The Million-Dollar Aging Crisis: Retirement Income and Long-Term Care Planning with Tom Hegna — Full Episode Transcript

Welcome back to Care Compass. I am so excited today to have Tom Hegna on the show. Tom Hegna is a nationally recognized retirement income expert, economist, author, and speaker focused on helping Americans create financially secure retirements. He's a former senior executive officer at New York Life. He has spent decades educating financial professionals and consumers on longevity planning, lifetime income, and the realities of aging in retirement.

He's the author of several bestselling books, including Paychecks and Playchecks, Don't Worry, Retire Happy, and Retirement Income Masters. Tom has appeared on PBS specials viewed by millions and is widely known for simplifying complex retirement and long-term care conversations into practical, actionable guidance. Thank you so much for coming on the show.

Yeah, thank you, Lindsay. Good to be with you today.

So I want to start with going back to the fact that you have been doing this for decades. And I see a lot of families that are really hitting points of crisis between their long-term care and their aging. And all of these family caregivers are getting hit with these experiences they never anticipated. And I'm seeing that this is almost becoming an epidemic.

What I'm really wondering is — this has not always been the way it is. What do you think has changed that has put us in the situation we are today?

I mean, everything's changed. People are living longer. That's the number one thing. People used to die when they hit 60 or 65. If you're 70, that was really old, and now 70 is fairly young. So people are living longer.

And in the past, families lived all together in the same place. So if somebody needed care, they just kind of cared for them. And now you've got kids all over the country and they can't stop their jobs to come and take care of their parents. I think those are the major things that have changed. And then also how expensive it's got. Care has gotten to be very, very, very expensive.

And that is such a big piece of it. So when you were planning with families, say 30 years ago, did we even talk about long-term care? When did this really become such a big topic of what we have to focus on as we age?

Yeah. Thirty years ago, people were still mainly concerned with accumulating wealth. There wasn't as much talk about retirement income. There wasn't much talk about long-term care insurance. I think it's really been in the last 20, 25 years that it's come to the forefront.

Genworth kind of led the industry for a long time. They mispriced their product. I still remember at New York Life over 20 years ago, our CEO, Sy Sternberg, getting up on the main platform saying they underpriced their policy, we can't match those prices because they're crazy, there's going to be a big problem in the future. And what happened was all the companies kind of had to lower their premiums a little bit to try to compete. So all the companies mispriced those long-term care insurance policies back then. And that's what's caused the problem of long-term care insurance premiums going up. It really hurt the whole industry.

That is super interesting, because I have a lot of conversations about what long-term care insurance looks like. Those policies you were talking about are the yesteryear policies that really covered everything. Those were great — that's what my grandma had, it was amazing. But the long-term care insurance after that sort of got a bad rap. What did that look like, and how is that changing today?

Well, it did get a bad rap, because insurance is known for guarantees and stability. And then all of a sudden they had to come back and raise premiums significantly on seniors that already have these policies. It gave the entire industry a bad name.

But that's why I think for most people, the life insurance or annuity option might make more sense. If they buy an asset-backed long-term care policy, like a life insurance policy with a long-term care rider, those premiums will never go up. They're just buying a bucket of money, so the insurance company knows exactly how much that is, and it solves three problems. Number one, it's liquid — if they need money, they can get money out of that policy. Most of these policies have money-back guarantees in them, so if they have an emergency they can get money out of it. If they need the long-term care, there's a big long-term care bucket. And if they don't need the long-term care, there's a tax-free death benefit that goes to their family. So it's not use-it-or-lose-it like the old type of long-term care insurance.

And then if people can't qualify medically for either traditional long-term care or the life insurance with long-term care, there are now annuities that offer long-term care benefits. There's even one that offers a guaranteed-issue benefit — somebody could even be in the nursing home and at least they get a little bit of extra coverage with that one. But many of the annuities will double, some even triple, the income. So let's say you're getting $2,000 a month from an annuity. If you need long-term care, that could go to $4,000 with some companies, and with some companies even $6,000 a month.

So why do people spend so much time talking about long-term care insurance options when there are things that, at least on the surface from what we've talked about, seem like such a better option?

Yeah. The problem is not only did consumers get burned, the agents got burned, because people got mad at the agent who sold the policy. And so then agents just stopped talking about long-term care insurance. I just had a webinar this last week and the gentleman was talking about long-term care and he said 84% of agents don't even bring it up.

Well, that's a problem, because people need it. And now you're seeing all these baby boomers — I'm a baby boomer. My parents went through long-term care, and her parents went through the long-term care situation. I made my parents buy long-term care insurance 18 years ago. They didn't want to. It's too expensive, we'll never need it, it's an insurance company ripoff — my dad said all those words to me. I made them buy it. They were both in assisted living, $10,000 a month. Now, these were teachers from small towns in Minnesota. There were years they didn't make $10,000 a year. $10,000 a month. I can't even imagine what the retirement would have been without those policies.

Now, I also told my wife's parents they should get it. I couldn't make them do it — they weren't my parents. And they said no, no, we won't do it. And they didn't buy any guaranteed lifetime income either. They were CD people. Well, guess what? They both lived to 95, and they died penniless. And her mother died in a Medicaid facility, which I would wish on nobody. So that's the difference between two families. One family that was protected and one family that chose not to protect. And there were seven kids in that family — they didn't get a penny of inheritance.

Yeah, and this is happening more and more frequently. So if somebody says, I don't have the money for a premium — whatever that fear is — how do annuities work that are different? Or how does life insurance work? What does that take from your monthly income today versus what it's going to give you in the future?

Well, both with annuities and life insurance, most of the time it's a single premium for this type of policy. I'm sure there are policies that are flexible premium that you can pay as you go, but most people do a single premium. They put the money in — let's just say $100,000 for example — and if they put that into a life insurance policy, they've got $100,000 of liquid money. If they had to have it in an emergency, they could get it out of there.

And again, these numbers are different for everybody, but I use this as an example. I think it's a 60-year-old female, and this is an example I used a long time ago: $100,000 of cash value would be a $200,000 death benefit tax-free to the family, and would be $300,000 of long-term care benefit. The numbers would be different for every person watching, but that's why you need to work with a financial professional. This is not a do-it-yourself project. You're not going to know which policy to get and you wouldn't even know where to start. I wouldn't, and I know this business. I would call a financial professional and say, show me some options.

So let's say instead of a life insurance policy they put $100,000 into an income annuity. Let's say they were 70, and a 70-year-old right now is going to get somewhere probably around a 9% payout guaranteed. So $9,000 a year, that's a little less than $1,000 a month. But then that would be doubled or tripled depending on which company you chose as a long-term care benefit. So you probably want to put more than $100,000 in there, quite frankly. You might want to put two or three or $400,000 in it to get the income. But then you're getting income for the rest of your life, and if you need long-term care, then the income would double or triple.

What about families — these middle-income families who are really struggling day to day? Are there any options available to them other than being fearful? What could they start to look at that might be more obtainable?

Well, I say any plan is better than no plan. Meet with a financial professional. Look at what the options are. At least do something. Because if you get Social Security, your Social Security will still keep coming in. If you get a pension, your pension will keep coming in. If you have a 401(k), you could turn that into income. So you are going to have some income sources in retirement. You just want to make sure that you've got enough to help cover long-term care.

And in Paychecks and Playchecks, I say it's a million-dollar problem. Now for somebody who's 70 today, it's maybe a three or four or $500,000 problem. But for you, it's going to be a million-dollar problem. And for younger people, it's a million-dollar problem. I got my policies — both my wife and I got unlimited benefit policies back when we were in our 40s. And that's the time to get it. The time to get long-term care insurance is in your 40s. If you wait to 50, it goes up. If you wait to 60, it goes up more. And if you wait till 70, well, good luck. It's going to be pretty expensive.

And that's, I think, one of the most important things people need to hear, because it's before they become a caregiver, before they hit that crisis. Figure out something. Talk to somebody. So say there's somebody who can put a small amount away for an annuity that keeps them comfortable but isn't going to cover their long-term care, and they might have to look at Medicaid — because you said it's going to be a million-dollar problem, and that's a lot of money. Are there ways to protect your annuities and things from Medicaid?

Well, I don't think I know anybody who wants to spend the last years of their life in a Medicaid facility, really. I mean, try to do anything to avoid that. Medicaid is welfare. You have to be broke. You can keep $2,000. You can keep your wedding ring. I think you can keep one car and a certain amount of your house, but not that much. It's very minimal what you get to keep. And they look back five years. So if you really want to go broke early and you want to plan it five years in advance, six years in advance, to move all your money, I guess you could do that. But I certainly wouldn't want to spend my remaining years in a nursing home facility.

And when people say long-term care insurance is too expensive, my answer is: if you think long-term care insurance is expensive, man, you ought to try not having it, because that can wipe out your entire life's work. It is the number one thing that most people forget about that can wipe out their entire life's work. It's a huge, huge risk. You can't go into retirement without a plan for long-term care. No retirement plan is complete without a plan for long-term care.

And that's really my whole thing — you have to plan. You plan as early as you can and you have multiple plans. Because there's no way around it: if you're financially secure, your long-term care is going to be better, it's going to be higher quality, you're going to feel more comfortable.

So for people who are listening, when we talk about long-term care insurance, I've always been under the impression that you get it in your forties or fifties and it gets more expensive after that. I had somebody who reached out to me on LinkedIn and said that he has ways to get people long-term care insurance even in their 80s, or even after they already have a diagnosis. Have you heard of this?

No. You've got to remember, with insurance, insurance companies want to screen the people who they think are going to need it and either have them pay higher premiums or not offer it to them. So if somebody's already got severe problems, I don't know which company that would be. I would certainly want to — you should follow up and find out more about it.

Yeah, because he just reached out to me yesterday. I made a comment about this and the issues around it, and he was like, no, I have a solution for this. And I was like, well, that's very interesting. I have not heard of this.

It could be an annuity. That'd be the only thing I could think of. The bridge annuity from EquiTrust — that is a guaranteed issue. Somebody could be in the nursing home and they still could get some amount of coverage. It's not a lot, but it would be some amount of coverage. They get a little bit of leverage on their dollars. But that would be the only one that I'm aware of. I don't think they could get any type of traditional long-term care or life insurance. So it would almost have to be an annuity or some type of hybrid product that maybe — I don't even know if it exists. I think you've got to be very careful with things like that, so just do your due diligence on that.

But I'll tell you one thing that really bothers me, and that's the financial advisors. They typically say they're fiduciaries. They don't ever do any long-term care planning. They don't do any long-term care insurance. They tell the clients, you have enough money, you can just self-fund. If somebody has a million or two million and they say, you have plenty, you can just do it yourself — they're not doing the right thing for these clients. The clients are going to get hurt and the families are going to get hurt. The reason they're doing that is they get a fee on assets under management. If that money goes to a life insurance policy or to an annuity, then they lose their assets under management, their paycheck goes down. So I just think there are so many advisors out there that are conflicted, these fee advisors who don't do any long-term care planning at all. They just say, you're going to be fine. You're not going to be fine. And your kids aren't going to be happy either about it.

That's horrible. I've always wondered why more financial planners really didn't sit down and talk about long-term care. Actually, my parents' planner didn't talk about it with them either. And my mom has MS, hasn't been able to drive in 10 years. My dad's had two strokes. Out of curiosity, I brought this stuff up to him — what did they do? And he said, well, they just said that your mom probably needs five extra years and we're probably okay. They used some kind of basic formula. And I sat down with him and said, okay, we're going to go in together and have a different conversation. So you think that is the reason that people are not getting this? That's horrible.

So there's two reasons that I see that advisors aren't bringing it up. Number one, the fee advisors who get paid fees on assets under management — they don't want those assets under management leaving them. That's one reason. But the other reason is the life insurance agents, or agents who get paid on commissions, they're not bringing it up either because they've been burned in the past with clients who are mad. The people didn't get approved, and then they take all their business away from them. So they don't even bring it up anymore.

And that's very unfortunate, because this is a key problem. I know a bunch of your listeners are going through it right now — they're caregivers to their parents and they see what's going on. And when you see what's going on, then you better make a plan for yourself, because you don't want to go through that yourself and put your kids through that.

No, and actually this is the first time I've ever heard about the annuity that you could do later. So for anyone listening who is going through it, the fact that there is even an option — it's worth exploring and having the conversation, because whatever you can save and make easier on yourself is worth it. So what are the right questions a family should ask when they sit down with their financial advisor? How do they push back? What are the right questions to ask to make sure they're getting the coverage they need?

I would definitely want long-term care planning as part of a retirement plan. What happens if we need long-term care? Because long-term care really isn't about the person, it's about their family. It's their family that has to deal with it.

And then when people say, oh, my daughter will take care of me — oh, really? You're going to have your daughter give you a bath and take you to the bathroom and get you dressed? No. I want my daughter managing the care, not giving the care. The family should be there to help manage the care, not to actually give the care. You want to have some type of plan, so I would definitely want to know what the advisor's recommendation is on long-term care.

What do you think a family has to plan for today? Let's just say average family, normal situation. They don't have a great advisor, they're not in a position to get something. What would you tell a family — husband, wife — that they need to plan for?

Well, they say that the average long-term care event is about three years. Now, it can be longer than that, but that's about it. My parents had a long-term care policy — I didn't sell it to them, I didn't even like the policy they got, it was with another company and it was only a three-year benefit. But my dad lived just, I think, one month under the three years, and my mom lived one month over the three years. So that worked out about perfectly.

What we were doing was we were saving all of their Social Security and their pension dollars in their bank account. So that was going up while the long-term care insurance was paying for everything, and when they died my sisters and I actually got a little bit of an inheritance. It wasn't big, but it was better than a kick in the butt — and compared to my wife's parents that died penniless, I thought we did it almost perfectly. So I'd say at least three years. You want to have at least three years of coverage, and five years would be even better, but at least three years.

I think that's great advice, because people struggle with how much do I really need. Now we're getting into all these crazy things with inflation and what it's going to look like. So three years today isn't three years 20 years from now, right? What do you predict the cost of care to be per month if we're looking at $10,000 a month on average now?

Well, that's why I said it's a million-dollar problem. You can get online and even ask AI what the cost is going to be in 20 years and get a really good idea. But it's probably going to be over $20,000 a month, $25,000 a month maybe.

And for everybody who says, I don't want any nursing home insurance, I say exactly — this is anti-nursing home insurance. This is stay-at-home insurance. I never have to go to a nursing home ever. I have long-term care with home health care. So I get to stay in my house and the nurse has to come to me. And I think if you ask most people, that's what they want — they want to stay in their house. Okay, well, how are you going to stay in your house if you don't have a plan? See, I have a plan. I get to stay in my house because I've got a plan. And that's why I think it's so important to sit down with a financial professional and make a plan for long-term care.

And that's actually what we do a lot of when we talk about making a plan, because that's what LTCareNav does. We really help you make a plan that makes sense for you. And a lot of the pushback on the planning that I'm sure you've heard is, well, it's not going to happen, I don't want to talk about it now, I'm not going to go to a nursing home. And I tell everyone, plans give you options. Why do you think, other than some of the obvious things, families avoid this like the plague?

Well, I think 30 years ago that was true. I think today a lot of people are figuring this out because their parents are in their 80s and 90s now and they're going through it. And once you go through it, your eyes open up.

Somebody asked me on LinkedIn the other day, I have a client and they won't buy long-term care insurance, they say they won't need it, what should I do? And I said, well, why don't you take them on a tour of a long-term care facility — either a nursing home or assisted living — and then just talk to the family members there. Just ask the family members.

My daughter worked in a long-term care facility here in Flagstaff, and you know what? It impacted her so much that she's coming into the insurance business. I would have said there's no way in a million years she was coming into the insurance business, but she said these people are devastated and the families are getting wiped out. Nobody's talking about it. Nobody's helping these people. All of a sudden they're there, and now it's a huge problem, and they don't have the money, and they get turned away from some of these places because they don't have the money.

So that motivated her. If there's anybody out there who doesn't think they need long-term care insurance or they think this is all a bunch of crap — go to a long-term care facility and go talk to the family members. That's all you've got to do. And I think you'll change your mind pretty darn quick.

No, I think that is really the case. You're going to get there. You might as well get there in the way that gives you as much dignity and control as you can get.

And by the way, some of these assisted living facilities are awesome. It's like going back to college in the dorm. They've got a bar, they've got a movie theater, they've got everything. They have activities, they take them to Walmart, they take them out on boats. There are some assisted living facilities that are really fun. And there are people who, once they get into these, they become alive.

Because see, one of the key problems with older people is loneliness. They're alone in their little place. Other friends have died, their families are long gone, and so they're lonely. They go into an assisted living facility, it's like party central and they love it. So there are a lot of people who thrive in those assisted living facilities.

So I'm going to be a lady in an assisted living facility. My husband and I have done our planning, because when you're in the business, that's what you do, right? And I'm like, you're most likely going to die before me — you've got the age on me, you drink 10 Red Bulls a day. Not that I'm going to kick you off, but I told him, this is what I'm looking at, and I've picked out my assisted living as long as it stays as lovely as it is. And I'm going to be a lady who lunches in assisted living. So it is an option, but we have it in place so that I know I can stay at my assisted living, because I'm going to like it there, I'm assuming.

Yeah, a lot of them are really nice. All these things — oh, a nursing home is terrible. Yeah, maybe a nursing home is bad, but some of these assisted living facilities are awesome, and you can have your own apartment. You can be independent. And then if you need more care, they'll come in and make sure you're taking your medicine or whatever. And as you lose other functions, they can come in and help you get dressed or help you with bathing. And then if you start losing your memory and have Alzheimer's, they can move you to memory care. So there are some really neat assisted living facilities, and that should be a big positive — some people go out and actually can find some really fun places.

And that brings it back to the fact that typically Medicaid isn't taken at these really nice ones. So it becomes a cost question and understanding what that assisted living is going to cost. I know you have so much in place with your home care — you're covered, right? But you have to...

Well, I could go to assisted living too. I'm just saying I could stay in my house if I want to, and I will as long as I can, but I have nothing against going to assisted living. I've seen them. There's some really nice ones.

Yeah, it's like a little country club and you live in a beautiful apartment building. I've seen families that thought they had a good plan in place and then it turns out they didn't. What is the biggest mistake that families are making when they are making a plan? What do you advise to make sure they're doing it smart?

Probably underestimating the cost, and they buy something that's inadequate. But again, any plan is better than no plan. You want to retain some optionality so that you can have choices. I don't want to just be forced to go into a Medicaid facility. If I want to stay in my house, I want to stay in my house. If I want to go to assisted living, I want to go to assisted living. And I've got those options because I planned ahead. That's the key — you've got to plan ahead.

People also underestimate how fun retirement can actually be. And if they knew how fun — see, I'm 70% retired now. I play golf four to five days a week, play pickleball two days a week. My wife and I travel the world. We do two or three cruises every year. And we're just having the time of our lives. I think if people understood that retirement can actually be a super, super fun time, they'd put a little more money and planning into it instead of trying to buy the new car right now or the new refrigerator that they didn't need.

I tell people, stop trying to look wealthy and focus on becoming wealthy. The book you didn't mention is Who Wants to Be a Millionaire? — oh, here it is. I wrote this for young people and teach them how simple it is to become a millionaire in America today. It's not easy, but it's very simple. And I say this in the book: most Americans could be millionaires except for two simple things. Number one, they spend way too much money on their cars. And number two, they get divorced. So the moral of the story is, drive a used car and stick with your first spouse.

Now, I say that a little tongue in cheek. My favorite new slide is turn your car payment into a million dollars. I show a $250 car payment, a $500 car payment, and a $1,000 a month car payment. And you want to know what? Every one of those hits a million dollars by retirement. The $1,000 a month car payment could turn into $5.8 million. And I know husbands and wives who each have $1,000 a month car payments. Do you really think they know they're driving a $10.6 million retirement down the road? And if they did, do you think that's what they'd put their money into?

Remember, cars go down in value every single day. You do not want the majority of your money going into depreciating assets. You want the majority of your money going into appreciating assets. That's how you get wealthy. But too many people are buying cars and boats and RVs and jet skis and dresses and shoes and computers and handbags. Those are all depreciating assets. Now, we all have to have some. But that's not where you want the majority of your money. So look at where you're spending your money. And if it's in things that are going down every day, then you need to change, and you need to put more of your money into things that are going up every day.

The $250 a month can make you a millionaire by the time you...

Yeah, let me see if I can find the slide, but you can keep asking me questions while I look for it.

It turns into a million dollars, and I just show 7%. I don't have it right here in front of me, but you can do a calculator: $250 a month at 7% or 9%, whatever you think you can get, and then run it for 30 or 40 years, and you'll have a million dollars, absolutely.

That's really interesting too, because people are probably spending $50 a week — we're looking at where it comes from. You spend $50 a week at Starbucks, right?

You can spend more than that. I went to Starbucks and I was shocked. They're getting $6 and $7 for a coffee or a tea. It's water with a tea bag. And I drink tea, and I go, how do you charge $6? And then you go for the egg bites or the coffee roll, which they don't even make anymore, which ticks me off. And now you're over $10. $10 for nothing.

Yeah, my daughter got Starbucks this morning because it's one of those before-finals kind of things, and it was like 25 bucks. So what I'm saying is, a couple of trips to Starbucks and you have your long-term care insurance, you have your plan in place. I think that is a great place to leave it, because when we talk about it for people, it doesn't have to kill you. It doesn't have to change your lifestyle. But you'll be so glad that you did this.

And the younger you do it, the cheaper it is.

Thank you so much. You are fascinating. I am privileged and honored to have been able to have you on our show. And we're actually off to do another show, you and I. So thank you so much again. And thank you to everyone listening.

All right, thank you.