LTC : Some probability and cost numbers

[mathjak107]

OK So i see you are a big fan of LTC insurance, but I am a pragmatic man what will it cost me? That you did not answer. How much should I budget long term in order to obtain this insurance? I see from this Long-Term Care Insurance Premiums Rise Almost 9 Percent | ElderLawAnswers that average increase for NEW policies in 2014 was 9 percent in a year of 1 percent inflation. Average for older places existing in place is far higher.

To state that insurance if paid is good because you were covered for a time if it becomes too expensive is wasting resources to me because an alternative plan is to take a pile of money and move into a CCRC community and let the entrance fee cover eventual need of long term care in place .

Since most people need long term care when they are elderly and not when they are 55 to pay premiums from ages 55-75 and then stop because you can no longer afford it and claim you had good insurance in the meantime at 5K per year rising at 9 per cent per year is not a good use of assets for a low risk event in my mind.

From age 55 with a 7 percent higher than inflation premium cost increase for a couple goes from 5K per year to 19K per year at age 75 and consumes $225,000 in real dollars or 50% of a reasonable estimate of total needed for LTC. If you earn just 3 percent over inflation the cost of the insurance with those assumptions to age 75 rises to nearly 300K, and you are only then getting into the age most likely to use LTC. 300K at risk for a million dollar portfolio seems too much for peace of mind to me

i can't come up with a number for anyone but me . it depends on costs in your area , the asset you hold , your returns and how much in assets you want to protect .

it depends on inflation too . while 6900 a year is today , a premium of 7900 ten or 15 years years from now may not be a deal ..

 

[audreyh1]

you really should not be investing the money you are self insuring with in to volatile investments .

you can't risk the fact that that money you set aside may get stuck in an extended down turn and is 1/2 of what you had or failed to grow to keep up with inflation in long term care costs . .

I don't accept this argument. The money would be paid out over several years, and can be unwound gradually. If needed, it is not needed all at once. And it may not all be needed.

It's one thing to have a chance of needing, say, the whole $500K. It's a much, much smaller chance that the timing would be so horrible that the markets would happen to drop precipitously just when you need it and stay down for five years. At 55 and 60, we're going to leave it invested for at least another two decades.

I am perfectly fine having it invested long term just like the rest of our portfolio and increasing withdrawals to meet the needs if one of us enters a nursing home. We may reevaluate the investment time horizons once we reach 75.

I don't see why anyone with investable assets of say $4M today, a conservative withdrawal rate, and an allocation designed to stand up to inflation should sweat self-insuring for the max payouts LTC policies available today will pay - a few $100K.

 

[mathjak107]

you need about 3-5 years liquid . a down market that extends that long is a possibility . IF YOU ARE SELF INSURING THE INSURANCE MONEY HAS TO BE TREATED AS SUCH , SAFE ,SECURE AND CONSISTENTLY THERE .

other wise you can over spend assets impoverishing the stay at home spouse . 5 years here is 1/2 million bucks .

you can invest how you please but in the true sense of the word self insuring that money should be treated as any insurer would . there is a reason they do not aggressively invest i .

 

[meierlde]

If I was single I would still want to leave an estate to my kids. But, even more importantly, LTC is not synonymous with end of life. It is entirely possible to need LTC - say for a broken hip - and then be back on your own. It would be nice to come out of rehab to a thriving portfolio rather than to SS and pensions with nothing else.

But in the case you are talking about it is likley 1 year or less. Beyond that one becomes less and less likley to exit other than feet first from LTC. It would be interesting to see statistics on the length of stay for folks who successfully return home. (I suspect a broken hip would be significantly less than one year and if you make rehab progress at least the first 90 days would be on Medicare)

 

[mathjak107]

all that matters is your own situation . statistics insisted my dad couldn't spend 6 years in a home . SURPRISE !

 

[audreyh1]

you need about 3-5 years liquid . a down market that extends that long is a possibility . IF YOU ARE SELF INSURING THE INSURANCE MONEY HAS TO BE TREATED AS SUCH , SAFE ,SECURE AND CONSISTENTLY THERE .

other wise you can over spend assets impoverishing the stay at home spouse . 5 years here is 1/2 million bucks .

you can invest how you please but in the true sense of the word self insuring that money should be treated as any insurer would . there is a reason they do not aggressively invest i .

It all depends on how much you have and your allocation. Many retirees have large allocations to fixed income already.

If the fixed income portion of your portfolio allocation covers several years of normal expenses plus several $100K that can be used to cover LTC then you don't need to sweat it.

As long as the total portfolio is set up to keep up with long-term inflation and you rebalance every year or so.

 

[mathjak107]

nursing home costs have been going up at the rate of more than 4% a year the last 5 years .

with zero to 1% on cash and 2-3% on bonds you can see that will drain quite a bit of dough from fixed income .

i know marilyn trying to support herself if i needed care at 120-140k a year plus her needing quite a bit to live would eat up our cash and bonds in no time . in fact that is the total cash flow our portfolio could generate .

we ran the numbers yeaars ago when we did the article for money magazine and if i followed in my dads foot steps in 5 years almost 750k to 1 million in capital that should be generating a life time of income for us would be out of the equation and that does not include my wifes living expenses spending down those 5 years too .

the numbers were mind blowing . . mostly because it isn't about the lump sum amount , it is about the cash flow it generated that is lost that you counted on

 

[youbet]

A number of the issues Mathjak points out fueled my decision to get an LTC policy. But I am married and want to leave a substantial estate for the kids. If I was single I would still do it to preserve my spending in old age. I would not want to risk depleting my assets to Medicaid levels.

The $200k to $400k LTC might cost my FIRE portfolio before my "end" still leaves my son with a nice inheritance, so self-insuring here.

Donhoff, what is your policy max?