How much do you need in Net Worth to not need Long Term Care Insurance…

[LARS]

Assuming you and DW are in mid-fifties and in good health. How much net worth would you need today to feel comfortable you can self insure Assisted Living/ Nursing Home. The need for assisted living, of course, may or may not happen and could be anywhere from 25 to 35 years from now.

Question is assuming no pension and you are not concerned with leaving an estate. Have my own views, but don’t want to influence others thoughts.

 

[W2R]

There are really too many variables to give a very accurate estimate 25-35 years in advance, as I am sure you realize. I have heard that the average amount spent presently is around $250K, but then what if your needs are not average? Plus, who knows what will happen in the entire system between now and 2040 AD or so.

Personally I am assuming that the facility will require several hundred thousand dollars entry fee, plus a monthly fee. Usually the entry fee absorbs whatever you will get from the sale of your house, and then some. Depending on the quality and location of the facility, the monthly fee can vary but will surely be more than your retirement budget and is likely to eat up one's entire estate.

It's a thorny problem, compounded by the fact that one could die before ever needing any assisted living. However, I am not buying LTC insurance. I am planning to live independently until sometime in my 80's, and I am trying to establish a withdrawal rate low enough to conserve much of my portfolio to pay for a continuous care facility.

 

[Rich_by_the_Bay]

Rules of thumb are not good guides in this area. Conventionally, > $2mm is sometimes used to "go bare" but to me it is not helpful. Future costs are entirely unknown, health care reform is inevitable, premiums can rise dramatically after purchase, and living expenses are variable so the $2mm may be barely enough for some, overkill for others.

Typical stays average 3 years or so in an average facility and patient. You are probably a little under 50% likely to need such a facility during your life if you are a healthy 60-ish, and will be in your early 80s when you need a nursing home. I didn't have the time to cite the sources on those rough numbers, but they are commonly accepted.

You'll have to take it from there. $75k per year for a skilled nursing home is a lot of money, but unfortunately it probably won't be needed more than a few years. Some estimate it to full life expectancy but I think that's misleading.

 

[LARS]

W2R,

Thanks for your response.

Both of my parents are currently in an assisted living facility (a very nice one in the North East—an expensive part of the country—both in memory care) and their collective bill is about $132,000 pa. That number can be reduced (and we probably will soon) by about $25,000 to $30,000 because they currently each have a private room (ie they could share).

Still, if you use the $132,000, the way I figure it if you grow that number at 4% for 25 years you get a cost of $351,000 per year for two people. Figure worse case you both live 5 to 10 years in the facility you need approximately $1,750,000 to 3,500,000 in the bank. (Not taking into account additional inflation while in facility, but does assume memory care pricing, which is more than normal assisted living.)

So if you have anywhere near those numbers today (and are confident you can have the nominal amount still with you in 25 years) you don’t need LTC insurance.

Obviously as you point out there are a lot of variables. Not the least of which is the type of facility which you alluded to: buy in or rent (parents are rent).

 

[LARS]

Rich_in_Tampa,

Interesting you mention the greater than $2 million, which jives roughly with my back of the envelope calculations I mention to W2R.

 

[Rich_by_the_Bay]

W2R,

Thanks for your response.

Both of my parents are currently in an assisted living facility (a very nice one in the North East—an expensive part of the country—both in memory care) and their collective bill is about $132,000 pa. That number can be reduced (and we probably will soon) by about $25,000 to $30,000 because they currently each have a private room (ie they could share).

Whoa.. assisted living and skilled nursing are two entirely different things. LTC covers nursing home and home care for those requiring specialized services like toileting, dressing, medical supervision, etc. I am not aware of LTC policies covering assisted living care, other than incidentally should an ALF be the "home" foro covered home care.

 

[LARS]

Rich_in_Tampa,

One of the smarter things my dad did when he got his LTC insurance (probably 10 years ago if not more) was he opted for coverage (at a reduced rate) for assisted living in addition to nursing home care. I think most policies today cover both, as assisted living facilities are so prevalent today and are first choice before nursing home facility. Obviously, as you point out, you have to qualify (ie need assistance with daily living) to get insurance to pay in assisted living facilities. Parents case, unfortunatley, they qualify.

In the case of my parents, LTC was one of the best investments they made. Just not sure with our net worth it makes sense.

 

[W2R]

My mother lived in a continuous care facility, at first in the independent part, then assisted living, and then skilled nursing. She lived there for 25 years, from 1982-2007 (ages 72-98). Who knew she would live that long?

Hers was one of the ones where you buy in, using the proceeds from her house, and then pay monthly. My brother handled her finances so I don't personally know for sure, but I am pretty sure that the monthly fee depended on the level of care required. Then, if you need special help, for example someone to drive you to a store and shop with you, then that is extra. All in all, it wasn't cheap.

I feel certain that there will be a tremendous crisis in care availability for the elderly, as the baby boom generation enters that age. That is another unknown factor.

 

[Rich_by_the_Bay]

Rich_in_Tampa,

One of the smarter things my dad did when he got his LTC insurance (probably 10 years ago if not more) was he opted for coverage (at a reduced rate) for assisted living in addition to nursing home care. I think most policies today cover both, as assisted living facilities are so prevalent today and are first choice before nursing home facility. Obviously, as you point out, you have to qualify (ie need assistance with daily living) to get insurance to pay in assisted living facilities. Parents case, unfortunatley, they qualify.

LARS, I am glad to hear that it has worked out so well for them insurance-wise, though it must still be hard to watch them struggle with their various physical limitations.

Does their policy cover the actual room and board of the ALF, or just the additional nursing, medical, activities of daily living expenses? Was the ALF option very expensive?

 

[LARS]

W2R,

I agree with you that aging care will change as baby boomers get older. One of the conversations I had with Exec. Director of my parents facility was that he was of a view that nursing homes will diminish in importance. His point being, the baby boomer generation won't tolerate being placed in them.

My parents are going on their third year. They are both in thier mid-eighties. I certainly hope for their sakes, given thier current physical/mental states, they don't spend another 20 odd years there like your mother.

I do think the continuous care facilty like your mother was in is the way to go (at least based upon current options). In the cse of my parents, they waited too long and her too infirm to get in to a continuous care facility by the time they agreed to give up thier house.

Rich_in_Tampa,

I don't remember the extra cost to be covered for assisted living (though it wasn't a lot). Since parents meet threshold re-imbursement levels, the insurance company covers room and board and aide costs up to daily per diem.

The hardest part on watching them deteriorate is fully realizing there was nothing I could do. Being the alpha male type that I am, I struggled for too long with trying to "fix" the situation. It is of course completley beyond my "fixing".

 

[Rich_by_the_Bay]

I now realize that I was in error to assume that LTC insurance generally does not cover assisted living. In fact, it often does if clinical criteria are met, as LARS says. I was confusing Medicare reimbursement of nursing homes for 90 days (covered) versus ALF (not covered).

Anyhow, I found this helpful piece while poking around.

 

[easysurfer]

Not sure what net worth you need to not need LTC insurance. But if you do get LTC insurance, it is best to pay for the option which keeps up with inflation. I have a LTC insurance policy. Yes, it is difficult to pay for a large premium for coverage that I may not need or only use for a short time, and also may not happen this many years in the future. But for me to peace of mind is worth it, and the costs of the premiums, even over say, 20 years probably won't come close the amont paying by cash if I were to need this in the future.

 

[WhoDaresWins]

I don't have LTC insurance and don't plan to get it. I do have a plan. If I should become elderly and feeble I will either go to a really nice assisted living or personal care home or hire in-home help either through an agency or privately. I don't want to wrangle with insurance companies in my dotage. If I have some kind of massive stroke and wind up bedfast in a nursing home all my resources will go to pay for my care and if I burn through everything, well, I guess I will be on Medicaid and hopefully won't know it. I don't have a spouse to worry about and my son is self supporting. I am projecting that my income at age 60 will be in the six figures.

 

[samclem]

Still, if you use the $132,000, the way I figure it if you grow that number at 4% for 25 years you get a cost of $351,000 per year for two people. Figure worse case you both live 5 to 10 years in the facility you need approximately $1,750,000 to 3,500,000 in the bank. (Not taking into account additional inflation while in facility, but does assume memory care pricing, which is more than normal assisted living.)

So if you have anywhere near those numbers today (and are confident you can have the nominal amount still with you in 25 years) you don’t need LTC insurance.

LARS,
I'm not quite getting your math. Why would a person need to have in their account today the dollar value of the eventual cost of LTC 25 years from now? If LTC care costs up at the rate of all other inflation (maybe not a good assumption) and you believe the value of your assets will grow at the sme rate as inflation, then today you'd need to have in your account the cost of the anticipated LTC today, right?

The situation is too complicated for this simple analysis. The only way for a couple to figure out costs is to "what if" the possible scenarios (e.g. both in LTC simultaneously, one in LTC and one living independently until death, one in LTC and one deceased, both in LTC sequentially, etc). The impact on SS, pensions, available courses of action (e.g. selling the house, taking out a reverse mortgage, using Medicaid to pay for LTC without leaving the partner destitute, etc, etc) vary in each case.

 

[jdw_fire]

how bout this for a way of determining the amount. 1) get the premimum for the LTC policy you think would be sufficient for you. 2) check to see how much term life insurance that same premium would buy. 3) the payoff amount of the term life insurance policy is statistically about the amount you will need when you are at the age of your life expectancy to cover LTC.

just a though, flame away

 

[Alan]

Some years ago we decided to start saving for LTC in a separate account excluded from our retirement savings so not part of the SWR when we RE.

Currently we are both 54 years old and the account, which is on automatic is a VG Wellington fund and we auto pay $200/month which an expense in our RE budget also. The account currently stands at $17.3k. Will it be enough? Who knows, you pays your money and takes yer chance.

 

[LARS]

Samclem,

I was looking at it in the following manor: assume you spend income the $1.7 to $3.5 million generates over the years (though the $3.5 seems quite extreme IMHO), but as long as you keep that amount “intact” you’ve offset the future obligation. Of course, you could look to set aside sufficient funds each year to reach the sums needed. But in that instance, I think LTC insurance would be more appealing (i.e. you don’t already have sufficient today to deal with problem x years out).

Clearly as others have pointed out there are many variables and combinations, but if you have north of $2 million today and you can live off the interest (ie no principal growth) you most likely have sufficient funds to self insure.

 

[mathjak107]

years ago we did an article with money magazines planners vs us and they wanted to see if their team of pro's could improve upon the plans we layed down in place.

the big area of dis-agreement was long term care. we were thinking of self insuring. their feeling was with the rules of the game changing all the time and the costs escalating they werent in favor of me doing that. we havent done anything yet in that area but they were probley right.

 

[FurBall]

For me the issue of long term care is more about some debilitating event happening now than it is about needing help in 25 or 30 years. In older age, the three year average would argue for self-insuring. But if something like a stroke or car accident happened now, DH could be saddled with many years of long term care and could be left impoverished. I carry inflation protected LTC insurance for that reason.

 

[dgoldenz]

One of our clients just had a mother with severe dementia that needed 24 hour care. The client was spending $400k per year of her own money to support the mother and spent down a lot of the assets that she thought she would have for retirement. In short, long term care can be incredibly expensive, even for a short stay.

Long term care insurance, whether you have a significant net worth or not, shifts the risk to the insurance carrier instead of keeping 100% of the risk yourself. A good long term care policy will have the following:

1. Shared care rider - if husband/wife are considered separate individuals, allows one to "borrow" a period of care from the other. As an example, if you choose a 3 year benefit period and husband is in need of LTC for 5 years, he can borrow 2 years from the wife and leave her with 1 year.

2. Cost of living adjustment rider - I would strongly suggest a 5% compound rider as the current costs of LTC are increasing much faster than inflation

3. Survivorship benefit - If premiums are paid for 10 years (some policies have an option for 7 years) and one spouse dies without any claims being made, the other spouse's policy is completely paid up and they will have coverage for life. This is incredibly important because long term care premiums are never guaranteed - they can increase at any time. With this rider, the cost of premiums could double, triple, quadruple and it would not cost a dime extra after the rider is used.

4. 0-day elimination period for home healthcare. Each day of home health care counts for 7 days towards the elimination period for nursing home benefits (which usually has a 60 or 90 day elimination period). Benefits available immediately.

5. Benefits expressed on a per-month basis instead of a per-day basis.

 

[LARS]

dgoldenz,

First, $400,000 pa sounds totally outrageous. We had a 24 hr aid for my dad for awhile (sleep in at the assisted living facility) and it cost us about $5,000 a month. So I can't imagine what $400,000 is paying for other than hospital kinds of stays.

Second, ltc insurance only shifts the risk to the insurer for the amount of coverage obviously. Policies that I looked at a year ago were providing $500,000 to $600,000 of coverage with premiums in the $2,000 to 3,000 range (based on my poor memory).

So in the end my take was that having the ltc would give me comfort in spending down assets if I wanted to, but given NW wasn't necessary as I could easily self insure the amount of coverage being offered.

 

[W2R]

dgoldenz,

First, $400,000 pa sounds totally outrageous. We had a 24 hr aid for my dad for awhile (sleep in at the assisted living facility) and it cost us about $5,000 a month. So I can't imagine what $400,000 is paying for other than hospital kinds of stays.

Second, ltc insurance only shifts the risk to the insurer for the amount of coverage obviously. Policies that I looked at a year ago were providing $500,000 to $600,000 of coverage with premiums in the $2,000 to 3,000 range (based on my poor memory).

So in the end my take was that having the ltc would give me comfort in spending down assets if I wanted to, but given NW wasn't necessary as I could easily self insure the amount of coverage being offered.

Lars, dgoldenz has said in prior posts that he is a working insurance broker. So it is probably best that we bear that in mind as we read and evaluate his posts. I tend to be skeptical, too.

 

[dgoldenz]

dgoldenz,

First, $400,000 pa sounds totally outrageous. We had a 24 hr aid for my dad for awhile (sleep in at the assisted living facility) and it cost us about $5,000 a month. So I can't imagine what $400,000 is paying for other than hospital kinds of stays.

Second, ltc insurance only shifts the risk to the insurer for the amount of coverage obviously. Policies that I looked at a year ago were providing $500,000 to $600,000 of coverage with premiums in the $2,000 to 3,000 range (based on my poor memory).

So in the end my take was that having the ltc would give me comfort in spending down assets if I wanted to, but given NW wasn't necessary as I could easily self insure the amount of coverage being offered.

I thought the $400k sounded pretty high too (really, really high), but that is what prompted her to call us and ask about LTC insurance. She didn't want to end up with her kids in the same position. I usually hear the numbers $60-120k per year depending on the quality of the place.

$2000-3000 in premiums seems like a pretty low price for a policy with good benefits if you are in your mid-50's....I would guess somewhere more in the range of $3000-4500 for a good policy. Better benefits obviously have a higher premium (such as a $6000/month benefit instead of $4500). Keep in mind that the $500-600k in benefits you are mentioning will increase substantially over the course of time with a 5% COLA rider. In 25 years, a $6000/month benefit would be over $20,000 per month.

One of things we see today that we didn't see 40 years ago is people living to be 85, 90, 95, 100 years old. As people continue to live longer, they will continue to need longer periods of long term care. Insurance is always a personal choice, but if you have the means to self-insure, I think it is certainly something you would want to strongly consider purchasing. Even if you said the cost was $4000 per year for the coverage and lived for 25 years before using it, you'd have paid $100k into the policy....25 years from now, a single year of long term care needs could easily be $250k. Multiply that by 3 years, 5 years, etc. Sure, you can self-insure if that is what you would like to do and have nobody to leave money behind for (or don't want to leave it to anyone), but couldn't your money be used elsewhere?

 

[samclem]

. . .
3. Survivorship benefit - If premiums are paid for 10 years (some policies have an option for 7 years) and one spouse dies without any claims being made, the other spouse's policy is completely paid up and they will have coverage for life. This is incredibly important because long term care premiums are never guaranteed - they can increase at any time. With this rider, the cost of premiums could double, triple, quadruple and it would not cost a dime extra after the rider is used.

So, when the LTCI companies are training their salespeople, how do they suggest that they sell this rider? I mean, I understand the importance of extracting every nickel from the client, but how do you simultaneously convince them of the need to pay extra to get the premiums "stabilized" after one spouse dies without bringing "undue attention" to the fact that these same rates can be jacked up repeatedly in the decades before the first spouse dies? Seems that bringing this whole "escalating premiums" issue to the table might just convince the prospective customers not to buy LTCI at all.

LTCI is a product not ready for prime time. People want their premiums to stay the same if they buy the inflation coverage. The insurance companies (the ones with the big ad budgets and skyscrapers) are supposed to be in the business of assessing and spreading risks--that's exactly what people are paying for when they buy insurance. Customers shouldn't get a premium hike when the insurance companies guess wrong concerning the cost of care--we sure don't get a rebate on our life insurance if they "guess wrong" and we live longer than the model called for.

 

[growing_older]

The client was spending $400k per year of her own money to support the mother and spent down a lot of the assets that she thought she would have for retirement.

What kind of crazy gold plated policy would pay this kind of benefit? It must have a princely premium. Probably enough to pay a reasonable care facility for many years.

I am very interested in the analysis that could help me decide if I need that kind of insurance or not.