My friend Rob posted this on my Youtube channel regarding a video I did about Long Term Care. He gave me permission to repost for your reading pleasure:
“My LTC plan is FAR simpler than what you guys are proposing — self-insuring with my HSA.
First, I start contributing the maximum of $7100 at age 50 (better if you start earlier) and continue to contribute $7100 until I stop working (likely at age 65). I don’t know how much LTC policies cost, but I expect it will rival the amount that I am putting in my HSA each year.
I pay ALL of my health expenses out of pocket (even the $20 copay at the doctor’s office) and will have approximately $212,000 in my HSA at age 65 (assuming an average 7.2% return). Then I stop funding the HSA at retirement and let that sucker grow. At age 83, it should grow to $500,000, which is the amount that I plan to have on-hand to fund 3 years of LTC. This approach is easy peasy and has several benefits.
First, I can access the money in a pinch. Second, there is a significant likelihood that I won’t need LTC and if both my wife and I don’t need LTC, that $500,000 can go to my heirs. Conversely, if you buy insurance and never use it, you lose all of the money you have invested in buying insurance you don’t use. Finally, I don’t need to hassle with the insurance company over whether I meet their criteria in terms of daily living. I get to decide when and where I want assistance.
Bottom line: If you plan and take advantage of compounding interest over time, investing $7k a year over the course of your career can easily grow a fund to a sizable amount. Important thing with HSA is to SAVE YOUR RECEIPTS. My HSA website has a link where you can upload documents in the cloud, so you don’t need to keep a shoe box. I have about $10,000 in receipts that I can instruct my HSA to reimburse me at any time if I am in a pinch. And that number will only grow.
Even if don’t use your HSA for LTC, you can use it to fund retirement healthcare expenses (but that will mean giving up on using it to self-fund LTC costs). What that does is, in essence, let the stock market pay for all your medical expenses over your lifetime (i.e., a $1000 expense incurred at age 50 can be fully reimbursed at, say, age 60 if invested at a 7.2% annual return), because there is no time limit on when you can submit your receipts for reimbursement.”
Such a great post. Can’t beleive I didn’t consider this option in the video I did which you can watch here.