Transcript:
Tom Vaughan:
Hello, everybody, welcome to Thursday. This is a pre recorded video, I’m actually spending some time with my wife on her birthday. I did want to cover something really important that keeps being asked to me in my different strategy sessions with my clients, which is revolving around long term care insurance. Should I have long term care insurance, or if I already have it, should I keep it because they keep increasing the costs? And so there’s one really great way to answer that. And that’s through this Monte Carlo simulation concept inside of this financial plan. So let me give me an example. And this is a really a great way to look at this and figure it out and answer this, I think, as most accurately as possible.
So first of all, this is a program called Money Guide Pro. And what we’re going to do here is we’re going to look at Mr. And Mrs. sample, Joe and Jane sample, and I’ve just made up this plan, I’ve gotten all their goals and income needs, and all their incomes that are coming in, Social Security, and those types, things and all their assets. And so the first thing we’re going to do is say does their plan work, without Long Term Care Insurance, just their base plan, everything that they really want to try to accomplish, that does it work? And so they’re in their early 70s, can they can they make it for the rest of their retirement? And so you can see here, we push the button, and now we’ve got this spaghetti, the screen spaghetti, and what it showing is that it ran through their scenario 1,000 times.
And so what the idea behind Monte Carlo simulation is that, you know, you do enough variables, and he let the computer move randomly, from one place to another, you might include the actual results of somebody’s life, which is obviously not that well known in advance. And so what they’re saying here is that 960 times out of 1000, it works. Which is really good, that’s excellent. They should be able to make their retirement work with all the goals that are in there. This is something we do every six months as part of the strategy session is go through and check and make sure everything that’s in there is accurate, and then kind of push this button and it’ll give us a little early warning.
But one of the questions that comes up is, well what about long term care and long term care insurance? And so if you look, here, we have this part, what are you afraid of? Long term care is definitely one of the things that should be in that category. And we click on that, and then we can go into the area here. This is really neat, what we can do is test out long term care, and see what happens. So let’s just say that Joe goes in long term care, and that’s the danger for Jane. Because, Jane might need that money that they’re spending on Joe, and she might live a lot longer, and so let’s see what happens here. So let’s say that Joe goes in and age 85, and goes in for three years, which is the average for the moment. And let’s just say it’s all the way up to $150,000 a year.
So, there’s lots of different types of care, home care, then there’s independent living, assisted living, nursing home, memory care, etc. They all have different costs. And then depending on where you live, and where you’re getting that care that costs will be quite different also, across the country. So what it’s showing here, it just it ran their scenario, again, 1000 times, and it’s now saying that they have an 84% chance of making this work, which is actually pretty good. You can make an argument that they are self insured that they don’t absolutely need the long term care insurance.
So, it’s one of those things it’s kind of a personal preference, it’s something we would discuss and try to figure out. But the second point of this is just to see what would happen if we did have long term care insurance. So you have to do some math, if you had a quote, they usually have a certain amount that they’ll pay for certain situations, and then there’s a cost, and then you kind of increase that cost with inflation. You do the math, let’s just say that you’re going to net $75,000 a year out of this policy, if Joe goes into long term care at age 85 under these scenarios, which means that your costs would be cut in half, it’d be $75,000 instead of $150,000, in this kind of high end scenario. And so then they’re running 1000 times again, and now we’re up to 91%. So, they just paid for our long term care insurance policy that they actually used.
And so, I’m making this kind of simple, but this is really important. This is the way that you can kind of figure out and answer questions in a very, I think efficient manner. It didn’t take long, you just saw that as far as that works. And, and that’s really the way to, set yourself up with almost anything that you can think of, that needs to happen in certain situations that might come up in your life, but certainly Long Term Care is one of them. And it’s very are expensive, and it can be disruptive to the family, or your spouse, that type of thing. Trying to figure out, should I have a policy so you can put in all that information, and you basically can then test that and see what happens. Do you have enough money to handle that, and still be able to go? Or, do you need to get insurance because you’re about to wipe out your spouse, if you do end up in long term care? So, that you can test that scenario out. And I think that’s kind of the best way to go.
So I hope that helps. Anybody that wants some more information on that or wants any help with that, or what have you, just let me know. And obviously, we can cover this through the financial planning process. But I think it’s a very good thing to take a look at. It’s very, very powerful. And so thank you very much, and I look forward to talking to you live tomorrow. Thank you.