Newsweek article on retirement

[tangomonster]

This week's Newsweek had an article on retirement. Probably nothing that people on this board don't already know. Mentioned the 4% SWR, long term care insurance (recommended for people with net worth of $500,000 to 4 million), moving to less expensive places, etc.

One guy who they wrote up was truly a brave soul---took ER from his company at 57, wife is 53. Didn't say how much money he has, but it seemed to be tied up in insurance annuity type products. He and his wife recently adopted two preschoolers. I think I'd be scared to ER after just adopting kids. Is this guy brave or foolish?

They said that people who are 50 are generally advised to have a 60-40 mix of investments in favor of stocks, with 50-50 at age 65. We're more or less 50-50 at age 52 with ER coming up in a couple of months, but we think we're happy with this.

The article made me feel a little more comfortable with ER since they actually showed some people who are doing it....

 

[brewer12345]

Sounds like reasonable suggestions, except for the LTC. I really think the product is not a good idea for most people.

 

[HFWR]

Guy on Squawk Box this morning mentioned retirees needed 85% of pre-retirement income...

Sorry, it was early, only one cup of coffee...

 

[yakers]

Sounds like reasonable suggestions, except for the LTC. I really think the product is not a good idea for most people.

I tend to agree on LTC yet I have it anyway. I can think of a lot of reasons not to have it (could just drop dead, I will have a gov pension that should cover such costs, the insurance company could fold and more) but I see it as part of estate management. My wife & sons feel better about it and that is one reason for insurance. But if I put that money away for enough years I could be self insuring for a while and if I did just fall over there would maybe be more to leave them. I still go round and round with it but decided to have the LTC and still hope I never need it. Its only partially a financial calcualtion, something like paying off the mortgage.

 

[cute fuzzy bunny]

I ran the numbers on LTC. Unless we both got sick and clung in there for a long time, it wouldnt really be worth it.

 

[HFWR]

Haven't thought about it for a while, but the costs seemed prohibitive...

 

[dunc0029]

I used to work for a subsidiary of the same healthcare company I now work for, which handled LTC, Life, Disability, and flexible spending accounts.  I'm not sure if this applies in other states, but for us, the product had to be sold through agents ( or through employer benefits )- we couldn't sell it directly to individuals.  Anyway, needless to say, the agent gets a big cut of your premiums - around 65% of first year, 15% for each additional year you continued coverage.  You'll get a much better deal if you can get it through your employer.  Whether, even then, it's worth it is up for debate.

 

[Rich_by_the_Bay]

Another strategy I had commented upon some months ago: agree in advance that in the event of LTC need, you would tap in to your retirement nest egg to cover costs, even if several hundred thousand $$. Most LTC patients die under LTC and often within a couple of years.

Meantime, carry enough term life insurance even into older age, the purpose of which is to replete the deflated nest egg after death.

If you make it past age 75 or so, your nest egg may be big enough to drop the life insurance. Biggest downside is the cost of lots of life insurance in that age group but at least it's stable, predictable, and the coverage is certain -- unlike LTC with unpredictable premiums, partial coverage, and uncertain future health care costs and policy.

 

[tryan]

Can't see the need for early retirees .... how could it be cost effective for someone in thier 40's or 50's. Haven't run the numbers ... but I am guessing the insurance companies would love to sell it to me.

Heck, I am letting my term life policy run it's course ... won't be renewed when the lock expires.

 

[FlogBlogger]

One usually associates LTC as an end-of-life necessity, although LTC insurance can also serve as a form of disability insurance for the ER'ed. Seems to me those in better health would have less need than those with chronic, potentially disabling conditions...

 

[cj]

My biggest fears about LTC are (1) will the company still be in business in, oh, say, 30 years when I need it, and I've paid all those premiums? and (2) what keeps them from raising the premiums (for the class) to ridiculous levels? I've already read about policies where the premiums have been raised by a lot.

I'm just not convinced that the product is mature enough to make it worthwhile. It seems too expensive to start dumping money into when it hasn't been proven. From what I've heard, age 60 may be the optimal time to buy it. Maybe when we're closer to 60 we'll revisit.

CJ

 

[brewer12345]

My biggest fears about LTC are (1) will the company still be in business in, oh, say, 30 years when I need it, and I've paid all those premiums? and (2) what keeps them from raising the premiums (for the class) to ridiculous levels?  I've already read about policies where the premiums have been raised by a lot.

I'm just not convinced that the product is mature enough to make it worthwhile.  It seems too expensive to start dumping money into when it hasn't been proven. 

That's pretty much my take. I think the two remaining big players in this product (John HAncock and Genworth) are pretty darned solid from a creditworthiness standpoint, but the product looks expensive to me and you are always at risk of large rate increases.

 

[audreyh1]

Wow - $4 million seems like an awful high number for still buying LTC insurance!  Seems like with a portfolio that size you could self-insure.

I guess I can't imagine long term care needs eating into more than 12.5% (500K) of a portfolio that size, and probably much less.

Audrey

 

[cj]

Audrey - yes, I have seen before suggestions that you should do the LTC thing up to $2 million, and beyond that you can self-insure. But like all of the discussions on this board, it just depends on your lifestyle, eh? If I'm sitting on $4 million and my lifestyle requires $300K per year to maintain the yacht and the mansion and the summer home in the Hamptons... then maybe it's not all that much money.

CJ

 

[audreyh1]

Audrey - yes, I have seen before suggestions that you should do the LTC thing up to $2 million, and beyond that you can self-insure.  But like all of the discussions on this board, it just depends on your lifestyle, eh?  If I'm sitting on $4 million and my lifestyle requires $300K per year to maintain the yacht and the mansion and the summer home in the Hamptons...  then maybe it's not all that much money.   

CJ

Well - if your lifestyle requires $300K per year and you have only $4M portfolio, you are WAAAAAY outta line on your WR.  So it really doesn't matter.  You're probably going to go broke anyway.

My comments are predicated on a reasonably conservative WR.

BTW - 300K would buy several years LTC in many places. Or you could sell the yacht or one of the houses.

Audrey

 

[FlogBlogger]

From what I've heard, age 60 may be the optimal time to buy it. 

...and what little research I've done indicates NOW (at 49) is the time, before rates jump at age 50. And supposedly you can lock in premium rates based on the age you begin.

Or you could sell the yacht or one of the houses.

Yet another approach. Consider your residence your LTC policy--if necessary, sell.

 

[donheff]

I ran the numbers on LTC. Unless we both got sick and clung in there for a long time, it wouldnt really be worth it.

Interesting that I reached the same conclusion and then went for the LTC. I am a bit risk averse and wanted to keep as many uncontrolled variables out of the way. I agree with the poster who equated it with paying off the mortgage. In my case continuing the mortgage is a slightly better option considering the tax implications. But I paid it off anyway - what if the market goes to hell.

I figured the same on LTC -- what if we both got sick and clung in there for a long time or, worse, what if one of us got real sick and burned up all the funds and then kicked leaving the other busted. The health care system here sucks -- if you get extremelly ill you can lose everything. And some SOB at the hospital may stop you from pulling the plug -- argghh, don't get me started.

 

[Brat]

Just paid my Mom's care bill, averages $7,100/mo not counting personal services (hair cuts, perms).  She has been there at least 6 years (two broken hips, rib fractures, Parkinson's) and not showing signs of closing her book soon.  The facilities that accept Medicaid aren't to her liking.

Father also needed care, about a year for demensia, before he passed away.

Just middle income folks.

 

[2B]

Wow - $4 million seems like an awful high number for still buying LTC insurance!  Seems like with a portfolio that size you could self-insure.

I guess I can't imagine long term care needs eating into more than 12.5% (500K) of a portfolio that size, and probably much less.

Nursing home care varies considerably across the country (I don't know about Canada).  How much you need to self-insure would also vary considerably.

The bottom line in all the pronouncements on when you shoud buy LTC insurance (and how many people have more than $4MM) is marketing.  It's just our friends in the financials business touting a new product.

My father had LTC insurance.  He was obsessed with becoming a pauper if he went into a "home."  He never accepted the fact that it was almost certainly going to be a one way trip and that his assets would cover a nice LTC facility for decades.  He got slammed several times with class-wide rate increases.  You could get a new, cheaper policy if your health was good.  If it wasn't, you had a much higher rate.  He paid it until the day he died in his own bed.

 

[SteveR]

My mother has LTC insurance and is waiting to start using it. She is in an Assistend Living center but is at the lowest end of the "needs" area so her costs are lower at this point. She sold her house in Jan. and the equity is sitting in Vanguard for safekeeping. At 83 she could be there for a few years. Her policy covers a set amount and would only last her for 3 years max. at her current burn rate; maybe 2 if she went to full time nursing care. Her fallback is her home equity and some mutual funds. NW is around $400k with spending around $40k per year. She has a pension that pays about 1/2 her living costs so her nest egg will last her longer than she will most likely need it.

She could do fine without her LTC insurance put since it is a paid up policy we may start using it next year just to get her her premium back. If she needs full time care after that she should be covered by her other assets. We are still thinking this one through but it seems the most logical thing to do at this point. If she lives to 100 (very unlikely) she should wait on using the policy since it will use future $$ to pay for her care. Nobody knows how long they will live so you just take your best quess and run with it.

 

[Jarhead*]

Just paid my Mom's care bill, averages $7,100/mo not counting personal services (hair cuts, perms).  She has been there at least 6 years (two broken hips, rib fractures, Parkinson's) and not showing signs of closing her book soon.  The facilities that accept Medicaid aren't to her liking.

Father also needed care, about a year for demensia, before he passed away.

Just middle income folks.

Brat:  That's a very hefty premium.  Apparantly your mother must have had the funds at one time to pay, and is now down to the point where medicaid would be possible.?

My mother was on medicaid, and I can understand your mother not being thrilled with that prospect.

Definantly not one of life's most pleasant things to be faced with.

Take Care, Jarhead

 

[mathjak107]

my wife and i were thinking of self insuring for ltc ....last month money magazine did a portfolio makeover about us and reccommended we dont self-insure....if anyone hasnt seen the article its still up on cnn's website

http://money.cnn.com/magazines/moneymag/moneymag_archive/2006/03/01/8370203/index.htm

 

[mathjak107]

in feb. the laws changed drastically for medicaid.for those people that planned to shift assets to qualify for medicaid things are very different now.
the game used to be for those who were shifting assets, to clear the 3 yr window by taking 3 yrs of ltc and shifting assets....
as of feb the look back is now 5 years,,,,,any assets shifted less than 5 years ago are penalized by a waiting period for medicaid.the starting date for the waiting period used to be the day the assets were shifted..now it starts when medicaid is applied for..
other major changes is your home is no longer excluded...equity over 500,000 has to be tapped and if theres a surviving spouse,depending on your state they can force you to take a reverse mortgage under 500,000.............

 

[brewer12345]

in feb. the laws changed drastically for medicaid.for those people that planned to shift assets to qualify for medicaid things are very different now.
  the game used to be for those who were shifting assets, to clear the 3 yr window by taking 3 yrs of ltc and shifting assets....
   as of feb the look back is now 5 years,,,,,any assets shifted less than 5 years ago are penalized by a waiting period for medicaid.the starting date for the waiting period used to be the day the assets were shifted..now it starts when medicaid is applied for..
   other major changes is your home is no longer excluded...equity over 500,000 has to be tapped and if theres a surviving spouse,depending on your state they can force you to take a reverse mortgage under 500,000.............

Yeah, I know, but LTC insurance is still a sh!tty deal for most ERs who are decades away from needing LTC and in all likelihood will have an enormous pile of assets when they get old enough to need the coverage.

 

[Brat]

Brat:  That's a very hefty premium.  Apparantly your mother must have had the funds at one time to pay, and is now down to the point where medicaid would be possible.?

My mother was on medicaid, and I can understand your mother not being thrilled with that prospect.

Definantly not one of life's most pleasant things to be faced with.

Take Care, Jarhead

Mom and Dad are/were private pay all the way.  Since she is approaching 90, God willing, she should stay that way.  The had a very modest (old) long term care policy good only for nursing homes with no COLA adjustment.  It helped for 3 years, although Dad did not last that long.

One of the Medicaid qualified facilities in the area is top rated care wise, but Mom is very socially aware - not her thing.  IMHO she would expect to move in with my brother or I before she would go on medicaid.  Sigh...