It’s August and hot and humid and energy sucking.  Which means that I got lazy and used AI to prime the creative pump.  I asked AI the following question:

“what is the best strategy to fund a long-term care event”

Before I go any further and share the response, you need to pay attention to what it says because THIS IS YOUR COMPETITION!!!!  Google Gemini, ChatGPT, Claude – they are your competition!  Your clients are going online for advice! 

Don’t let them implement a plan that is generated in their minds based upon what AI spits out.  MAKE THEM DEVELOP AND FUND A PLAN – LIVE AND IN-PERSON WITH YOU!

Here is what Google Gemini says …

“Self-funding—or “self-insuring”—a long-term care (LTC) event means choosing to pay for care out of your own savings and assets rather than buying traditional insurance.

If you have a net worth that positions you comfortably above the threshold of needing Medicaid, but you prefer not to pay expensive, non-refundable insurance premiums, self-funding is a highly flexible strategy. However, simply having “enough money” isn’t a strategy.

An effective, tax-efficient self-funding plan relies on structuring your assets to manage liquidity, minimize taxes, and protect your portfolio from market downturns.

1. Establish a “LTC Dedicated Reserve” (The Bucket Method)

Rather than treating your entire portfolio as one pool of money, mentally or structurally segment a portion of your wealth specifically for care.

• Determine Your Target Reserve: Estimate the cost of care based on your region and family health history. A prudent baseline is budgeting for 3 years of care. For example, if high-quality care in your area averages $100,000 annually, your target reserve is $300,000.
• The Three-Bucket Allocation:
  • Bucket 1 (Immediate Cash – 1 Year of Care): Kept in highly liquid, low-risk vehicles (high-yield savings accounts, money market funds, or short-term CDs). This ensures you can cover immediate care needs without being forced to sell stocks during a market downturn (eliminating “sequence of returns” risk).
  • Bucket 2 (Intermediate – Year 2 & 3): Invested in conservative, income-generating assets like short-duration bonds or Treasury Inflation-Protected Securities (TIPS) to hedge against rising healthcare costs.
  • Bucket 3 (Long-Term Growth – The Rest): Left in equities to continue compounding. Because you have Buckets 1 and 2 ready, this money can stay invested for long-term growth.

2. Optimize Your Tax Accounts

How you withdraw money to pay for care is just as important as how much you save. Uncoordinated withdrawals can push you into a higher tax bracket and trigger massive, avoidable tax bills.

• Prioritize and Invest Your HSA (The Triple-Tax Advantage):

Health Savings Accounts (HSAs) are the ultimate tool for self-funding. If you are still working and eligible, max out your HSA contributions. Do not use it to pay for everyday band-aids and co-pays. Instead, pay those out of pocket, invest the HSA balance in equities, and let it compound tax-free for decades. Withdrawals are 100% tax-free for qualified medical expenses, which include most long-term care services and a portion of LTC insurance premiums.

• Leverage Your Pre-Tax (Traditional) IRAs:

It sounds counterintuitive to fund care with taxable traditional IRAs, but it is highly tax-efficient due to medical expense deductions.

The Tax Arbitrage: In the U.S., you can deduct qualified medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). If you withdraw $100,000 from a Traditional IRA to pay for nursing care, that $100,000 counts as income. However, the $100,000 you paid to the nursing facility qualifies as a medical deduction, effectively offsetting the income tax.

• Strategize with Roth Conversions:

If you plan to pass down your Traditional IRA to heirs, start executing systematic, partial Roth conversions in your 60s. This lowers your future Required Minimum Distributions (RMDs) and provides a tax-free pool of capital for both you and your heirs.

3. Utilize Home Equity (Without Moving Immediately)

For many retirees, the home represents their largest illiquid asset.

• HELOC as an Emergency Valve: Establish a Home Equity Line of Credit (HELOC) before you need care and while you still have a strong income profile. It sits unused, costing little to nothing, but provides instant, tax-free cash if you need to quickly modify your home for aging-in-place or cover a sudden gap in care costs.
• Reverse Mortgage (HECM): If you wish to stay in your home but need in-home care, a Home Equity Conversion Mortgage (HECM) allows you to tap your home equity tax-free. However, be cautious: if you must move to a nursing facility permanently (for more than 12 consecutive months), the loan becomes due, and the home must be sold.

4. Consider a “Hybrid” Stopgap

Pure self-funding carries the risk of a “tail event”—a worst-case scenario like severe cognitive decline or Alzheimer’s, where care can easily last 5 to 10 years and completely wipe out an estate.

To protect your portfolio from this ruinous scenario, consider a hybrid or asset-based life insurance policy.

• How it works: You reposition a portion of your cash or a low-yield asset (like a $100,000 CD) into a single-premium hybrid policy.
• The benefit: If you need care, the policy leverages that $100,000 into a $300,000+ pool of tax-free LTC benefits. If you never need care, the $100,000 (or more) is passed to your heirs as a tax-free death benefit. This eliminates the “use-it-or-lose-it” frustration of traditional insurance while placing a firm cap on your self-funding risk.”

There you have it from the lips of Google Gemini … the last thought is insurance and risk management.  At least, it included using an asset-based product like Asset Care or Annuity Care & Indexed Annuity Care.

You might call me biased, but the only strategy that makes sense to me is transferring some or all the funding risk using and insurance strategy. 

As I said earlier – make your clients develop and fund a plan – live and in-person with you and not rely on what in reality is a plan of hope … SELF-FUNDING.

Learn about the OneAmerica Financial Care Solutions by contacting my internal sales partner Kelley Hilliard at (844) 623-4521or via email at kelleyhilliard.isp@oneamerica.com