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?
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?