Sharing 23 years of Frugal Retirement

[aja8888]

Now that the Medicaid look back period is 5 years, it makes sense to distribute assets ahead of time or set up trusts long in advance of a situation where Medicaid may get involved.

[Teacher Terry]

Thanks for the clarification Walt.

[imoldernu]

I have been reading many posts about SWR (Safe Withdrawal Rate) and while I think I understand the reasoning and the mechanics that produce retirement planners, it seems to me that the subject is more complicated in practice.

The generally accepted definition that most seem to adhere to, comes from Bogleheads:

Quote:

A safe withdrawal rate is defined as the quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure; failure being defined as a 95% probability of depletion to zero at any time within the specified period. Usage: Typically, SWR is utilized as an approximation of the probability that a given portfolio can support a given annual spending component for a required period, with a reasonable confidence. To do this, variables such as the allocation of assets within a model portfolio, the beginning balance, and/or the number of years expected in retirement are varied, a model is applied, and results of these alterations in the variables are observed and compared, in order to optimize for the maximum.

This is not to disagree, but to point out the difference between a 30 year period and a 5 year period... and the "depletion to zero" factor, and the 95% probability.

The SWR if I understand it correctly, applies to an investment portfolio, and not to (1.) net worth or (2.) Social Security.
(correct me if I'm wrong SS and if so, how to calculate SS for 30 years).

On net worth... Here, the question (for me, anyway) is: Why should I not calculate this? Since we are talking about "withdrawal"... let us take this as a case in point:

Portfolio of $1 million. Age 65, plan to age 90 (20 years)... SWR 4% = $50K/yr., in FireCalc, an 80% success rate.

Now, it is clear that this only deals with the portfolio. It leaves other variables to be decided by you.
.........
So, still dealing with what if's... what happens to your actual spending rate if you were to add $30K/yr in SS? (two people). Well, easy enough to figure.
$50K + $30K = $80K

But then, what about your the balance of your net worth? Since we're basically calculating if you can afford to live to that age 90... and not whether you'll be giving $300K to the SPCA...

This is where I see a difference. What about your home, or other properties, or other assets that could covert to cash? This is where my philosophy and experience differs from othere here on ER. I calculate the value of my home as part of my retirement plan. Sure it's nice to think you'll always live in your dream home, but 2500 s.f. is a lot of cleaning-walking - replacing - repairing-and cluttering. For us, 1000 s.f. apartment living in a retirement community is very desirable even now. So, let's say the house would bring another $250K. Over the 25 years, that's another $10K/yr for a total of $90K spending.

Now, you can say... "But you have to live somewhere!" In our plan, the total living costs in our CCRC, in an apartment, ... including healthcare, food and entertainment, is less than $40K. (See phase II planning)
.................................................. ................................................
And so... to simplify, here's a plan... based on net worth. Make believe numbers...
10 years to go.

Net Worth $500K divided by 10 years = $50,000/ yr
Social Security $25K yr.
That calculates to $75K/yr spending.

Doesn't include interest, dividends or inflation, and our chances of living to that age is around 35%.

We're in better shape than that, but a simple example that includes SS and
non portfolio assets.

Give it a try... simple.
Total net worth divided by number of planned retirement years plus annual Social Security or Pension $$$'s = Annual Spending.

Aw... don't take this too seriously... it's just an old man, trying to simplify the numbers.

[pb4uski]

The reason that a home is commonly not used is because in a lot of cases the plan is to age in place and the home would not be converted to cash that could be used to fund living expenses. IF the plan is to sell the home and downsize then the cash the transaction provides could be included in retirement assets.

In my case I don't include my home because I have no intent to sell, selling and renting would be a "Plan C" if everything else went to hell.

At older ages, I think you could just take the portfolio divided by the remaining expected life (similar to RMD calculations). I would not use 10 years, because what if you end up living 15 years? But what you could do is each year plan on spending the portfolio value divided by your estimated remaining years (or the applicable IRS RMD factor). For example, the closer you get to the 10th year, the higher the probability that you may live beyond the 10th year.

And you are correct that WR relates to what is coming from your portfolio and SS would be on top of withdrawals in determining what you could spend.

[daylatedollarshort]

We would definitely not keep our current house to age 90. It is a lot of work to keep up even now. We do plan on selling at some point.

Hey, imoldrnu - You sent me a message during the week. Just letting you know I tried to reply but could not because your mail box is full.

[imoldernu]

The subject has been discussed at length in this thread as well as others. In reviewing some of the comments, I found this "nolo" article that gives a good overview of the protections that are available when one spouse goes into a nursing home... not just the home exclusion, but also other assets... income, other assets, and community property.
Since the rules vary by state, the specifics are not delineated, but the range of protection (not including the home) goes from $23,000 to $117,000. It might be well to research the exclusion amount for your state.
The rules for this are included in the Affordable Care Act beginning in 2014. The
"minimum monthly maintenance needs allowance" (MMMNA), which defines the Medicaid eligibility limit is also discussed.

While many retirees have substantial assets and will not likely require medicaid assistance, paying for five or six years of nursing home expenses @ $100K+, could seriously affect longer term security.

Rather than posting an excerpt, I think reading the entire article may be more important.
Medicaid: Protections for Spousal Income During Long-Term Care | Nolo.com

In addition that, this article details more information... dealing with mistakes that can be made in dealing with money prior to applying for medicaid. This includes the exempt monies, exempt resources, and details about having insufficient power of attorney.

Elder Law Resources: 7 Costly Medicaid Planning Mistakes

The discussion of homestead (owning a home than could be exempt for medicaid purposes) versus renting... should at least be considered, as the limits by law, is $500K, with some states gong up to $750K.

Theoretically, after the surviving spouse dies, the state medicaid would have a lien on an exempted home for the amount expended. To determine if this is being done in your state, you'll have to do specific legal research or consult an elderlaw lawyer. My own experience was that the state did not do this, and the home became part of the deceased's estate. This was many rears ago. Others have indicated that the state medicaid DID collect on their expenses.

In all of this, it's well to do early planning, to comply with the 5 year lookback rule.

This is not a legal opinion, and other specifics are welcome.

It's easier to talk about this when one gets older, and closer to the probabilities of needing care. Living in our CCRC, we often see cases where the surviving spouse who is living in the rented apartments with all normal expenses included in the rent, must give this up, because of inability to pay... most often because when both spouses were alive, they turned to rental... and the home exclusion was not available when one went into the nursing home. It's a matter of planning for the wellbeing of a spouse who may live an additional 10, 15, or 20 years. It was knowing this that caused us to buy our home in this CCRC.

[haha]

I have no idea what you are talking about, but you seem happy with what you have figured out, so party on! You sure do like abstractions.

Ha

[Walt34]

Quote:

Originally Posted by imoldernu The subject has been discussed at length in this thread as well as others. In reviewing some of the comments, I found this "nolo" article that gives a good overview of the protections that are available when one spouse goes into a nursing home... not just the home exclusion, but also other assets... income, other assets, and community property.

Quote:

Originally Posted by haha I have no idea what you are talking about, but you seem happy with what you have figured out, so party on!

Lesson learned from experience with FIL and others on this board. Pay for the elder law attorney, outrageous as their fees may seem at the outset. In the long run, they will save you and your family assets and are well worth their fees. There are so many minefields and "gotchas" in that topic that it is a full time job to keep track of them. That is what elder law attorneys do.

[Lancelot]

Quote:

Originally Posted by psweath Unbelievable. How did that conversation go? "Um boys, let's talk. We just want to be clear that visiting and staying in touch is ok, as long as you're not having any problems in your lives. If you are, please don't visit those on us whatever you do. We'd prefer you always be happy and upbeat around us. Oh, and no more of those sappy Christmas or birthday cards and definitely never a gift, ok?" Did you tell them about the cancer scare? I'm surprised you see them at all.

The guy said that they maintain contact; however, he doesn't speak with his boys four times daily by telephone. He realizes that his 'kids' are now adult men and he respects that.

+1 Loving your children also means allowing them to be independent and
not interfering in their lives.

[imoldernu]

One last hit at this dead horse...

First, by the time it comes to getting an elderlaw attorney, the damage could be done because of the 5 year lookback.

John and Mary are 60, own their home value at $250K but haven't saved quite enough for a full retirement. Total assets of $500K excluding the home. John's health is not so good, and they feel that he would be better off retiring early to avoid the stress. By selling their home, they would have another $250K to invest, while renting or severely downsizing to much less expensive housing.

Shortly after selling the home and retiring, John's condition worsens and he enters a nursing home, where he continues to live for 5 years @ $100,000/yr.

Because there are assets above the minimum required to have his care provided by medicaid, all of their savings will be spent in payments to the nursing home... except for some exemptions for an auto and other cash or property exemptions provided by the ACA.

They can spend down to qualify for medicaid but these dollars are subject to approval by the state, within a 5 year period. Part of the spend down would logically be the purchase of a home... but this would not count because of the 5 year lookback. IF, John and Mary had kept their home, instead of renting, even if the state would still take their savings (less exemptions) Mary would still be able to keep a minimum living amount as well as the home.

In broad numbers, this would save $250K, the value of the home.
.................................................. ....................
As a similar case in point, an older local couple who had owned a home and small farm, sold the farm, and moved into our CCRC apartments where the rent including meals transportation and all utilities comes to about $30K/yr. When the wife broke her hip, she went into the nursing home and stayed there for 5 years before passing away. Our lower cost nursing home still costs about $80K, so that drained most of the Mr.'s nest egg. Had they stayed living in their home, it would have been protected (in the form of the home).. As it happened, very sadly, he did not have enough to continue paying the $30K rent, and was forced to move in with his son.
It is hard to argue with his logic... move in to a care facility at a known cost to be paid from the proceeds from the sale of the farm. What was not considered was the need to go into the nursing home, with the cost coming from his nest egg, instead of medicaid.

I only come back to this, because for almost everyone, the rent/own decision is not something that can "wait until the time comes", because of the 5 year lookback. Yes... of course, this will not apply to everyone here, but for those (like us) who will retire in a less than optimum financial situation, the decision should be part of the initial planning and risk assessment.

[GreenER]

Quote:

Originally Posted by Purron Our family agreed to give up cards and gifts years ago. We realized we were buying stuff none of us needed or wanted. Instead, we have great visits and treat ourselves to a nice meal for various occassions. I think it's improved the quality of our relationship since there's no pressure to buy the "right gift".

Our family did the same years ago. We realized that we all had the wherewithal to get the things we need for ourselves, and none of us are big consumers, or in the accumulation faze. Now we spend time together, and give to charities. We will sometimes give consumable gifts but there is no expectation of mandatory gifts and no guilt. I find this makes the holidays much less stressful and refocuses the holidays on friends and family rather than things.

[imoldernu]

Stopping by to share a post from another site, that struck a chord with me.
In a way, it has to do with my own thinking on a two phase retirement, but with a little different outlook on the cost.

In some previous posts, I indicated that the later stages of retirement would be lower in cost, and that this would allow for spending more in the early years. Now I am not so sure. Since DW and I are in relatively good health, and are, in fact spending much less as we age, our current situation appears to be safe and security, well in hand. The linked post made me think a little more about what could easily happen to change this.

In particular, the numbers that refer to a $30K annual expense... ie. "frugal" retirement, may be low for the later years, when more help may be needed.

I would be remiss in not passing this on, so just a little update for thought and/or discussion.

https://docs.google.com/document/d/1...e3F6TaSEjI/pub

[Siestatime]

The link below may throw the discussion in a completely new direction, but serious scientific research, funded by some of the richest titans of Silicon Valley, are searching for the secrets to healthy longevity, with health well into 11 or 12 decades possible in the near future. One well funded researcher states that the 'first person to live to 1,000 is probably alive today.'

All the money in the world is useless without health. If it's possible to stay healthy for many decades after retirement, planning for a longer life becomes a new challenge for many young FIRE wannabes.



http://www.theguardian.com/science/2...ogle-longevity


Sent from my iPad using Early Retirement Forum

[Options]

Quote:

Originally Posted by Siestatime The link below may throw the discussion in a completely new direction, but serious scientific research, funded by some of the richest titans of Silicon Valley, are searching for the secrets to healthy longevity, with health well into 11 or 12 decades possible in the near future. One well funded researcher states that the 'first person to live to 1,000 is probably alive today.' All the money in the world is useless without health. If it's possible to stay healthy for many decades after retirement, planning for a longer life becomes a new challenge for many young FIRE wannabes. Live forever: Scientists say they’ll extend life ‘well beyond 120’ | Science | The Guardian

Saw the article and was disgusted by it. I recommend reading this book before getting suckered into "breaking headlines" like that one:

"Wrong: Why experts* keep failing us--and how to know when not to trust them *Scientists, finance wizards, doctors, relationship gurus, celebrity CEOs, ... consultants, health officials and more"

By David H. Freeman

[HFWR]

What's the SWR for a sixty-year retirement?


Sent from my iCouch using Early Retirement Forum

[donheff]

Quote:

Originally Posted by Options Saw the article and was disgusted by it. I recommend reading this book before getting suckered into "breaking headlines" like that one: "Wrong: Why experts* keep failing us--and how to know when not to trust them *Scientists, finance wizards, doctors, relationship gurus, celebrity CEOs, ... consultants, health officials and more" By David H. Freeman

Sounds good. I downloaded it from the library. Thanks.

[imoldernu]

I am linking the article about "Still Alice", because it covered a number of bits and pieces about Alzheimers, that most of us intuitively know, but which spelled out some parts of "onset" that I and my DW are dealing with today.

Somewhere in this thread, I have mentioned the likelyhood of facing a progressive loss of memory, and normal functioning. I have been keeping notes on those parts of the progression that are, bit by bit, beginning to affect our lives. It's not as scary as I thought it would be, but is, no doubt, a work in progress. Somewhere along the way some of our members have shared personal experiences with parents or friends, that were very predictive of our own situation... ie. that to a casual onlooker, there would be no trace of memory problems. Only after a longer period, is it obvious that there lapses... of appropriate response, or memory, especialy of proper names and places.

I hope to eventually share some of my own biographical progress in some detail, but for now, don't feel that it is debilitating, except for the nuisance of remembering names of "things" "persons" and "places". As mentioned in the article, digging for the memory is an adaptive process of association (using Google) or doing the sneaky roundabout of having the person I'm speaking with, coming up with the missing name.

I've shared my concern with my family, but as yet, they haven't taken it seriously. Am hoping for a slow progression... maybe years, and truth be told, haven't looked at it as a big problem. Life goes on... if anything, a little more happily. Less to worry about.

Anyway, here's the link. I think it's a worthwhile read.
'Still Alice' highlights often hidden toll of Alzheimer's - NY Daily News

[Options]

Thank you, you're posts are always appreciated.

My father had the same fears a Alzheimers runs strong in his family. Like you, he sometimes has trouble remembering names or something he is going to say, but he is not in the least bit debilitated. In fact, he's doing so well cognitively we're not even sure he has it.

[kaudrey]

Quote:

Originally Posted by imoldernu In a way, it has to do with my own thinking on a two phase retirement, but with a little different outlook on the cost. In some previous posts, I indicated that the later stages of retirement would be lower in cost, and that this would allow for spending more in the early years. Now I am not so sure. Since DW and I are in relatively good health, and are, in fact spending much less as we age, our current situation appears to be safe and security, well in hand. The linked post made me think a little more about what could easily happen to change this. In particular, the numbers that refer to a $30K annual expense... ie. "frugal" retirement, may be low for the later years, when more help may be needed.

I think this is a good point. My parents and my aunt/uncle are potential case studies for this (my aunt/uncle already there, my parents may head that way).

My uncle is 86 and suffering from Alzheimer's and back issues. My aunt won't put him in a home (although he really should go), but pays for almost 24 hour at home care. Her costs right now are quite high due to that. However, in the previous 3 years or so, costs were quite low, because he couldn't really go out much and couldn't travel anymore, but didn't need much care other than my aunt.

My mother is not in the best of health, and started showing signs of Alzheimer's a few years ago (she is 77 now). Not too bad yet, but she forgets some things and gets a little confused at times. She also has incurable cancer in her spine that is slow-growing but causes her enough pain that she is mostly housebound. My dad says they are living on SS and his small pension right now, even though they have plenty of money, just because she can't do much. He golfs and volunteers and takes care of her, but that doesn't cost much.

If my mother eventually goes to AL or a nursing home, costs will skyrocket. I think for many people with FIRE-level assets, they might have a U-shaped spending curve over their retirement as they go from healthy to slowing down to needing expensive care.

[ArkTinkerer]

I think this is true for most people now. Unless you pass away suddenly you will have much increased spending at end-of-life. I recall the reports that had people saying we were spending too much on seniors in the last days but it really can't be that unusual. Think about it--even someone who lived all their life in great health will use a huge amount of health care $$$ if they have a stroke, heart attack, or even an accident that puts them in intensive care for their last few days on earth. I suspect this is much more common dying somewhere and being pronounced dead in-situ without being trucked to hospital and having all sorts of life saving procedures attempted. One side effect of improved health care will be the increased costs of our final years as the items that use to kill us outright have become chronic conditions.