Downloadable LTC Tax Spreadsheet

I would be much more excited about taxes if they paid for exciting perks like stasis pods. Every Washingtonian may be cryogenically frozen until the distant day where they are awoken, have their brains scanned into the Matrix, and live out their immortality inside a giant solar powered computer ring world orbiting the sun. That’s the ultimate long-term care plan. Instead, since people aren’t having as many kids (the old school long-term care insurance plan) or since people don’t like their parents that much, or since we are living longer but not better, the collective pool of society’s workers must shoulder the burden of our elderly comrades during our preordained march into history. Cue the anthem.

Back in 2019 it was determined Medicare’s long term care coverage was inadequate so Washington state stepped in and passed a long-term care tax law that would provide every resident a maximum lifetime value of $36,500 for long-term care expenses. This benefit will be paid for by employees via a tax of $0.58 per $100 of income. The catch was you could opt out of having to pay the tax if you had a LTC policy of similar or greater value by November 2021. So why am I writing about this in August of 2022?

Well, in November 2021 I grabbed an inexpensive LTC policy to opt out of the tax. This means I will never be eligible for Washington’s $36,500 and never have to pay the LTC tax. Despite the decision to opt out or stay in the program having financial implications, I didn’t bother with a spreadsheet. I instead used a couple rules of thumb:

• Is this worth spending significant time on: Probably not, I have bigger problems if my future functionality hinges on $36K of COLA (cost of living adjusted) dollars.

• Savings: My policy premiums are likely to be less expensive than the tax for some time.

• Portability: I’m no longer eligible for Washington’s $36,500 if I move to another state. Washington is great, but some things could push me out. *cough* Implementing a state income tax *cough*

This is a financial planning blog though, so I thought, “What if I had made a spreadsheet to help make my decision?”

So, downloadable at the top of the article is the spreadsheet I would have made at the time if I was one of the few whose life is governed by Excel.

Some “under the hood” spreadsheet stuff to get out of the way.

• ·The starting premium is my annual premium which has a value of $54K vs the state’s $36K and is the barest bone coverage I could find to opt out of the LTC tax program.

• The premiums I found for ages 55, 60, and 65 are from online but they were for LTC coverage of $200K. So, if you only stuck with the $54K coverage your entire life, this spreadsheet probably understates the savings of paying insurance premiums and opting out of the tax. On the other hand, maybe your financial plan would require a more generous LTC policy vs my $54K coverage.

• Finally, I used made-up premium growth rates to smooth things out and have annual premium costs align with the data points I did find: my current age of 27, 55, 60, and 65.

What you’ll notice within the confines of my standard model, is that a starting income of $94,000 is the lowest income you must have for there to be positive savings from opting out vs paying the tax.

Then, since governments have never seen a tax they wouldn’t like to raise, I included a second model where Washington state raises taxes incrementally in the future. A little more in lifetime savings but nothing to go crazy over during a forty-year career.

I think there are a couple of lessons we can get from this exercise.

1. From the X-Files: The conspiratorial side of me wants to believe the insurance industrial complex and gerontocracy were in cahoots with each other to pass this law. One side collects premiums from young people and the other gets to harvest the youths’ blood and treasure via taxes.

2. Jokes aside, long-term projections are hard and usually inaccurate. I used an income growth rate of 3% which seems modest, but when I look at the jump from $94K to $289K at age 65, I do wonder how realistic that is. There are plenty of people who spend their lives between $30K-60K so I don’t see why that can’t be the same for $94K-160K. If wages don’t follow the model (they won’t) then savings are overstated.

3. Don’t miss the forest for the trees. This is a very narrow decision. It was whether you’d save money buying a LTC plan vs paying the tax. It does not answer if you need LTC insurance for your financial plan. If you did need LTC insurance, you’d probably opt out of the tax since your LTC needs likely exceed the minimum requirements for the tax.

4. It’s age dependent (the further out you plan the less accurate you are), but I think the rule of thumb approach works best for decisions like this:  Am I going to receive savings in the near term by having a policy vs the tax, is Washington my future and do I care if I never receive the benefit, and what’s my time worth to find these answers?

What I’m reading and watching:

Prehistoric Planet: Everyone who knows anything about dinosaur documentaries knows Walking with Dinosaurs is the benchmark for dinosaur documentaries. Prehistoric Planet meets the mark by making Cretaceous era dinosaurs as exotic and as interesting as present-day animals. T-Rex swimming to islands off the continental coast of Laramidia? Check. Triceratops navigating caverns to find minerals that aid in digestion? Check. Realistic Velociraptors? Double check.

Good article on advice: Advice That Actually Worked For Me

Terminator 2 Alternate Ending: The canon ending to the Terminator series should be the alternate ending for Terminator 2. It fits with theme of, “The future is not set. There is no fate but what we make for ourselves” and provides a fitting conclusion to Sarah Connor’s story. When T-3 states Judgement Day is inevitable and can only be delayed, you then have a very different theme. It now enters The Dark Tower, “Ka is a wheel” territory and though Roland and the gang are my favorite ka-tet, I prefer room for human agency in my Terminator movies. Note: Terminator Salvation can still fit in this timeline. Just depends on whether you liked the movie or not.

WSJ: Putin and Xi’s Bet on the Global South: Interesting article. Similar to the last Cold War, the spoiling powers (Soviet Union and CCP/Russian Federation and CCP) are trying to surpass the West by recruiting the developing world. Naturally, the US and Company will participate to counter. Probably another sad game where countries will be hijacked by special interest groups sponsored by opposing powers. Average citizens won’t see much of a benefit. Maybe the only developing country winner from the last Cold War’s meddling was Chile? Even in Chile’s case you have to bend the definition of ethical.

Scary Story from Bridgewater: Read about stagflation predictions if you dare.