Is it enough? Is it ever enough?

[GoodbyeYellow]

The recent post on the challenge of spending SS income raised an old worry.

I am 63, DW 60, both retired. We have cash reserves + small income to (if calcs are correct) take us up to her age 65 (4.5 years to go) so we can continue to use ACA. No SS income yet for either of us. We pull about $20K in dividends but that may change based on strategy. We add to this income with small conversions but as this is the first year we've been without any earned income, that plan is still in the oven.

We also have an investment portfolio in the low single $Ms. The plan is to take SS in 4.5 years (I'm guessing $70K total) and start cashing out the portfolio to cover the shortage. So from the above, it seems clear we won't need to draw the pf down much as our spend rate now is about $100K/yr. Mortgage payment is low, at $1K/mo with about $250K to go, at a very low rate (but will adjust around the time she hits 65). Health is still good enough for travel, and we can manage a couple of decent trips each year.

So what's the problem? We got here by frugal spending (saving) and would like to increase it (how, is another question and well-answered in the thread reference above, as well as countless others I'm sure). But how much to increase it by?

Enter the unknowns of life expectancy, long-term-care, other emergency expenses, and so on. Absolutely not a new dilemma; I'd be willing to bet a lot of you have been there already.

I mean, LTC can take the hide off of you, right? And 10, 20 years out, who knows what that will be if it's so horrendous today? With ongoing advances in medicine, can we rely on genealogical data to say ok, I'll be gone by x age? So we're finding it nigh-impossible to say, ok, beyond a base level of spending (and some small luxuries but really, not much), we can spend $x more and still be ok.

We do not need to allocate for kids; they are doing well.

Is there a magic calculator for this, given so much is guesswork? Are there viable hedges to LTC that are not rip-offs? What are y'all doing in this area?

 

[harllee]

Regarding the LTC issue. DH and I (early 70s) are moving next month into a very nice Class A Life Care Continuing Care Retirement Community. With this type of CCRC you pay an entrance fee (fairly large) and a monthly fee that stays the same (with inflation adjustments) even if you have to go to a higher level of care. The waiting list is long, we have been on it over 10 years, we got on the list when we were your age. At admission time the CCRC takes a close look at your finances, health and you have to pass a surprisingly hard cognitive test. You do not need any long term care insurance for this type of CCRC. If you ever run out of funds, there is a multimillion dollar trust fund that pays your way so you are never kicked out. Two ladies are currently getting receiving payments from the trust fund, both over 100 years of age.

 

[GoodbyeYellow]

Very interesting harllee and thanks. Do these types of facilities go by a certain description beyond Class A? I mean, this trust fund thing surely doesn't apply to all of the Class A's out there right?

I will look into what is available nearby. We do like the area we live in now though it is HCOL, but do have an MCOL area in mind as a fallback (although it is a distant second).

 

[harllee]

"Class A Life Care non profit CCRC", most of these have trust funds. There are several discussions about CCRCs on this Forum. You can do a search for them. This type of CCRC is in the minority, most CCRCs are fee for service types, where you pay a smaller admission fee but if you have to move from independent living to a higher level of care, such as assisted living, your monthly fee goes up substantially. I doubt if the fee for service types have the trust funds for people who run out of money.

 

[rodi]

Different people have different approaches to the LTC worries. We've chosen to consider out paid off house in an expensive real estate market as our LTC insurance. If one of us needs to go into long term care, the other can sell the house, move to a smaller home, and use the balance to pay for a couple of years of LTC. If we both need LTC, the house is more than enough for both of us for many years.

Other things you mention - emergencies, big ticket expenses.... I try to have a set aside pile of cash for emergencies. If a big ticket item or emergency comes up and I spend it, I make sure to refill that bucket again quickly. If it's a planned big expense (new car, kitchen remodel, whatever) I try to build up the cash amount to cover it, before spending it. But I'm a pay as I go (vs loans/credit) kind of gal.

For an idea of how much you can spend - look at firecal (linked at the bottom of the page)... If you fill out all the tabs - one of them is SS and any other pension income, and how much it will be, and when does it start. Then there's a tab (may have to be a donor to the page) to see how much you *can* spend. I always adjust that answer down, but that's just me.

 

[Montecfo]

We feel we have adequate funds to address LTC. If we did not we would address it using life insurance.

LTC is a real possible risk, but I think the benefits of LTC insurance are often overstated. Most folks will not require nursing home care and average length of stay is about 3 years for those who do.

And elimination periods of LTC policies and other limits reduce the value of these policies as do massive premium increases especially as we get closer to the ages where care may be needed.

Accordingly if insurance is needed I find it best to address this with life insurance. It always pays off.

 

[marko]

I mean, LTC can take the hide off of you, right? And 10, 20 years out, who knows what that will be if it's so horrendous today? With ongoing advances in medicine, can we rely on genealogical data to say ok, I'll be gone by x age? So we're finding it nigh-impossible to say, ok, beyond a base level of spending (and some small luxuries but really, not much), we can spend $x more and still be ok.

I've posted before (having seen it firsthand) that one needs to remember that LTC is not in addition to your current spending profile.

Life and spending habits change dramatically for the healthy spouse as well. Suddenly, you only need one car, the boat/second home go unused/sold, no expensive meals or clothing needed. Meals consist of a sandwich at the nursing home with the sick spouse. There's hundreds of little expenses racked up each month from a healthy person that stop when one is confined. In short, a $120k NH expense is often mitigated by as much as $50k+ of deferred living expenses. Still not chicken feed, but not quite as bad.

My personal experience is that the current trend is away from typical LTC and more towards in-home care which is often a lot less onerous cost wise until hospice care is required, and that is usually no more than a week or two.

Also, despite the horror stories of grandma spending 12 years in a nursing home, the reality is typically under six months.

 

[Koolau]

The recent post on the challenge of spending SS income raised an old worry.

I am 63, DW 60, both retired. We have cash reserves + small income to (if calcs are correct) take us up to her age 65 (4.5 years to go) so we can continue to use ACA. No SS income yet for either of us. We pull about $20K in dividends but that may change based on strategy. We add to this income with small conversions but as this is the first year we've been without any earned income, that plan is still in the oven.

We also have an investment portfolio in the low single $Ms. The plan is to take SS in 4.5 years (I'm guessing $70K total) and start cashing out the portfolio to cover the shortage. So from the above, it seems clear we won't need to draw the pf down much as our spend rate now is about $100K/yr. Mortgage payment is low, at $1K/mo with about $250K to go, at a very low rate (but will adjust around the time she hits 65). Health is still good enough for travel, and we can manage a couple of decent trips each year.

So what's the problem? We got here by frugal spending (saving) and would like to increase it (how, is another question and well-answered in the thread reference above, as well as countless others I'm sure). But how much to increase it by?

Enter the unknowns of life expectancy, long-term-care, other emergency expenses, and so on. Absolutely not a new dilemma; I'd be willing to bet a lot of you have been there already.

I mean, LTC can take the hide off of you, right? And 10, 20 years out, who knows what that will be if it's so horrendous today? With ongoing advances in medicine, can we rely on genealogical data to say ok, I'll be gone by x age? So we're finding it nigh-impossible to say, ok, beyond a base level of spending (and some small luxuries but really, not much), we can spend $x more and still be ok.

We do not need to allocate for kids; they are doing well.

Is there a magic calculator for this, given so much is guesswork? Are there viable hedges to LTC that are not rip-offs? What are y'all doing in this area?

As far as a "magic calculator" is concerned: You could use the simplest one of all. The 4% rule. Calculate how much your savings will drop until you go on SS. Then calculate your total savings at that time. Figure you can start taking around 4% from your stash the first year. Up that each year by the inflation number from the previous year. That's on top of your SS. Of course, YMMV.

 

[HI Bill]

At 63/60, you could use the 4% 'Rule" (which some might consider too conservative given your age, and some too liberal) or use the Variable Percentage Withdrawal (VPW) method as described by the Bogelheads: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

If using VPW, I would increase your spending up to somewhere between the "Annual Portfolio Withdrawal" ceiling recommendation and the floor recommendation "After Loss". You may want to adjust this up or down depending on the effect on your ACA subsidies and tax brackets. Because I'm not wanting to have to lower my spending substantially in the event of a major market loss, I've chosen to use the midpoint between the maximum and minimum withdrawals listed here.

As an example, I input age 63, $3M in assets invested at 80/20, and VPW came up with a ceiling of $193K and a floor of $130K (including a 25% reduction in SS benefits at age 67). If you average those two, you get $161.5K. In that case, I'd increase your total spending (including taxes) to ~$162K, which is about 5.4% of the $3M portfolio example. I'd suggest you try the spreadsheet with your numbers.​

You can't take it with you!

 

[SecondCor521]

Firecalc can work well to calculate a spending number for you. The only problem is there is no crystal ball, so you'll have to guess on LTC expenses. But you can plug in your portfolio, SS, mortgage, and current spending and see what it says.

You can get your SS numbers from SSA.gov; that way you won't have to guess.

For life expectancy I like the Social Security longevity visualizer, which is a tool you can download from SSA.gov somewhere and run in Windows. You can decide how conservative you want to be - I use the tool and look at median age at death, or what is the probability I'll be alive at age X.

For LTC expenses, I self insure. Mostly because I can, and partly based on all the awful stories I read about LTC insurance. My Dad lives in assisted living and costs are right at $10K per month. But @marko is right, my Dad doesn't really spend money on anything else any more, other than AL fees, doctor bills, and taxes.

From what I've seen, almost everyone who enters AL or memory care at my Dad's place passes away within two or three years. It's also pretty rare from what I've seen for both husband and wife to both need that much care for that long.

 

[rmorris50]

Most of our retirement expenses will be covered by pre-tax retirement accounts, deferred comp and social security. I assume we don’t touch our Roths, life insurance cash value or home equity. Those are there for the big what-ifs, such as big medical expenses, LTC, or some other oh crap life happened reason we can’t think of right now.

 

[Trailwalker]

We are in a very similar situation as the OP. The main difference is that we live in a LCOL area. To me, it's more about managing the worry than managing the finances/planning. Every plan requires estimates and assumptions, some of which can be a bit off or (less likely) wildly wrong. I try to let go of the worry and just enjoy the ride. Some days are less successful than others.

 

[COcheesehead]

Regarding LTC, it’s sorta simple if you really think about it. Look at what it costs today. We figure $8000 a month based on what my FIL was paying for a nice facility. Average stay is 3 years or less. Add an inflator to that number, then work backwards by calculating the present value. That is what you need to set aside out of your portfolio.
I wouldn’t use the value of your house because you’ll have to sell it to realize those funds. Selling a house while needing long term care is not something you’ll want to tackle simultaneously.

 

[NoiseBoy]

You should also define what you mean by LTC. I can think of three levels; assisted living, memory care, and skilled nursing and they have different costs. Assisted living starts at around $4,500 a month in my LCOL area for a single person (1BDRM). But the costs nearly double for a 2BDRM apartment, so there's another factor to add to your calculations. Will only one of you need LTC or both? One thing you can do is take some tours of assisted living facilities in your area which will give you a good idea of the current costs in your HCOL. Around here, the newest developments seem to focus on providing assisted living and memory care only. There are far fewer places that offer skilled nursing care. But, the newer facilities have larger rooms and pretty nice 2BDRM apartments, which was apparently not a thing 20 years ago.

My parents moved from a 100 year-old, two story house into a 3 BDRM apartment when they were in the mid-80s. They started paying $1,000 a month in rent and I was sure they were going to run out of money. But, their rent included most utilities and they continued to do less as they aged. In turned out to be a really good move for them After Mom died, we moved Dad to a brand new assisted living facility. His pension and Soc Sec covered less than half of the monthly cost, but his modest $250k portfolio ended up being more than he needed. He was 98 when he died and he spent about 3 years in assisted living. These experiences have led me to believe that I can use my portfolio and annuity streams to self-insure for LTC.

Edit to add:
After Dad moved into assisted living most of his other monthly bills went away. So, while $4,500 a month sounds like a lot, that cost includes housing, food, all utilities including cable and internet (except phone) and he wasn't driving anymore so we dropped his car and apartment insurance. He still had a Medicare supplement to pay each month and his VA life insurance, but that was it. My spreadsheet shows $4,800/mon for everything, so <$60k per year. He had about $2k in monthly income, so the drain on his portfolio was less than $40k per year. Put that way, it really wasn't that bad.

 

[jebmke]

The recent post on the challenge of spending SS income raised an old worry.

I am 63, DW 60, both retired. We have cash reserves + small income to (if calcs are correct) take us up to her age 65 (4.5 years to go) so we can continue to use ACA. No SS income yet for either of us. We pull about $20K in dividends but that may change based on strategy. We add to this income with small conversions but as this is the first year we've been without any earned income, that plan is still in the oven.

We also have an investment portfolio in the low single $Ms. The plan is to take SS in 4.5 years (I'm guessing $70K total) and start cashing out the portfolio to cover the shortage. So from the above, it seems clear we won't need to draw the pf down much as our spend rate now is about $100K/yr. Mortgage payment is low, at $1K/mo with about $250K to go, at a very low rate (but will adjust around the time she hits 65). Health is still good enough for travel, and we can manage a couple of decent trips each year.

So what's the problem? We got here by frugal spending (saving) and would like to increase it (how, is another question and well-answered in the thread reference above, as well as countless others I'm sure). But how much to increase it by?

Enter the unknowns of life expectancy, long-term-care, other emergency expenses, and so on. Absolutely not a new dilemma; I'd be willing to bet a lot of you have been there already.

I mean, LTC can take the hide off of you, right? And 10, 20 years out, who knows what that will be if it's so horrendous today? With ongoing advances in medicine, can we rely on genealogical data to say ok, I'll be gone by x age? So we're finding it nigh-impossible to say, ok, beyond a base level of spending (and some small luxuries but really, not much), we can spend $x more and still be ok.

We do not need to allocate for kids; they are doing well.

Is there a magic calculator for this, given so much is guesswork? Are there viable hedges to LTC that are not rip-offs? What are y'all doing in this area?

My wife has instructions to roll me off the dock into the marsh. Frankly, money isn't the issue for me; I suspect availability of options whether in-home or on site are going to be the major issue. Waiting lists for CCRCs around me are years long. Home care is very hard to get.

 

[Koolau]

My wife has instructions to roll me off the dock into the marsh. Frankly, money isn't the issue for me; I suspect availability of options whether in-home or on site are going to be the major issue. Waiting lists for CCRCs around me are years long. Home care is very hard to get.

Heh, heh, all this suggests investing in the "big business" of the aging: (hospitals, nursing homes, assisted living, memory care, CCRCs, etc.)

 

[athena53]

Around here, the newest developments seem to focus on providing assisted living and memory care only. There are far fewer places that offer skilled nursing care. But, the newer facilities have larger rooms and pretty nice 2BDRM apartments, which was apparently not a thing 20 years ago.
<snip>
These experiences have led me to believe that I can use my portfolio and annuity streams to self-insure for LTC.

After seeing some of the scary stories here about CCRCs going under or farming out their LTC patients to other facilities, I agree with you on just waiting to see if I need it and making a choice (or having DS and DDIL make a choice) then. Mom died of breast cancer at 85; Dad died at almost 90 after 18 months in LTC. As others have noted, once you're in LTC most of your other expenses go to zero. My situation is simpler since I'm widowed, so no scary scenario with one in LTC and the other in the home.

It does take time to feel reassured about income and expenses in retirement. I retired at 61 but that was 9 years ago. Seeing that my investments have gone up 2.2%/year after withdrawals and my house has appreciated 60% in the 8 years I've lived here (never part of my retirement plan) I'm feeling far more comfortable, even with my extravagant travel budget, and have started gifting about $15K/year to DS and DDIL.

 

[target2019]

The recent post on the challenge of spending SS income raised an old worry.

I am 63, DW 60, both retired. We have cash reserves + small income to (if calcs are correct) take us up to her age 65 (4.5 years to go) so we can continue to use ACA. No SS income yet for either of us. We pull about $20K in dividends but that may change based on strategy. We add to this income with small conversions but as this is the first year we've been without any earned income, that plan is still in the oven.

We also have an investment portfolio in the low single $Ms. The plan is to take SS in 4.5 years (I'm guessing $70K total) and start cashing out the portfolio to cover the shortage. So from the above, it seems clear we won't need to draw the pf down much as our spend rate now is about $100K/yr. Mortgage payment is low, at $1K/mo with about $250K to go, at a very low rate (but will adjust around the time she hits 65). Health is still good enough for travel, and we can manage a couple of decent trips each year.

So what's the problem? We got here by frugal spending (saving) and would like to increase it (how, is another question and well-answered in the thread reference above, as well as countless others I'm sure). But how much to increase it by?

Enter the unknowns of life expectancy, long-term-care, other emergency expenses, and so on. Absolutely not a new dilemma; I'd be willing to bet a lot of you have been there already.

I mean, LTC can take the hide off of you, right? And 10, 20 years out, who knows what that will be if it's so horrendous today? With ongoing advances in medicine, can we rely on genealogical data to say ok, I'll be gone by x age? So we're finding it nigh-impossible to say, ok, beyond a base level of spending (and some small luxuries but really, not much), we can spend $x more and still be ok.

We do not need to allocate for kids; they are doing well.

Is there a magic calculator for this, given so much is guesswork? Are there viable hedges to LTC that are not rip-offs? What are y'all doing in this area?

My experience was with in-laws, who moved into an independent-living apartment. Unfortunately her dementia meant that assisted living was around the corner. Then she went to memory care, and he went to assisted living. They died about a year apart. Total time in the faciity was about 5 years.

M-I-L was very frugal, and decided about 20 years ago to start LTC policies for them through Hancock. That preserved their wealth in the end. Both had SS, and she had a COLA'd state pension and paid little healthcare premiums. The 3 retirement income streams plus LTC payments (as appropriate) paid the ticket almost every month. Their individual policies never ran out, but hers got close. They both lived to very-late eighties. I don't believe you'll see this kind of LTC policy in the marketplace.

For us, our home and a portion of what was inherited will pay for CCRC. I'm out of the picture way before her. I think she will hit 90. Our daughter (a nurse) will be the CCRC.

For you, the home you live in sets the stage. Can it be modified so that you can live there as you abilities begin to falter?

 

[Lsbcal]

We have a 60/40 allocation in our mid-70's. I think one can over emphasize LTC. Personally I don't worry about it at all. Just enjoy each day.

Our portfolio has kept up with inflation over the last 20 years or so of retirement. I cannot say with great confidence that this will repeat going forward but am hopeful. I use VPW and do runs with the retirement year set to 1966 (the worst case). I want it to reflect a good size outcome out to about 20 years and it does. BTW, we took SS early during the financial crisis of 2009. That worked out well as the portfolio increased more then the extra SS bonus would have if waiting until the 70's.

So I'm comfortable about spending well and living well. This year we bought a new car and will have spent about 2 months on vacations of various sorts. I've found that doing due diligence in spending can be a chore though.

 

[MarieIG]

For OP - have you modeled the higher earner taking SS at age 70 for "longevity" insurance?

Also, you toss in that ARM. Have you considered putting aside a sum of money in stable income instruments, such as treasuries, so that you have a chuck on $ sufficient to pay off the mortgage - in the event interest rates are high when your mortgage resets?

 

[MarieIG]

My wife has instructions to roll me off the dock into the marsh. Frankly, money isn't the issue for me; I suspect availability of options whether in-home or on site are going to be the major issue. Waiting lists for CCRCs around me are years long. Home care is very hard to get.

I told DH to stop talking like that! His "plan" was to take care of me - but, if he had an issue to have one of our sons shoot him.

We are going the in-home route. We used this for my parents. DH's mother - overseas - who went downhill after two bouts of Covid - is currently getting in home care.

 

[pacergal]

I think there is probably always a concern of "is there enough". The best you can do is know your expenses well, utilize as many calculators (Firecalc is a good one) as you can, and do diligent research on what your income streams are/will be, as accurately as you can.

It is the unknown that often causes the most worry. Plan as best you can, set a budget that allows for some fun, and be willing to adjust as necessary throughout the years.

 

[Koolau]

I told DH to stop talking like that! His "plan" was to take care of me - but, if he had an issue to have one of our sons shoot him.

I can tell you from experience with friends that such talk is usually a cry for help. Probably help with assurance that things can be w*rked out. That funds will be available (possibly sale of house to finance care.) The thought of financing end of life care is daunting and overwhelming to some. Help them get a handle on it and the silly talk may go away.

If someone is truly serious about such talk, they probably need professional help from a counselor or even a psychiatrist. Good luck pulling that off, but try. Blessings on your family.

 

[MarieIG]

I can tell you from experience with friends that such talk is usually a cry for help. Probably help with assurance that things can be w*rked out. That funds will be available (possibly sale of house to finance care.) The thought of financing end of life care is daunting and overwhelming to some. Help them get a handle on it and the silly talk may go away.

If someone is truly serious about such talk, they probably need professional help from a counselor or even a psychiatrist. Good luck pulling that off, but try. Blessings on your family.

Thank you Koolau. It is not financial. DH is The Giving Tree. He has always taken care of the family, is still very strong and fit, and loathes the idea of a time when he may have to depend upon someone else. We do have financial discussions, bit by bit, but he gets upset when I talk about me passing and shuts down, so I have to take it easy.

 

[gauss]

The recent post on the challenge of spending SS income raised an old worry. .....

So what's the problem? We got here by frugal spending (saving) and would like to increase it (how, is another question and well-answered in the thread reference above, as well as countless others I'm sure). [B]But how much to increase it by?[/B]

In my case, I am not saving for a legacy for anyone. I suspect we over saved during the working years even though I got out in my late 40's and DW in her early 50's.

During the Covid years, I had a bit of a change of attitude towards spending. I switched form continuing to being frugal and started realizing that the ability to purchase things and services may be more the limiting factor than the cost of it.

As such in the past few years, I have tossed budgets out the window and spend on anything we like without worrying about the price. Nicer hotel when travelling - not necessarily ordering chicken dish when dining out - tipping more generously than most i think. More vacations etc.

So I will run this play for another year or two, while I continue to categorize everything in quicken. If I have a 150% increase in spending then I may need to reevaluate this, but if spending only goes up by 15-25% then this will validate my startegy.

Before Covid I think I had a 1-2% WR so I have the head room to play it like this, but this may be a simple way to increase spending.

-gauss