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

[pb4uski]

I agree with your points, but therefore the object of the SPIA is not superior payout. The point is longevity insurance. Transfer some of that risk to an insurance company in exchange for less upside for your heirs if you kark earlier.

I agree, but there is a huge difference between a superior payout and a pathetic payout and there is only a 10% chance of living long enough to have a reasonable payout, leaving a 90% chance of ending up with a pathetic payout with the SPIA.

For me, I would take my chances with a CD ladder.

 

[Out-to-Lunch]

I agree, but there is a huge difference between a superior payout and a pathetic payout and there is only a 10% chance of living long enough to have a reasonable payout, leaving a 90% chance of ending up with a pathetic payout with the SPIA.

For me, I would take my chances with a CD ladder.

Good point. True enough!

 

[bevette]

Well, to start, Pfau is well known as a schill for the annuity industry. Second, is Pfau's recommendation for a SPIA for a couple in their mid-80s?

The main problem that I have with a SPIA for people of that age is a common problem with SPIA's generally, if the annuitant dies shortly after buying the SPIA then the money goes "poof".

The payout for a joint life annuity for life with 10 years certain for an 86yo male and 84yo female according to immediateannuities.com is 10.54% so you don't get any return at all until you are ~9-1/2 years in so that is 95-1/2 and 93-1/2.

Below is the IRR of a $120,000 premium and $1,054 monthly benefit for an 85 year old. Note that you don't start getting a positive return until age 94-1/2... for those first 9-1/2 years you are just getting your own money back... and you don't get a "return" comparable to a CD/bond ladder until age 98. OTOH, if you live beyond 98 then the returns are attractive compared to a CD/bond ladder. All things considered, I just don't see it as a good investment. YMMV.

Age n Cash flow IRR
85 0 -120,000
86 1 12,648
87 2 12,648
88 3 12,648
89 4 12,648 -27.4%
90 5 12,648 -18.1%
91 6 12,648 -11.7%
92 7 12,648 -7.1%
93 8 12,648 -3.6%
94 9 12,648 -1.0%
95 10 12,648 1.0%
96 11 12,648 2.5%
97 12 12,648 3.8%
98 13 12,648 4.8%
99 14 12,648 5.7%
100 15 12,648 6.4%

ETA: According to the Society of Actuaries Longevity Illustrator, there is only about a 25% chance of a healthy 86 yo male living to 94 and a 84yo female living to 95, so the expected return is very low.

Probability Him Her Either Both

90% 0 1 3 0

75% 2 3 6 1

50% 5 7 9 3

25% 8 11 12 6

10% 11 14 15 8

No, Pfau's recommendation wasn't specific for a couple in their mid-80s. I read Pfau's Safety First book some time ago and I recalled the SPIA recommendation from that in general terms only. Thank you for providing this IRR table. This makes it crystal clear that SPIA only addresses longevity risk while providing weak returns until age 98.

 

[zippy2020]

Seniorcare facilities in the US are literally "the Wild, Wild West". There is no directory of facilities because the landscape is in flux and will probably continue to be for a good long while, or until the US finally wises up and faces the issue of an aging population that is mostly lacking sufficient retirement funds.

For-profit healthcare chains are buying up as many non-profit seniorcare facilities as they can convince to sell. Why go through years of permitting, public hearings, construction financing, etc. etc., when you can just buy a current facility and install new management, along with a new set of rules/regulations/living agreements?

The pandemic and lockdown have only accelerated the loss of non-profit facilities. They are generally smaller, local chains and struggle with the higher vacancy rates that have occurred (due a confluence of factors), so selling out to a Big Corporation with very deep pockets is a compelling opportunity.

 

[Koolau]

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

Yes, it is just not right what they are doing to your mother (and you, really.) I would sue for all expenses AND damages and punitive. The insurance company needs to learn a lesson. It's even possible there could be a class action, but that gets complicate very quickly - and the lawyers typically get the lions share. In any case. Hang in there!

 

[Global Wizzo]

Couple of thoughts.
My mother decided to move into a very nice AL place when she was 95. Enjoyed it there for five years. Some things to consider. State laws and regulations affect all this so check.
1. In order to stay in AL and not memory care or nursing facility, they have to be able to perform most daily tasks and eat in the dining room.
2. Some allow external hire extra help. Quality and cost varies widely. Never needed this, but saw the range from reading the phone for 8 hours to great nursing help.
3. If they have to go to the Hosp and rehab, how long can you keep the room at the AL facility? If unlimited, how long can the budget carry it.
4. Mom had excellent insurance. Not eligible for Medicare. Medical care for AL facility gave her tax deductions for part of the cost.
5. Her place in GA was little over $4K/mo. Similar facility in FL is about 8K. When she had to spend a couple months in rehab, her cost after insurance was 6K+ per month plus the monthly AL cost.

Make sure you know the facility policies, maintain a good relationship with the management and nursing team, and have a good financial cushion for the unknowns.

 

[Henry Lili]

Fees compound big time over the years beyond the quoted rates. Lots of nickle-and-diming as well. Whatever numbers you come up with I suggest "stress testing " assumptions.

 

[zippy2020]

Just FYI:

I'd like to ask participants in this discussion to be more careful about confusing MEDICARE with MEDICAID. There are at least three posts where the program "Medicare" is referenced, when I think the post is referring to "Medicaid"?

The two programs are quite different, and many people do mix them up. But it's important for all of us to keep them straight.

If I'm incorrect about the posts' references, my apologies in advance!

 

[Global Wizzo]

In my reply, I mention mom was not eligible for Medicare. She was not eligible due to too few quarters worked in eligible position. My dad was exempt from SS contributions. Her income was way too high for Medicaid.

 

[Sunset]

Just FYI:

I'd like to ask participants in this discussion to be more careful about confusing MEDICARE with MEDICAID. There are at least three posts where the program "Medicare" is referenced, when I think the post is referring to "Medicaid"?

The two programs are quite different, and many people do mix them up. But it's important for all of us to keep them straight.

If I'm incorrect about the posts' references, my apologies in advance!

Aaaaaakkkkk !! Good catch.

My post #26 , which I cannot edit anymore should have said Medicaid instead of Medicare, as in:

For example a retirement home we looked at required: $300K in assets and SS. This was because they wanted to be sure to be paid for 3 years (at cost of $100K/yr), and after that if a person ran out of money they would keep them in the same room and services and accept Medicaid payment plus most of the SS each month.

 

[bevette]

OP here with an update. Since no financial planners returned my calls/emails, I used the paid version of NewRetirement to set a budget for my parents' move to independent living. Because they have LTCI, they have selected a monthly lease property. They have onsite home health care when needed, or residents may bring in outside agency help.


To all who contributed to this message thread I extend my deepest gratitude. I learned much from your knowledgeable responses and you made this stressful and frankly scary decision easier.



My parents asked me to take over their finances so I will be mining this message board to assist me with this new responsibility. I'm still w*rking, and have not put draw down into practice yet.

 

[Sunset]

Be sure an let us know how it goes when they claim for their LTCI.

 

[bevette]

Be sure an let us know how it goes when they claim for their LTCI.

I most certainly will.

 

[Koolau]

Fees compound big time over the years beyond the quoted rates. Lots of nickle-and-diming as well. Whatever numbers you come up with I suggest "stress testing " assumptions.

Yeah, add a third or more contingency to cover everything. Mom's meds (which were piddly costs at home) multiplied when they had to arrive in blister packs or whatever at the memory care unit. No option for any other delivery system at the nursing home - you just had to pay it. As mom's health deteriorated, her doc kept adding more meds which added more costs. YMMV

 

[bevette]

Yeah, add a third or more contingency to cover everything. Mom's meds (which were piddly costs at home) multiplied when they had to arrive in blister packs or whatever at the memory care unit. No option for any other delivery system at the nursing home - you just had to pay it. As mom's health deteriorated, her doc kept adding more meds which added more costs. YMMV

Definitely. I padded the budget to cover future prescriptions. One parent already had a 12-18 month stretch of pricy meds, so we’re aware of that risk.