How Much is Enough to Self Insure for LTC?

[Koolau]

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Originally Posted by youbet DW and I have been shopping CCRC's with type A contracts. Typical buy-in cost is around a half million with 90% refund. Monthly fees, for apartments we're interested in, run about six grand monthly for two. If one person moves to the NH section, the monthly apartment fee drops by about two grand but a four grand NH fee kicks in. You can pay more (much more for some of the really upscale places). We can afford those prices and the type A contract provides a type of LTCI, so moving to one would solve the "where will we spend our final years?" problem. But we feel too young to be in a CCRC when we visit them now. (We're 74.) But you have to be fully independent when you move in, so you can't wait too long. if one of you has a stroke or similar you won't be admitted. It can be a tight window to navigate. To answer OP's original question, given our ongoing income we could direct at paying a NH, we have about a half million of investments earmarked for LTC. That should cover at least ten years split between us in any ratio. We do this by having a FireCalc plan that is 100% successful and never has a lower residual value than a half million. We've also pre-funded projects such as a Special Needs Trust for a grandson, college funding for the other grandkids, and a few other things and removed those dollars from our portfolio so they're not part of the FireCalc plan. Whether it will be a type A CCRC or stay at home until AL or NH is pending......... It's nice to be able to afford either and have the choice.

We looked at one of these on the mainland. Everything seemed fine until they took us BY the "final stage" (critical care or nursing home equivalent). It looked like a warehouse for those trapped in their worn out bodies. I'm not sure most regular nursing homes don't look like that, but that was my impression of this particular place. It was sort of a multi-bed "ward" and, near as I could see, most folks were simply sleeping and hooked up to tubes, etc. No thanks. Where's the bacon?

[Koolau]

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Originally Posted by Montecfo Lots to unpack in this thread. Half the people may need LTC but far less than half will collect on a LTC policy. Why? They need assistance but that assistance does not qualify as LTC. Or they pass during the elimination period. Or their economical but aged brain says to drop that LTC insurance. It's too expensive! For these reasons I think paid up life insurance policies or a single paid up first to die policy make more sense. Cheaper and you know it will pay off. You need a mechanism to fund the expense, then file claims against the LTC policy, at least at first. People can miss that. Paid up life insurance can facilitate this through policy loans. Also, it's paid up so no annual expense to forget to pay. It's price does not rise, unlike LTC. My parents both passed at young ages, never needing LTC. Wife's parents both entered nursing homes but passed within elimination period after long lives. No LTC claims sustained in either case. We self insure using non-aegregated assets. But I also have a term life policy of $400k. It's not for LTC, it is to fund higher taxes as a single taxpayer for the surviving spouse. We don't strictly need it but it's a bit of a lottery ticket since despite being an active seemingly healthy guy, I have CAD. Marko made some very good points to the effect that all costs of LTC are not incremental. And others have pointed out there can be some ancillary costs that are not considered. Medication management is a good one to note. As we age, meds become more complicated but minds more simple. Home equity is great, but have that HELOC in place in advance. All these things say it's best to find generously but with as low a cost as possible.

IIRC you sort of explained the life insurance strategy before but I'm curious as to the premiums of such a plan. Borrowing $10k/month from insurance policies would mean some big cash-value policies. Whole life policies are relatively expensive - I know, I funded some for my kids. Our decent LTCI premiums are right at $4K/year for the two of us. That would not buy much whole life - even starting when we did around age 51 for our LTCI. YMMV

[Montecfo]

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Originally Posted by Koolau IIRC you sort of explained the life insurance strategy before but I'm curious as to the premiums of such a plan. Borrowing $10k/month from insurance policies would mean some big cash-value policies. Whole life policies are relatively expensive - I know, I funded some for my kids. Our decent LTCI premiums are right at $4K/year for the two of us. That would not buy much whole life - even starting when we did around age 51 for our LTCI. YMMV

The price of policies varies but they certainly will be cheaper when interest rates are not at all time lows. And you have no idea the cost of LTC policies, they will only go up in price. And chances are they go unused for the reasons I stated.

The benefits of the life insurance strategy as I see them are:

-It has a built-in funding mechanism, the policy loan. LTC policies have an elimination period and ongoing claims to be funded and then reimbursed. You need to self-insure for that.

-It has a fixed price unlike LTC

- You won't be tempted to cancel it in your old age do to short-sided frugality, unlike a LTC policy which requires payment at least annually

-Life insurance pays off in all cases. LTC goes unused, gets cancelled, or fails to pay off in the elimination period in many and what I suspect is the majority of cases.

I'm not saying it's for everyone and I know you are happy with your policies. But I consider it a creative alternative which addresses several of the weaknesses of LTC. I don't sell insurance or have any skin in that game.

The cheapest product may not be the least expensive.

[Koolau]

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Originally Posted by Montecfo The price of policies varies but they certainly will be cheaper when interest rates are not at all time lows. And you have no idea the cost of LTC policies, they will only go up in price. And chances are they go unused for the reasons I stated. The benefits of the life insurance strategy as I see them are: -It has a built-in funding mechanism, the policy loan. LTC policies have an elimination period and ongoing claims to be funded and then reimbursed. You need to self-insure for that. -It has a fixed price unlike LTC - You won't be tempted to cancel it in your old age do to short-sided frugality, unlike a LTC policy which requires payment at least annually -Life insurance pays off in all cases. LTC goes unused, gets cancelled, or fails to pay off in the elimination period in many and what I suspect is the majority of cases. I'm not saying it's for everyone and I know you are happy with your policies. But I consider it a creative alternative which addresses several of the weaknesses of LTC. I don't sell insurance or have any skin in that game. The cheapest product may not be the least expensive.

Heh, heh, I wouldn't say I'm "happy" with my policies. I think they will work for us is about as good as I'll give them. I think it's less than 50:50 that I would do them again if I could go back to age 51. BUT now that both our health situations make NH care more likely, I'm hanging on. Thanks for the info and Aloha.

[KarenF]

We did get LTC, as it was not very expensive ($3400/year) and is a shared benefit for both of us, which allows for in home care and care in a Facility. My Mom was spending a lot (I was spending it for her) and I was getting worried about her running out of money on year 4. Memory care with all services got pretty expensive. We could technically self insure, but the LTC gives us a flywheel of $5300/month each for 2 years, or longer if the cost is less, along with a Care Coordinator. It gives me some piece of mind to have it. It is insurance - I hope we never need it!

[travelover]

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Originally Posted by KarenF We did get LTC, as it was not very expensive ($3400/year) .......

My understanding is that the rate is not fixed and can jump substantially. If you decide to discontinue coverage, you lose everything paid to that date. Is that how your policy works?

[msanniee]

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Originally Posted by Scuba We don’t have a specific bucket either, but agree with the point that by the time one of us needs LTC, the other’s lifestyle will reduce accordingly - much lower spending on eating out, entertainment and travel. Between this spending reduction, and applying SS and pension to help cover costs, the truly incremental cost should be very manageable for us. Our LTC insurance is an investment property we own - So CA beachfront condo worth around $1M net of debt and selling costs. Probably will be worth a lot more In 20-30 years if we keep it that long. If we sell it, the net proceeds and the earnings on them should be more than enough to fund LTC for both of us. I have also made DH promise that if I’m ever so cognitively disabled that I need to live in Memory Care, I’d rather he look at other solutions. The last thing I want is DH draining our assets to keep me alive when I don’t even know who I am or what’s going on. Unfortunately I don’t know of any legal options to do this but I’m hoping DH will come up with something.

In United States there are no legal options. Switzerland does have legal options.

[TheWizard]

I'm single, not married anymore.
My age 72 retirement income is closer to $200k per year than $100k.
My investment portfolio and primary residence are worth a few million dollars as well.

My understanding is, once you go into LTC, that's pretty much IT.
You're not going to be going on any road trips or cruises anymore, right?

So I think I can probably pay the cost if/when the time comes...

[RobbieB]

Yeah, me too. Most people don't last 6 months in "the home"

[Dash man]

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Originally Posted by RobbieB Yeah, me too. Most people don't last 6 months in "the home"

My father-in-law’s wife lasted three years in a nursing home and three years before that in assisted living/memory care. She just passed last month at 94.
You never really know how long someone will last.

[reneeh63]

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Originally Posted by COcheesehead Whether you can continue to live at home is very dependent on what condition you are in. Having watched both my father and my father in law in assisted living homes, there is no way either could have stayed at home. Memory and personal safety issues became more important.

Yes, it's easy to imagine the person who has trouble ambulating or is incontinent, or needs help eating. But things get much more complicated if they have chronic conditions like heart disease, kidney disease, diabetes, etc. Over many years those get much more difficult to manage and end up needing a skilled nursing care. Sure, you can get that at home too, but it costs a lot more than just a CNA who can change your diaper.

[reneeh63]

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Originally Posted by RobbieB Yeah, me too. Most people don't last 6 months in "the home"

Do people not understand the meaning of words like "median"? The median means half spend less than that time and half spend more. It doesn't mean "the max", or even "most". The only reason the median has gone down is because people are spending lots of money before that on in-home care for a few years. It's cheaper than full-blown nursing home care but it ain't cheap.

Feels like people are pretty confident they'll die fast and easy. Not that I hope people experience it in their families but perceptions change quickly when you see what a couple older relatives go through. Very few people die in their sleep from a massive heart attack or stroke these days. There are many "middling" conditions where you're not dead, and not even on life support (so you can't be "assisted" in dying) but you clearly will need a lot of help to continue living.

[audreyh1]

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Originally Posted by travelover We've had a great stock market run and a lot of threads remarking on how flush many of us are. The question arises as to what to spend that extra money on and my mind goes to that looming question of what is the final cost of exiting this world. For those of you without LTC insurance, what reserve are you holding to fund LTC for a couple? Medicaid aside, as I don't want to have to go that route.

We don’t have a special reserve, just knowing that a good $500K or so could be pulled from the nest egg to cover LTC expenses for one spouse over several years. The surviving spouse can spend down the remaining portfolio.

[audreyh1]

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Originally Posted by RunningBum I'm not sure, but doesn't LTCI have a maximum benefit? So whatever that would be is how much one would need to self-insure. It may not be enough if you need many years of LTC, but insurance wouldn't be enough either. I would assume if there's a policy with no max benefit it would be very expensive.

Yes, exactly. LTC policies have limits. A policy may be capped at $300K for example. Perhaps there is some inflation built in to the cap.

[KarenF]

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Originally Posted by travelover My understanding is that the rate is not fixed and can jump substantially. If you decide to discontinue coverage, you lose everything paid to that date. Is that how your policy works?

That is how our policy works. It is straight insurance, so if we stop paying, we get no benefit. The premium could go up, but we also have coverage increasing with inflation. What helped me to think about was that it is insurance. I really hope I never use it, just like I hope I never use my Homeowner's insurance. The best case is to live to 100 and die suddenly (the women in my family have all lived well into their 90s, with unhealthy habits). At least with the Care Coordinator benefit, maybe that will take some burden off my kids if I do need it.

[Exchme]

MIL needs to be in assisted living, but that would not be covered by an LTC policy. She could linger in this not-quite-sick-enough Neverland for most of the rest of her life.

My dad spent a decade in the memory care unit. No LTC policy, but the facility costs were tax deductible and he was pulling the money from an IRA, so he got some tax benefit.

A few years ago, our (since fired) FA was showing us an LTC policy, I believe there was a pre-payment option, but the pre-payment was about equal the maximum policy benefit and IIRC, there was still an exclusion period. The poor implied growth rate, the exclusion periods, incessant price increases as you get old enough to be likely to need them makes buying one look really unattractive to me.

I would note that adding the worst case health costs to a worst case investment outcome might be overdoing the conservatism. I would hope that a conservative WR, plus a bit of extra in the IRA would be good enough.

[athena53]

My "macro" view is that right now I'm spending about $100K/year and it's sustainable. Net worth up over 4%/year on average in the 7 years since I retired. $100K/year is about the cost of decent LTC in a LCOL area such as mine. Most of my other expenses will go to zero- house, car, travel, charity, property taxes, etc. Being single does make this decision simpler. Once I'm out of the house it can be sold and right now the mortgage balance is a measly $65,000.

[GalaxyBoy]

DF outgrew the "rehab" that Medicare pays for and entered LTC at the end of his life. I wrote the check for the first month for about $6k on the day he died, actually.

DW was able to keep a LTC policy from her (state government) employer when she RE'd ten years ago. Premiums are about $24 per quarter but benefits are only $75 per day with no COLA. I'm putting off SS until age 70 and I think of that as my LTC policy since we really don't need those funds for other expenses.

This thread provides much food for thought. I need to make more specific plans.

[zippy2020]

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Originally Posted by jkern I believe that a large portion of LTC expenses will be tax deductible, thus cancelling a portion of that IRA tax bill.

From the IRS website:
Yes, in certain instances nursing home expenses are deductible medical expenses.

• If you, your spouse, or your dependent is in a nursing home primarily for medical care, then the entire nursing home cost (including meals and lodging) is deductible as a medical expense.
• If that individual is in a home primarily for non-medical reasons, then only the cost of the actual medical care is deductible as a medical expense, not the cost of the meals and lodging.

Note that the IRS puts a floor on those deductions:
You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income. You figure the amount you're allowed to deduct on Schedule A (Form 1040).

A partial list of allowable medical deductions is at:
https://www.irs.gov/taxtopics/tc502

[PatrickA5]

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Originally Posted by athena53 My "macro" view is that right now I'm spending about $100K/year and it's sustainable. Net worth up over 4%/year on average in the 7 years since I retired. $100K/year is about the cost of decent LTC in a LCOL area such as mine. Most of my other expenses will go to zero- house, car, travel, charity, property taxes, etc. Being single does make this decision simpler. Once I'm out of the house it can be sold and right now the mortgage balance is a measly $65,000.

I agree with this. Firecalc and Fidelity say we can spend around $120K per year (includes SS). In the next couple of years, as big expense come to a close, we'll be down to $80K - $90K in actual spending going forward. Of this amount, a huge percentage will go away if we have to go in AL or NH.

Of course, the problem is: if the first one of us has to go to AL for a lengthy time (while the other one continues living at home). That could be a problem. I guess a HELOC might work in that situation. I think we'd still be ok, but we're not one of the lucky ones with an extra million laying around.