Required Emergency Funds -- How much in retirement

[ziggy29]

Still, our federal LTC policy premiums increased by a staggering amount just in one year, this year. Even worse, the wording on the policies was such that from what I can tell, the majority of those with these policies felt like they were sucker-punched.

This is another reason why many people don't trust LTCI. One of the selling points the insurers make is to "lock in low rates while you're young." Yet those rates really aren't locked in (other than that they can only raise rates on the entire group and can't ding you for developing health conditions). My mom (age 74, generally healthy) tells me her LTCI is going up more than 35% in two steps over the next year (20% last month and another 15% a year later). With that kind of surprise it's hard to use these policies as a real form of risk management, because you could pay the premiums dutifully for 20 years and find yourself "priced out" of keeping it when you're likely to need it most -- when you're older.

Sounds a bit like the health insurance quagmire, actually...

 

[REWahoo]

Tough call. remain as confused as ever about LTC insurance.

I agree it's a crapshoot. Since I have it no doubt it will turn out to be a mistake.

 

[youbet]

Tough call. remain as confused as ever about LTC insurance.

Me too. If LTCI was as straight forward as, say, term life insurance I'd probably buy as long as premiums were under 10% of our current budget. Self-insuring, if you actually make an effort to plan for the spouse who is the financial leader of the band to be out of commission and large bills need to be paid for a looooong time, is a true pita. My portfolio is more conservative and liquid now that it would be if we had LTCI. But, I haven't found LTCI I trust so far. So a chunk of my portfolio is easily harvestible by DW if the need arises.

 

[Delawaredave5]

I obviously wasn't clear in my question. Emergency fund has strong connotations.

Let me ask two different questions, which may be more straight-forward and can help get to the same answer:

1. How many years of self-insured LTC do you/will you/would you have provisions for? (Note -- in my case, I am self-insuring from a separate fund primarily for this purpose--assume no impact to other pots of money)

I wouldn't have any separate "pool" of assets for LTC self-insure. I think you want to have 2 years worth of "private pay" assets available.

When I was looking for potential nursing home for my mother (fortunately never needed) after illness, many homes did not take Medicaid people directly (or avoided taking).

But if you had 2 years worth of assets as private pay ($120K or so) -- they wanted to talk with you and would guarantee you'd stay there if you ran out of assets and went to Medicaid.

Private pay customers are more valuable - and they probably know that average LTC situations are inside of 2-3 years.

 

[REWahoo]

My mom (age 74, generally healthy) tells me her LTCI is going up more than 35% in two steps over the next year (20% last month and another 15% a year later). With that kind of surprise it's hard to use these policies as a real form of risk management, because you could pay the premiums dutifully for 20 years and find yourself "priced out" of keeping it when you're likely to need it most -- when you're older.

I've mentioned this before, but DW and I have discussed what we will do if our LTCI premiums get too steep. We plan to cancel the policy on her and keep only mine in place. Our thinking is I can probably live more comfortably on less money than she - since I'm apparently related to Unclemick.

 

[youbet]

I guess every couple would have to do the math, but NH expenses are not necessarily completely additive to prior expenses.

True Rich. In our case, 61 yrs old, I assume a 20% reduction in non NH household expenses for the first two years if one of us is suddenly struck down and placed in LTC. So I'm self-insured for 80% of current expenses plus NH for two years. After that, I assume downsizing, selling a car, etc. in order to remain private pay (and solvent) for several more years after that.

If NH care needs arise later in life, say our 80's, I'm not as concerned. It's now, our early 60's, when my fear of DW being near-broke and going on for many years makes me investigate annunities (ugh), LTCI, trusts, and blaaaah, blaaah, blaaah.

I sure wish the choices could be more straight forward.

 

[youbet]

But if you had 2 years worth of assets as private pay ($120K or so) -- they wanted to talk with you and would guarantee you'd stay there if you ran out of assets and went to Medicaid.

I think the real issue is, for couples, even if you construct your portfolio to have 2 yrs of LTC easily available, you might need more than two years and will have to liquididate as necessary to pay. Medicaid doesn't care what investments you're in. They want you to pay until you're near-broke. At least that is how it is in Illinois.

 

[Moemg]

I've mentioned this before, but DW and I have discussed what we will do if our LTCI premiums get too steep. We plan to cancel the policy on her and keep only mine in place. Our thinking is I can probably live more comfortably on less money than she - since I'm apparently related to Unclemick. [

I 'd drop the policy on you since most women outlive men and she would be alive if you needed some care . Like Rich I think it is questionable whether it's a smart insurance and so far I am self insuring and being real nice to my daughter .

 

[REWahoo]

I 'd drop the policy on you since most women outlive men and she would be alive if you needed some care .

Yes, she would. But she would be spending down her (our) assets to fund my care. That could leave her with LTCI coverage but no money to live on. Not something I want to see happen.

Much better to my way of thinking if we have LTCI coverage on me in order to leave her a nest egg after I'm gone - whether it be for her routine living expenses or for her own long term care.

 

[Rich_by_the_Bay]

I agree it's a crapshoot. Since I have it no doubt it will turn out to be a mistake.

If you're gonna bail, the sooner the better...

 

[REWahoo]

Our guarantee of premium expires next May and the amount of increase we're hit with could influence our decision on whether to pull the plug on one policy. The premium is currently only $580 for each of us, so it isn't a major hit to the budget - yet.

 

[ejman]

We bought a CALPERS (California state employee) LTC policy in 1998 in contemplation of early retirement. Premiums then were $1,200 a year for my wife and myself ($135/day indexed to inflation). Premiums have now increased by 47% after I decided to try to keep our original coverage. CALPERS has a "cute" feature whereby they say they will never increase the premiums. Catch is they reduce the coverage. What I've decided to do going forward is keep my premiums level and just opt for the reduced coverage and self insure for the balance and hope for the best. Maybe I'll have to check out nursing homes in Mexico or Costa Rica?

 

[Rich_by_the_Bay]

Our guarantee of premium expires next May and the amount of increase we're hit with could influence our decision on whether to pull the plug on one policy. The premium is currently only $580 for each of us, so it isn't a major hit to the budget - yet.

Yes, at that low cost it's worth waiting to see what they do. Was the guarantee of premium for a specific period of time? Or attained age?

 

[Travel4Fun]

Wow, lots of discussion. Sounds like many of you are as uncertain as I am.

The good news is that the numbers that have been thrown out so far are in line with what I've been thinking, which is $150-250k. That would probably cover the extra cost for at least 3-5 years of care. The house could be used after that. If it is ten years, we're probably in trouble, but worrying too much about the very worst case would mean never retiring.

A minor additional clarification, not critical at this point, but since our pensions and current SS estimates should cover about 120% of planned expenses by the time I hit 65, our long-term retirement investments would only be for this purpose. Call it what you want, but the kids get it someday unless we need it for a budget buster like LTC.

Thanks for the comments. I'm feeling a little more comfortable now.

 

[REWahoo]

Yes, at that low cost it's worth waiting to see what they do. Was the guarantee of premium for a specific period of time? Or attained age?

10 years.

 

[Moemg]

Yes, she would. But she would be spending down her (our) assets to fund my care. That could leave her with LTCI coverage but no money to live on. Not something I want to see happen.

Not necessarily since when one spouse is still alive they can provide a lot of care and keep the partner out of a nursing home with a little help from visiting nurses .

 

[Rich_by_the_Bay]

Another strategy that we are considering: purchase a 20 year first-to-die term life insurance policy at around age 60 to 65. Choose a whole life product for each if you want lifelong protection, inheritance, etc. though at higher expense. If one enters a NH, you can spend down your assets to cover expenses knowing that the very vast majority who are there for > 4 months pass away there, usually by 3-4 years.

Depleted, the surviving spouse (or family) is the beneficiary of the insurance and has security for life. If neither enters a NH, you can either leave the policy in place for the heirs, or cancel it (or cash in if whole life).

Not for everyone, but makes sense for some.