Budgeting Move to Independent Living Facility (am I missing anything?)

[bevette]

My parents want to move to a senior living facility. They asked me to do the financial analysis to determine their budget for the monthly fees. They have a very simple financial situation, and I feel like the analysis was almost too easy. A second set of eyes from the brain trust here will be much appreciated. Below is my methodology. Please let me know if I am missing anything or have a flawed approach. My goal is a conservative approach to provide a safety margin.

Senior living scenario:

- Parents are 86 & 84 years old
- Monthly lease property (no CCRC/buy in properties)
- Enter independent living to age in place, and bring in home health services if/when needed.
- Long term care policies will contribute to home health, advanced care, memory care if needed.

Budget methodology:
1. Sum existing income streams: pension, social security, dividends and interest.
2. Add asset draw down: sum all assets (IRA, brokerage, proceeds from home sale). Exclude a health chunk for emergency fund, moving fees, community fee, etc., future unforeseen expenses; utilize the IRS RMD tables to determine year 1 withdrawal amount for their ages. I used this RMD calculator from Mainstay Capital recommended on Bogleheads forum. It appears to be powered by Dinkytown. I used a conservative 4% rate of return. I prefer to err on the side of risk aversion. I also know the RMD % amount will increase each year (on either a larger or smaller balance), but I’m only using the year 1 amount. Convert year 1 RMD to monthly equivalent.
3. Expenses: reviewed average 2022 monthly expenses and removed expense items that will go away (HOA, certain utilities, etc.) and reduced grocery expenses by 60%. (They are foodies and will prepare some food and snacks in their apartment outside of their meal plan, at least initially).

I took the difference between the income and expenses and have set that as the all-in budget for all out of pocket independent living monthly expenses.

Am I accounting for everything?
Is this a valid approach?
Are there any gaps in my methodology?

[Sunset]

I think the RMD calculator is out of date, last updated 11 years ago:

"This calculator follows the latest IRS rules and life expectancy tables, which were finalized on April 16th, 2002. These new IRS regulations were optional in 2002 but became mandatory as of January 1st, 2003. This calculator was last updated June 2012"

[Sunset]

This example of a new table of the commonly used one shows a different withdrawal amount from the calculator you posted..

https://smartasset.com/retirement/rmd-table

[bevette]

Quote:

Originally Posted by Sunset I think the RMD calculator is out of date, last updated 11 years ago: "This calculator follows the latest IRS rules and life expectancy tables, which were finalized on April 16th, 2002. These new IRS regulations were optional in 2002 but became mandatory as of January 1st, 2003. This calculator was last updated June 2012"

This is super valuable feedback. Thank you very much. I’ll be sure to use a current calculator. I’ll also tell Bogelheads wiki to update their link.

[Sunset]

Quote:

Originally Posted by bevette This is super valuable feedback. Thank you very much. I’ll be sure to use a current calculator. I’ll also tell Bogelheads wiki to update their link.

I'm not sure you need a calculator, as they should already be taking RMD's.
Calculated from the total value of all IRA's added together, and take RMD's from each 401K.

The reason I think a calculator is not much use is the value of the accounts could vary year to year quite a lot, so might as well just use the most recent number you have for the most recent year.

[bevette]

Quote:

Originally Posted by Sunset I'm not sure you need a calculator, as they should already be taking RMD's. Calculated from the total value of all IRA's added together, and take RMD's from each 401K. The reason I think a calculator is not much use is the value of the accounts could vary year to year quite a lot, so might as well just use the most recent number you have for the most recent year.

The purpose of using an RMD calculator is that I'm applying it to the entirety of their portfolio of investable assets, including their brokerage account, to calculate a safe withdrawal rate. Is this misguided thinking? I wish I remembered which financial journalist suggested this technique.

[TheWizard]

Quote:

Originally Posted by bevette The purpose of using an RMD calculator is that I'm applying it to the entirety of their portfolio of investable assets, including their brokerage account, to calculate a safe withdrawal rate. Is this misguided thinking? I wish I remembered which financial journalist suggested this technique.

Regardless, you just need a correct RMD table.
The life expectancy factor for age 85 is 16.0, so divide their total investible assets by that and you have this year's answer.

Both that factor and their asset total will change in the future, so it's difficult to project accurately, unless they're all in fixed income investments...

[folly]

My mother lived in an Independent living place. I watched closely as I feel I will one day want to live in a place like it. One unexpected problem was the meal plan was more than she normally consumed but being the thrifty person she is, she soon gained unwanted weight! They also did not offer what I would call low sugar options for meals.

Eventually she lost her sight. Once vision is lost, balance is impacted. It became hard for her to live at the independent site, especially during COVID. She needed a companion to do most activities other than sleep. She refused the idea of hiring someone, stubbornness. She chose to move to my brother's home and live in their guest cottage. There she quickly became demanding that they do for her. She finally agreed to a housecleaner, laundry and sometimes the caretaker takes her out to small local shops. At most 8 hours a week. It is her stubbornness that is causing issues. At 93 she is a master at invoking guilt in family members for not being at her beck and call. I don't know how to plan for these issues. They are not financial but they have caused all of the problems. Possibly a contract like you might have with a teenager. Make a plan, write it down and all parties agree? IDK the answer, just know the money part has been far easier than the emotional part.

[single2019]

Quote:

Originally Posted by bevette This is super valuable feedback. Thank you very much. I’ll be sure to use a current calculator. I’ll also tell Bogelheads wiki to update their link.

Here’s an updated RMD calculator

https://www.aarp.org/work/retirement-planning/required-minimum-distribution-calculator.html

[bevette]

Quote:

Originally Posted by folly My mother lived in an Independent living place. I watched closely as I feel I will one day want to live in a place like it. One unexpected problem was the meal plan was more than she normally consumed but being the thrifty person she is, she soon gained unwanted weight! They also did not offer what I would call low sugar options for meals. Eventually she lost her sight. Once vision is lost, balance is impacted. It became hard for her to live at the independent site, especially during COVID. She needed a companion to do most activities other than sleep. She refused the idea of hiring someone, stubbornness. She chose to move to my brother's home and live in their guest cottage. There she quickly became demanding that they do for her. She finally agreed to a housecleaner, laundry and sometimes the caretaker takes her out to small local shops. At most 8 hours a week. It is her stubbornness that is causing issues. At 93 she is a master at invoking guilt in family members for not being at her beck and call. I don't know how to plan for these issues. They are not financial but they have caused all of the problems. Possibly a contract like you might have with a teenager. Make a plan, write it down and all parties agree? IDK the answer, just know the money part has been far easier than the emotional part.

Sounds like she experienced her version of the freshman 15. My parents have a great attitude toward this move, but anything is possible once they actually make the transition. You provide sage advice on establishing mutually agreed upon caretaking responsibilities.

[bevette]

I’m now exploring converting their IRAs to SPIAs to remove market fluctuations from the equation. Inflation risk doesn’t go away unless we include a COLA rider. All senior living properties I’ve visited so far have been very transparent about annual 3% rate hikes on leases.

[pb4uski]

I don't think a SPIA at that age makes any sense at all. Just make a brokered CD or US Treasury or bond ladder with a rung for each expected annual withdrawal. For now, put any remainder in a money market fund. My MMF pays over 5% currently.

[harllee]

Regarding the long term care policies, look at the terms closely. My 92 year old mother who has Alzheimers has a LTC policy that is supposed to pay for home health care but they have denied her claim saying she is not bad off enough. I would not count on LTC insurance.

[pb4uski]

^^^ unfortunately, many stories like this.

Quote:

Actor Bruce Willis had a lot of difficulty getting a long-term care insurance claim for his mother, Marlene Willis, who was diagnosed with Alzheimer's disease in 2004. Willis filed a claim with his mother's long-term care insurance provider in 2007, but the claim was denied. Willis appealed the decision, but the denial was upheld. Willis then filed a lawsuit against the insurance company, alleging that it had breached its contract by denying his mother's claim. The lawsuit was eventually settled in 2009 for an undisclosed sum. In a statement, Willis said that he had filed the lawsuit to "hold this insurance company accountable for its actions and to help other people who are struggling to get their loved ones the care they need." Willis's case is not unique. Many people have difficulty getting long-term care insurance claims approved. Insurance companies often deny claims on technical grounds, such as arguing that the insured person does not meet the policy's definition of "cognitive impairment" or "activities of daily living" (ADLs) limitations. If you are having difficulty getting a long-term care insurance claim approved, you should contact an attorney who specializes in long-term care insurance law. An attorney can help you understand your rights and options, and can represent you in any appeals or lawsuits that may be necessary.

[harllee]

Quote:

Originally Posted by pb4uski ^^^ unfortunately, many stories like this.

Yes, I am working with am attorney but it will be a long down out process

[bmcgonig]

Quote:

Originally Posted by bevette My parents want to move to a senior living facility. They asked me to do the financial analysis to determine their budget for the monthly fees. They have a very simple financial situation, and I feel like the analysis was almost too easy. A second set of eyes from the brain trust here will be much appreciated. Below is my methodology. Please let me know if I am missing anything or have a flawed approach. My goal is a conservative approach to provide a safety margin. Senior living scenario: - Parents are 86 & 84 years old - Monthly lease property (no CCRC/buy in properties) - Enter independent living to age in place, and bring in home health services if/when needed. - Long term care policies will contribute to home health, advanced care, memory care if needed. Budget methodology: 1. Sum existing income streams: pension, social security, dividends and interest. 2. Add asset draw down: sum all assets (IRA, brokerage, proceeds from home sale). Exclude a health chunk for emergency fund, moving fees, community fee, etc., future unforeseen expenses; utilize the IRS RMD tables to determine year 1 withdrawal amount for their ages. I used this RMD calculator from Mainstay Capital recommended on Bogleheads forum. It appears to be powered by Dinkytown. I used a conservative 4% rate of return. I prefer to err on the side of risk aversion. I also know the RMD % amount will increase each year (on either a larger or smaller balance), but I’m only using the year 1 amount. Convert year 1 RMD to monthly equivalent. 3. Expenses: reviewed average 2022 monthly expenses and removed expense items that will go away (HOA, certain utilities, etc.) and reduced grocery expenses by 60%. (They are foodies and will prepare some food and snacks in their apartment outside of their meal plan, at least initially). I took the difference between the income and expenses and have set that as the all-in budget for all out of pocket independent living monthly expenses. Am I accounting for everything? Is this a valid approach? Are there any gaps in my methodology?

Sounds great to,me except the part about bringing in home health care if/when needed. This will potentially be a big job for them, and by extension for you. I’ve done it and it can be stressful and a full time job just to manage it all.

If possible could you get them into a type C CCRC, I.e., one without the large buy in but one that has a move up to assisted living facility? Of course they charge more at that stage but you will sleep a lot better without the worry and so will they.

[Sunset]

OP - What is the goal of your calculating their income ?

When my sister wanted to move to a "retirement facility", she loved various ones she looked at.

After I calculated her monthly income, that determined what she could afford, and that is what we looked at.

Are you attempting to determine what is affordable ?

[bevette]

Quote:

Originally Posted by Sunset OP - What is the goal of your calculating their income ? When my sister wanted to move to a "retirement facility", she loved various ones she looked at. After I calculated her monthly income, that determined what she could afford, and that is what we looked at. Are you attempting to determine what is affordable ?

Correct - the goal of this exercise is to determine what my parents can afford.

[bevette]

Quote:

Originally Posted by pb4uski I don't think a SPIA at that age makes any sense at all. Just make a brokered CD or US Treasury or bond ladder with a rung for each expected annual withdrawal. For now, put any remainder in a money market fund. My MMF pays over 5% currently.

The idea for a SPIA comes from Wade Pfau’s research that they fill the income gap for core expenses while providing peace of mind. My parents are risk averse and nervous about outliving their nest egg. Both of my mother’s parents lived into their upper 90s, and my father has zero health issues at age 86.

Only short term CDs currently have a decent rate, and there is still longevity risk with them. Why are SPIAs a poor option for a couple on their 80s?

[bevette]

Quote:

Originally Posted by bmcgonig Sounds great to,me except the part about bringing in home health care if/when needed. This will potentially be a big job for them, and by extension for you. I’ve done it and it can be stressful and a full time job just to manage it all. If possible could you get them into a type C CCRC, I.e., one without the large buy in but one that has a move up to assisted living facility? Of course they charge more at that stage but you will sleep a lot better without the worry and so will they.

This might be the type of facility I’m vetting for them. I’ve identified a handful of independent living properties that also have assisted living and memory care. All have an upfront community fee of a few thousand dollars, a monthly lease amount plus a second person fee.. None have identified itself as a CCRC type C, but maybe that’s because I’m not asking the right questions. How is a type C property different from what I described?