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Allowance for aged care in FIRE
Old 04-07-2018, 07:30 PM   #1
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Allowance for aged care in FIRE

How is everyone accounting for expensive Aged care in their FIRE calculations? Looking at figures in the NZ/Au region, we are staring down the barrel of $60-$100k per year for Retirement homes here. Thats almost certainly going to increase when us young spring-chickens get to the age where we need Care.

That on its own is $2M+ to save for FIRE...
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Old 04-07-2018, 07:55 PM   #2
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I am planning on being able to fund (at minimum) two years of nursing home care. That is about the median (last I heard) for time in that situation. If I am still around after the two years and I can continue to pay, goody for me. If not, then the social-safety-net kicks in to cover what my social security and small pension can't. I doubt I will be much of an imposition and linger 5-10-15 years like that so I shouldn't be too burdensome on the social safety net, if I end up needing it at all. That would be worrying way too much even for me.

Anything short of that, like just getting old & feeble and needing groceries delivered, chores done, local transportation etc etc... That is already within my budget if I needed it.
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Old 04-07-2018, 08:28 PM   #3
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I agree 1-3 years of aged care is fine to be able to build into the FIRE number. But anything more is going to be quite a burden...something to consider. I work with a few elderly people and have seen quite a few there for 5 years plus....
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Old 04-08-2018, 07:26 PM   #4
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I have a LTC policy for nursing home issues. It may be crazy but I figured if it was like health care better chance of getting a decent place if they were sure to be paid.
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Old 04-08-2018, 09:00 PM   #5
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First look at the headline. Allowance for aged cars...

Just pay it off! LOL

I think a couple years is reasonable. Mom & Dad both have Alzheimers. Mom died just short of 2 years. Dad will be about 2.5 years. Remember. Unless you have promised the kids your nest egg you can spend down the corpus. It's your money! 4% rule is out the window at that point!
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Old 04-08-2018, 09:08 PM   #6
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Going at risk for that. Will do my best to keep my health up and will have means to cover a few years like others have said, but at some point, it’s possible to lose the bet and go broke. Having a MIL going through Alzheimer’s it’s a clear and present concern, but one can only do so much. I am, however, open to creative solutions/options.
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Old 04-08-2018, 10:35 PM   #7
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Its a difficult one with multiple correct answers I suppose. Personally, I would really like to leave a legacy (albeit small) for my kids. If you think about it, wealth grows slowly usually and if you can help your kids so they are not starting from scratch, it would be great (as long as they dont abuse it)

But the reality is that unless you are rich ($10m + net worth), you will have to eat into your capital as Scrapr has said.
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Old 04-09-2018, 12:13 AM   #8
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Data given to me by a CFP a couple years ago (for US west coast):

Long term care avg cost for private room is $76k per year and avg stay is 2-3 years.

He also mentioned that other costs of living typically decline, and often folks have proceeds from the sell of a house. This data and thinking helped me worry less about long term care.
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Old 04-09-2018, 05:10 AM   #9
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I was in the camp of " I will just self insure. I have enough set aside to pay for 2-3 years in a nursing home,etc."

But that is not really a solution. So last year my wife and I purchased a LTC policy with a solid insurance company that, if needed, should cover 50% of LTC costs and we will pick up the difference.

The trick is to buy a LTC policy which is part of a partnership program. The policy we have will pay out a maximum of $750,000 in future dollars which we can shield this entire amount from Medicaid if if Medicaid is ever needed in the future. So at minimum, our heirs are guaranteed of an inheritance of at least $750k. The policy is portable to all but 2 states if we relocate in our later years.

BTW, whatever you do stay away from the newer "hybrid" policies which are nothing more than a whole life policy with a LTC rider. Go with the traditional use it or lose it policies. Plus our insurer has never had a premium increase unlike other insurers. So far so good.

Don't be lulled into the "self insure" camp. The cost for a private room in a nursing home in 25 years in my state will be about $18,000/month. Good luck with that!
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Old 04-09-2018, 05:52 AM   #10
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For your average person, it's impossible to self insure. Yes people here will often be able to do it, but I'd bet most people here are way over the average income. I've posted before but my wife and I have never made over $90K combined yet we've managed to save $1mil for retirement. We'd never be able to retire if we worried about LTC. We've just got to roll the dice. The vast majority of people are in worse shape than us.
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Old 04-09-2018, 06:20 AM   #11
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I would look at both the whole life hybrid and traditional. If in your 50s a medical event that puts you in LTC are very are but could result in very large stays (decades). So ones that have high deductible and will never raise to premium with high maximums may be attractive. The hybrid policies I believe are close to the "high Deductible" type and can be used to pay a portion of LTC.

Oneamerica/Lincolin Moneyguard/Pacific Life are examples.

Just researching myself right now.
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Old 04-09-2018, 07:10 AM   #12
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Originally Posted by Human View Post
Data given to me by a CFP a couple years ago (for US west coast):

Long term care avg cost for private room is $76k per year and avg stay is 2-3 years.

He also mentioned that other costs of living typically decline, and often folks have proceeds from the sell of a house. This data and thinking helped me worry less about long term care.
I think that's probably reasonable, but don't forget those are nationwide averages. Depending on your location, it could be quite a bit more. During my mom's last years, it was costing me around $6K a month, six years ago in a low COL area. I know someone in a high COL area who was paying around twice that a few years ago.
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Old 04-09-2018, 09:26 AM   #13
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I think that's probably reasonable, but don't forget those are nationwide averages. Depending on your location, it could be quite a bit more. During my mom's last years, it was costing me around $6K a month, six years ago in a low COL area. I know someone in a high COL area who was paying around twice that a few years ago.
Good point. To clarify, the cost I posted was for CA.
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Old 04-09-2018, 09:42 AM   #14
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I would look at both the whole life hybrid and traditional. If in your 50s a medical event that puts you in LTC are very are but could result in very large stays (decades). So ones that have high deductible and will never raise to premium with high maximums may be attractive. The hybrid policies I believe are close to the "high Deductible" type and can be used to pay a portion of LTC.

Oneamerica/Lincolin Moneyguard/Pacific Life are examples.

Just researching myself right now.

I looked at both the hybrid and traditional plans. The traditional plans are being replaced by the hybrid options because they are more profitable for the insurer.

In order for us to get the same coverage under a hybrid policy; it would require a one time single premium payment of $100,000. My current annual premium is $3200/year for both me and my wife for 3 years each of coverage. I can simply have a dedicated fund (Intermediate corp/investment grade bond fund ) of $100,000 yielding around 3.5% and pay the annual premium this way. Granted, my premiums may increase in future years, but still seems like a better option than handing over $100k to an insurer.

Plus, the death benefit the insurer pushes on the hybrid policies increase very very little in value if you never use the policy for LTC.

There is lots of good info on LTC policies on that "other "site....the one for investors loyal to the mutual fund giant out of Valley Forge, PA.
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Old 04-09-2018, 09:42 AM   #15
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This came up in another thread last week; I can't seem to find it now. But on that thread someone had a chart that showed the average nursing home stay was about 3 months; a number my elder law attorney also quoted a year or so ago. It's very steep curve.

I think one of the things that has changed is a move toward home care and assisted living, both of which are a lot less expensive.

As a result, nursing home care, which at the low end used to look like current home/assisted living care is no longer needed and true nursing home care has more or less become the proverbial "God's waiting room" i.e. short stays.

I have read somewhere that a number of nursing homes are struggling to stay in business due to a this recent shift. My most recent visit to a nursing home had an entire wing that was empty.
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Old 04-09-2018, 09:43 AM   #16
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Don't be lulled into the "self insure" camp. The cost for a private room in a nursing home in 25 years in my state will be about $18,000/month. Good luck with that!
I hope you realize that this does not apply to everybody. If a couple is worth say $5M or more in today’s dollars, it’s perfectly reasonable for them to plan to self insure, even explicitly setting aside the funds if they wish to be more conservative, and expect to have enough funds remaining to cover the survivors needs via spend down.

Sheltering assets for heirs is a different matter.
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Old 04-09-2018, 01:02 PM   #17
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I hope you realize that this does not apply to everybody. If a couple is worth say $5M or more in today’s dollars, it’s perfectly reasonable for them to plan to self insure, even explicitly setting aside the funds if they wish to be more conservative, and expect to have enough funds remaining to cover the survivors needs via spend down.

Sheltering assets for heirs is a different matter.
Do people self insure their home once the mortgage is paid off? If one has over $5M in assets why carry homeowner's insurance ( apart from liability). It's a hedge.

We did it only because we wanted to ensure a guaranteed inheritance. If you have no children....just spend down all your assets and then Medicaid pays. Of course then the state can put you wherever they want.
And if you linger for 10 years or longer in a memory care facility....it could cost millions in future dollars. I have personally seen this in my family. Plus the statistics for length of stay in nursing homes focus on averages today. 25 years from now we could see average stays in nursing homes of 10 years or longer as life expectancy increases due to the wonders of modern medicine.
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Old 04-09-2018, 02:08 PM   #18
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I doubt most people will be wanting to treat illnesses if they need memory care. I was a guardian for a good friend of mine once she had Alzheimer's after her DH died. When she got cancer I didn't treat it. To do so would be cruel. People really suffer with dementia. I helped my kids as young adults, when they needed it etc and have no desire to leave them an inheritance.
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Old 04-09-2018, 02:16 PM   #19
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I hope you realize that this does not apply to everybody.
+1 It seems that some of our LTCI devotees picture everyone being in circumstances similar to their own. For example, that everyone lives in a "partnership" state. Or that everyone is without the resources to self-insure and still meet their other life goals. In fact, we're all in unique situations, have our own personal goals and need to make our financial decisions based on our own factors.
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If a couple is worth say $5M or more in today’s dollars, it’s perfectly reasonable for them to plan to self insure, even explicitly setting aside the funds if they wish to be more conservative, and expect to have enough funds remaining to cover the survivors needs via spend down.
And $5M might be somewhat conservative (high), especially if the surviving spouse has significant SS + pension ongoing income.

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Sheltering assets for heirs is a different matter.
It is, but at the $5M mark, even that becomes very doable. In our case, my pencil pushing indicates that it would take an almost perfect storm of high LTC costs and poor market performance to completely wipe out inheritances for our son and grand kids. To ensure there would be some legacy in that unlikely scenario, we've fully funded 529b's for the grand kids college and did some gifting to our son.

If I recall correctly, we had another forum member who did an ongoing hard sell for his state's "partnership" LTCI program but seldom mentioned that program is only available for residents of that state. If you're in a state so blessed, I can see where investigating that path might be worthwhile. But it's not a path available to everyone and that should be emphasized.
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Old 04-09-2018, 02:30 PM   #20
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Do people self insure their home once the mortgage is paid off? If one has over $5M in assets why carry homeowner's insurance ( apart from liability). It's a hedge.

We did it only because we wanted to ensure a guaranteed inheritance. If you have no children....just spend down all your assets and then Medicaid pays. Of course then the state can put you wherever they want.
And if you linger for 10 years or longer in a memory care facility....it could cost millions in future dollars. I have personally seen this in my family. Plus the statistics for length of stay in nursing homes focus on averages today. 25 years from now we could see average stays in nursing homes of 10 years or longer as life expectancy increases due to the wonders of modern medicine.
This was discussed in a recent thread: LTC insurance with a long waiting period - 12 months

The consensus seemed to be that there really is not a product out there that would take the risk of a long term (10-20 years) stay in LTC. Most seem to be limited to 3-5 years, with a monetary cap. If your LTC plan covers these, please provide more info, it could be helpful to others.

Edited to add: I re-read your first post, and it seems your plan can protect $750,000 for your heirs,with the partnership aspect. I am not familiar with these, but I guess it is something.
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