Overly
optimistic
about the
outcome of
a planned
action –
“I’m laid off
but I’ll find
a job within
30 days.”
• Ignoring an
obviously
negative
situation
• Tendency to
believe
statistics
don’t apply
to us.
People
disregard
probability
when
making
decisions.
6-16
Biases That Make Covering Risks Difficult
continued
Hyperbolic
Discounting
Illusion of Control
Status Quo Bias
• Stronger
preference for
immediate payoffs
or consequences.
Numbers or
problems too far
in the future are
easy to ignore.
• Believe outcomes
can be controlled
or influenced
when they clearly
cannot. “I take
care of myself so I
won’t become
disabled or end up
needing long-term
care assistance 15
years from now.”
• We like things to
stay the same and
won’t change
without a
compelling reason.
6-17
Biases That Help Address Risk
Ownership Bias
• Anything in
which we have
even a small
feeling of
ownership
becomes more
valuable.
Mere Exposure
Effect
• We like
something
because it is
familiar to us.
Gain vs. Loss
• People hate to
lose something
more than they
like gaining
something.
Conjunction
Fallacy
• Tendency to
believe that
specific
conditions are
more probable
than general
ones (details
make
something
more real).
6-18
Biases That Help Address Risk
continued
Confirmation Bias
• We look for and
remember information
that confirms our view
(related is the fact that
if people argue for a
view opposite to theirs
they become more
moderate).
Negativity Bias
• More attention is paid
to negative
experiences or
information than
positive. Threats are
perceived more
strongly than
opportunities or areas
of safety.
Authority Bias
• People value
something if a
recognized
independent authority
approves of it.
Authority can have no
connection to the
company proposing
the concept.
6-19
So what …
1. Understand biases exist; your clients AND YOU have
2.
3.
them.
Build your process with these in mind. Your summary
letter of goals and concerns primes your client to
address risks. The conversations have occurred prior to
you writing recommendations (frequency and
ownership).
Clearly identify risks and personalized loss
consequences of risks in your statement of issue in
your executive summary.
6-20
Using the Biases With Clients
Normalcy
Bias
Optimism
Bias
Ostrich
Effect
Neglect of
Probability
• Address headon; use
“herding” to
make addressing
issues normal!
• Address headon; use
“herding” to
make addressing
issues smart!
Get clients to
verbalize
consequences
and create
contingency
plans.
• Have clients
discuss what
personal
consequences
and budget they
would have if
situation occurs
and how they
would address it.
• Get clients to tell
you statistics and
what they think
others should do
before discussing
their personal
situation first.
6-21
Using the Biases With Clients
continued
Hyperbolic
Discounting
• Don’t use future
numbers. Discuss
as if it were
tonight, not 20
years from now.
Illusion of Control
Status Quo Bias
• Challenge
statements of
control and use
items such as hail
storms, tornadoes,
floods, car
accidents, etc.
• Get the client to
own the
compelling reason
to change and
then make it easy
to implement.
6-22
Using the Biases With Clients
Ownership Bias
• Get clients to own
problems and
potential solutions
before you make a
recommendation.
Include their
solutions in your
recommendations:
“You were right,
you need more life
insurance.” “Your
thought about
funding a Roth IRA
is right on target.”
Mere Exposure
Effect
• Make sure clients
have heard issue
and potential
solutions at least
three times before
you make a
recommendation.
Gain vs. Loss
• Frame issues in
terms of loss vs.
gain. For example,
“You’ll be cutting
30% of your
current budget at
retirement vs.
living on 70% of
your income.”
Conjunction
Fallacy
• Lay out the
advantages and
disadvantages of
two options fairly
similar to make it
easier for clients to
choose.
6-23
Using the Biases With Clients
continued
Confirmation Bias
• Get clients to repeat
the statistics/
arguments that
address an issue to
create ownership and
hook their own
confirmation bias
because they relate
the facts and reasons.
Negativity Bias
• Since threats are
perceived more
strongly, make sure
client works through
the consequences vs.
you telling them
generalities.
Authority Bias
• Use third-party
articles, Money
Magazine, The Wall
Street Journal, etc. –
not company
literature.
6-24
Next Class
Prior to next class
Health
Insurance,
more on
behavioral
economics, and
your executive
summary
Will cover issues to
assist you with CFP
exam and real client
situations.
Read Health
Insurance
Catch up if your plan
development boxes
are not completed
through #12.
6-25
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Financial Plan Development Course
Session 6
End of Slides
©2015, College for Financial Planning, all rights reserved.