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The Essentials to Know About Self-Funding Long Term Care

By: Jonathan Alexander, CFP®

I recently met with a couple, Mr. and Mrs. Maxwell, who wanted to get my feedback about the plan they made to “self-insure” their potential long term care expenses.  The Maxwell’s were planning to retire in a few years, so long term care expenses were something they had been giving a lot of thought to.  Mr. Maxwell was excited to show me all his calculations and projections for his accounts and he was certain that he had a great plan in place.  He told me about all the benefits he saw with “self-insuring” long term care and why he thought it was the best plan for him and his wife.  Mrs. Maxwell just wanted to make sure they had a good plan in place, hence the reason for them seeking a second opinion from me. 

I explained to the Maxwell’s that it is important to understand what insuring something truly means.  The core tenets of insurance include a transfer of risk, tax advantages and leverage of money.  When a person “self-insures” their long term care (or anything else), there is no transfer of risk, nor are there any tax advantages similar to what insurance provides, and they certainly are not getting any leverage on their money. 

I went on to explain that what an individual who is “self-insuring” their long term care is truly doing is better referred to as self-funding.  Self-funding long term care costs may very well be a fine solution for some people, but understanding this difference is critical. 

It is also important to understand how a self-funding plan works.  For the Maxwell’s, and many others, their plan is merely relying on their assets to be worth a certain amount based on an assumed growth rate to cover potential long term care expenses in the future.  However, as I explained to them, this is not a true plan and there are many important questions to consider. 

  • What source is the money going to come from? 
  • What is the tax treatment of the money that you plan to use for long term care? 
  • If the money you plan to use is coming from a retirement account such as an IRA, are you comfortable spending potentially $1.30 or more for every $1 of long term care expenses just to cover the portion you need to give to Uncle Sam in the form of taxes? 
  • If you are comfortable paying that amount of taxes, are you also comfortable knowing that your additional ordinary income that year will be exposed to higher marginal tax rates due to the extra money you had to use for your long term care expenses?
  • What happens if you need long term care at a bad time such as a bear market, high tax rate environment, or earlier in your life than you anticipated?
  • If self-funding, are you prepared in your elder years to coordinate the care you need while your health may be declining, or ask someone else to do that for you?

While Mr. Maxwell had a plan for where the money would come from, he hadn’t given much consideration to taxes.  Additionally, the thought of them needing long term care during a bear market or earlier than anticipated really concerned them.  Lastly, Mrs. Maxwell was very troubled about being a burden to their children if she and her husband were unable to handle the coordination of their care.

While the Maxwell’s plan wasn’t perfect, I gave them a lot of praise for creating as detailed a plan as they had.  Most people I speak to about long term care planning have not taken any steps toward creating a plan.  Nevertheless, here’s a secret I tell many of my clients as we begin to create a more formal long term care plan together – you already have a plan for long term care!  That plan for some may involve insurance that they already have, but for most it is self-funding.  The critical difference is that I work with my clients to create a proactive plan that may include self-funding rather than the reactive plan that most bring to me.  It is critical to take control of your long term care plan and create it on your terms – in a proactive way, not reactive to the situation you may be facing in the future. 

After thoroughly walking through their plan and discussing other options, the Maxwell’s decided they still liked self-funding, but also wanted to add a layer of long term care insurance as a portion of their plan to partially protect themselves from the “what if” scenarios that concerned them. 

Everyone’s plan for long term care is different, but having a proactive plan created on your terms is crucial.  What is stopping you from taking charge of your plan for long term care? 


Securities offered through Equitable Advisors (NY, NY 212-314-4600), member FINRA, SIPC. Investment advisory products and services offered through Equitable Advisors, an investment advisor registered with the SEC.  Annuity and insurance products offered through Equitable Network, LLC. 

CFP® and CERTIFIED FINANCIAL PLANNER™ are certification marks owned by the Certified Financial Planner Board of Standards, Inc.  These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification requirements. AGE- 146542(7/19)(exp.7/21)


Financial Planning For New Parents

By: Jonathan Alexander, CFP®

My name is Jonathan Alexander - new dad to an amazing 8-month-old, Max. I also happen to be a CERTIFIED FINANCIAL PLANNER™ professional. My practice focuses on helping young families as they create and execute a vision for their future. My passion is to help you sleep better at night by relieving the stress and anxiety associated with navigating the new financial realities of being a parent. I pride myself on providing straightforward, easily understandable advice. After recently speaking at The Mother of All Baby Showers (MOABS) Philadelphia, I was asked to write about some of the most common financial planning questions that new and expecting parents have - so here goes!

What can a financial planner help me with as a new parent?
Life changes SO much when you have a baby! Your schedule, routine, and much more. Your finances are not spared this change. Often, I find new parents struggling with this new reality. Among the common struggles are:
• Cash-flow management (aka…budgeting)
• Saving for education
• Making sure your loved ones will be okay if the unthinkable happens
• Finding a way to still plan for your own future
I work with you to help identify your goals and challenges and to create a customized plan for how to attack them.

When should I start saving for college?
Early and often! Compound interest is one of the most powerful investment concepts to utilize and this applies to saving for college.
What is a 529 savings plan*? How do I start one for my child?
A 529 savings plan is one of the most popular methods to save for education costs. It allows for contributions and growth within the account to be utilized for educational expenses in a tax advantaged manner! 529 plans can be opened with each individual state, and a financial planner can guide you through the process. It is also important to make sure that the 529 plan makes sense for you and your children as opposed to any of the other educational savings options you may have access to. In other words, make sure it’s a good fit for you!

Why is life insurance important? How much does it cost?
Life insurance is the most important financial topic to address as you start a family. Sadly, too many parents either don’t have life insurance or don’t have enough. Life insurance is so critical to have because it can provide financially for your family if the unthinkable were to occur. Life insurance proceeds can be used to pay off debt, provide for living expenses, pay for college, leave a legacy that your family won’t forget and so much more. While there are different kinds of life insurance, many parents acquire term life insurance because it provides the most coverage at the lowest cost. Costs vary from person to person, but most people are surprised at how affordable it is.
If you get life insurance coverage through your employer, you need to make sure you have enough coverage and that it is a good deal. I often work with parents who think that their coverage through work is sufficient, only to realize later that they are paying too much for it and it isn’t nearly enough. Talk to a professional about this because the consequences are too important to ignore.

When should I start saving for retirement? How much per month?
Again, the earlier the better! Time is your best friend when saving for retirement. When figuring out how much to save, I help my clients identify how much money their lifestyle requires and then break it down into monthly goals. While the amounts can vary, what holds true for everyone is that you need to have a plan to save!

Since you’re also a dad, what’s the best advice you can offer to new parents worried about the high cost of living and saving for the future?
I’ve experienced first-hand the joys and the stresses of having a child. There is nothing in this world that can truly compare. However, many of the things that stress new parents out can be addressed by having a good conversation and a sound plan. Sometimes the conversations are not easy, and that is often what holds people back in the first place. My best advice is to simply begin the conversation. If you are unsure about how to create and implement a plan, professionals like myself are here to help you.

If you are interested in speaking more in depth or having a customized plan created for your family, you can contact Jonathan at 610-660-4607 or jonathan.alexander@equitable.com. Feel free to visit his website www.jalexanderfp.com for more information.

The subject matter discussed in this article is for informational purposes only. It is not intended, and should not be relied upon, as investment or financial advice and does not constitute an offer, recommendation or solicitation. You should seek advice based on your particular circumstances from your professional advisors.
* Securities (including 529 Plans) are not a deposit of any bank, are not FDIC insured, are not guaranteed by any bank or savings institution, may go down in value, and are subject to investment risk, including possible loss of principal invested.
Jonathan Alexander offers securities through Equitable Advisors (NY, NY 212-314-4600), member FINRA, SIPC. Investment advisory products and services offered through Equitable Advisors, an investment advisor registered with the SEC. Annuity and insurance products offered through Equitable Network, LLC. Equitable Advisors and Equitable Network do not provide tax or legal advice. CFP® and CERTIFIED FINANCIAL PLANNER™ are certification marks owned by the Certified Financial Planner Board of Standards, Inc. Individuals may transact business and/or respond to inquiries only in state(s) in which they are properly registered and/or licensed. AGE-141170(11/18)(exp.11/20)

California Insurance License #: #4123484

Securities offered through Equitable Advisors, LLC (NY,NY 212-314-4600), member FINRA/SIPC (Equitable Financial Advisors in MI & TN). Investment advisory products and services offered through Equitable Advisors, LLC, an SEC registered investment advisor.

Annuity and insurance products offered through Equitable Network, LLC, which conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, and in PR as Equitable Network of Puerto Rico, Inc. Equitable Advisors and its affiliates do not provide tax or legal advice. Please consult your tax and legal advisors regarding your particular circumstances. Individuals may transact business, which includes offering products and services and/or responding to inquiries, only in state(s) in which they are properly registered and/or licensed. The information in this web site is not investment or securities advice and does not constitute an offer.

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