Self-Insuring for Long Term Care
Self-Insuring for Long Term Care
Whenever the topic of long term care insurance comes up, a large number of respondents reply that they don’t intend to buy LTC insurance, but plan to self-insure instead. My question for those who plan to self-insure is whether or not you have set aside a separate corpus from your portfolio to cover any potential costs? I’m trying to decide if it would be best to separate the portion I have earmarked for possible long term care costs from my portfolio and not subject it to regular withdrawals. For example, if my total portfolio is $2M I might set aside $500K in safe assets for possible long term care costs, which would leave $1.5M remaining to make regular withdrawals for living expenses. Assuming a four percent withdrawal, I’d pull an inflation adjusted $60K annually from the $1.5M and leave the remaining $500K untouched until long term care costs were needed. Is this how others are thinking about self-insurance? If so, how much have you (or plan to) set aside?
Re: Self-Insuring for Long Term Care
I don't portion out the money in my portfolio this way, but you might choose to do so.
You may have a child or sibling you plan to be your financial power of attorney and eventual executor of your estate. Having them in sync with your plans and portfolio is important as your likelihood of needing long term care increases and if you do in fact need to transition into such care. If you don't have a trusted agent such as a child or sibling this gets harder unfortunately.
What I don't spend on long term care will go to heirs as an inheritance.
You may have a child or sibling you plan to be your financial power of attorney and eventual executor of your estate. Having them in sync with your plans and portfolio is important as your likelihood of needing long term care increases and if you do in fact need to transition into such care. If you don't have a trusted agent such as a child or sibling this gets harder unfortunately.
What I don't spend on long term care will go to heirs as an inheritance.
Re: Self-Insuring for Long Term Care
That seems reasonable. While $500K won't address the worst case LTC scenario, it is likely enough to get a person into a nice facility for four or five years. Once in, as I understand it, many facilities will accept Medicaid if/when the person is there so long that they run out of money. I would be interested in hearing from others if this is not correct.JTcheek wrote: ↑Thu Aug 05, 2021 12:15 pm Whenever the topic of long term care insurance comes up, a large number of respondents reply that they don’t intend to buy LTC insurance, but plan to self-insure instead. My question for those who plan to self-insure is whether or not you have set aside a separate corpus from your portfolio to cover any potential costs? I’m trying to decide if it would be best to separate the portion I have earmarked for possible long term care costs from my portfolio and not subject it to regular withdrawals. For example, if my total portfolio is $2M I might set aside $500K in safe assets for possible long term care costs, which would leave $1.5M remaining to make regular withdrawals for living expenses. Assuming a four percent withdrawal, I’d pull an inflation adjusted $60K annually from the $1.5M and leave the remaining $500K untouched until long term care costs were needed. Is this how others are thinking about self-insurance? If so, how much have you (or plan to) set aside?
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Re: Self-Insuring for Long Term Care
We have money set aside for care but it's not in a separate account from other investments. Hopefully the money will not be needed for 30-40 years, so I don't see the value in separating it at this point in time. If you anticipate needing the money in 10 years (for example) then a different approach could be reasonable.
Re: Self-Insuring for Long Term Care
We don't "portion for it either". One small note, our FA mentioned that when you get to "that stage of life" generally you don't live long. Stays in nursing homes are generally brief. So monies spent may be less than anticipated. I am sure there must be a study that outlines the average stay nationally.
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Re: Self-Insuring for Long Term Care
The value to me in separating the funds is to make sure that they ate there if needed. If invested in risky assets and subjected to withdrawals, then there’s no guarantee that the funds would be there if needed.Colorado13 wrote: ↑Thu Aug 05, 2021 12:27 pm We have money set aside for care but it's not in a separate account from other investments. Hopefully the money will not be needed for 30-40 years, so I don't see the value in separating it at this point in time. If you anticipate needing the money in 10 years (for example) then a different approach could be reasonable.
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Re: Self-Insuring for Long Term Care
At least right now (5 years into a normal-age semi-retirement) I haven't been withdrawing any money from my portfolio. (Thanks to Covid for a near- absence of ways to spend money). I don't see any reason to think about this until I start depleting the portfolio.
My main concern will be to set things up somehow so each of us will be able to keep control of about half the assets in the worst-case situation of one needing long term care.
My main concern will be to set things up somehow so each of us will be able to keep control of about half the assets in the worst-case situation of one needing long term care.
Re: Self-Insuring for Long Term Care
So the cost of this plan is the difference in returns you would get from having the $500k in "safe assets" versus the returns you would get if the $500k were invested like the rest of your portfolio. And of course it assumes that you only need $60k/year for living expenses.JTcheek wrote: ↑Thu Aug 05, 2021 12:15 pmFor example, if my total portfolio is $2M I might set aside $500K in safe assets for possible long term care costs, which would leave $1.5M remaining to make regular withdrawals for living expenses. Assuming a four percent withdrawal, I’d pull an inflation adjusted $60K annually from the $1.5M and leave the remaining $500K untouched until long term care costs were needed.
Seems reasonable.
I suspect most people aren't actually that formal about it. It's more likely that "self-insuring" means something like "I'll worry about it when the time comes" or "I'll let my spouse worry about it when the time comes."
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Re: Self-Insuring for Long Term Care
Sometimes. My late sister-in-law spent almost 7 years in a memory care unit with dementia.
You generally don't insure for the "average".I am sure there must be a study that outlines the average stay nationally.
On average, your home won't burn down. Still, most folks purchase homeowners insurance.
On a related note - does anyone "self-insure" their home?
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Re: Self-Insuring for Long Term Care
Is there a way to insure against needing care for 7 years (or longer)? If you're budgeting $500,000 (the figure in the original poster's example), can you buy a policy with a $500,000 deductible, or one that covers everything after the first 3 years?JoeRetire wrote: ↑Thu Aug 05, 2021 12:46 pmSometimes. My late sister-in-law spent almost 7 years in a memory care unit with dementia.
You generally don't insure for the "average".I am sure there must be a study that outlines the average stay nationally.
On average, your home won't burn down. Still, most folks purchase homeowners insurance.
On a related note - does anyone "self-insure" their home?
In the original poster's example, someone with $2 million might be withdrawing, say, 4% a year ($80,000) and living on that plus Social Security (and pensions if any). So he/she would only have to dip into assets to the extent the cost exceeds $80,000 a year plus Social Security (and pensions if any).
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Re: Self-Insuring for Long Term Care
This is correct for SOME facillities. It is therefore essential that you check in advance if the facilities you are considering offer this arrangement.MrMadoff wrote: ↑Thu Aug 05, 2021 12:24 pmThat seems reasonable. While $500K won't address the worst case LTC scenario, it is likely enough to get a person into a nice facility for four or five years. Once in, as I understand it, many facilities will accept Medicaid if/when the person is there so long that they run out of money. I would be interested in hearing from others if this is not correct.JTcheek wrote: ↑Thu Aug 05, 2021 12:15 pm Whenever the topic of long term care insurance comes up, a large number of respondents reply that they don’t intend to buy LTC insurance, but plan to self-insure instead. My question for those who plan to self-insure is whether or not you have set aside a separate corpus from your portfolio to cover any potential costs? I’m trying to decide if it would be best to separate the portion I have earmarked for possible long term care costs from my portfolio and not subject it to regular withdrawals. For example, if my total portfolio is $2M I might set aside $500K in safe assets for possible long term care costs, which would leave $1.5M remaining to make regular withdrawals for living expenses. Assuming a four percent withdrawal, I’d pull an inflation adjusted $60K annually from the $1.5M and leave the remaining $500K untouched until long term care costs were needed. Is this how others are thinking about self-insurance? If so, how much have you (or plan to) set aside?
Surprisingly (to us, anyway) there are some very nice facilities that do this, but the waiting lists might be long or they really carefully vet your fnances in advance to make sure you can self-pay for "enough time" (however they measure that).
But that usually means that you'd need Skilled Nursing level care so that they could transition you to Medicaid (so they aren't covering all of your costs, although in such places, the Medicaid reimbursement is likely to be a pittance compared with their full pay Skilled care).
MIL was in such a place. She started in an Assisted LIving Facility (ALF) that also offer Independent Living (IL), Skilled Nursing (SN), Rehab, or Memory Care (with separate MC within either Assisted or Skilled levels). She had mid-six-figures when she arrived in her mid-90's. The end of her money was starting to loom while she was still in Assisted Living. However, given the extra care available at her ALF, many/most of the residents there would actually "qualify" for Medicaid (needing specific help, etc.) but preferred to stay in the ALF section, with extra assistance as needed (and sometimes at extra cost, from the ALF or privately). So IF she had run out while still in ALF, they could have switched her to Medicaid without problems.
She needed to be moved to Skilled Nursing before that point, but soon after that, the facility had started helping us with her application to Medicaid. (Alas, she passed last year, about 5 weeks before her 100th, before totally running out.)
There are several different financial models, some requiring reasonably good health when first entering, so that could complicate things if one waits too long to apply/enter.
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Re: Self-Insuring for Long Term Care
All the estimates of "enough time" are of order a few years. I feel comfortable without LTCI if I can fund a few years at 100K/year or so with less than half of my total assets. It's not hard to stay well above that number.ResearchMed wrote: ↑Thu Aug 05, 2021 1:24 pm
Surprisingly (to us, anyway) there are some very nice facilities that do this, but the waiting lists might be long or they really carefully vet your fnances in advance to make sure you can self-pay for "enough time" (however they measure that).
RM
Re: Self-Insuring for Long Term Care
Homeowner vs LTCI aren’t analogous. I can afford to self-insure the structure of my house. I can’t afford not to have the personal liability piece that comes with it. Also homeowners comes with loss of use and site clean up, rebuilding to current code. It’s a product that has been available for a long time and insurance companies know how to price it. If my current company drops me I could find a new one or be in a state managed high risk pool (in some places).JoeRetire wrote: ↑Thu Aug 05, 2021 12:46 pmSometimes. My late sister-in-law spent almost 7 years in a memory care unit with dementia.
You generally don't insure for the "average".I am sure there must be a study that outlines the average stay nationally.
On average, your home won't burn down. Still, most folks purchase homeowners insurance.
On a related note - does anyone "self-insure" their home?
On the other hand. I don’t think LTCI was properly priced in the beginning. LTCI has a max benefit that could be way, way less than the real cost of care. LTCI could price you out of affordability and then you have nothing and would have been better off skipping it and saving the money unless you have used the benefit. If I can’t afford my homeowner’s I have more things I can control (move to a place with less liability for insurance companies) I.e. smaller house, move out of a hurricane zone.
If someone casually asked me I probably would say I was self-insured. The long answer is probably that I don’t trust the product and hope to never need it. Hopefully, if I do need it market gains have will have made me self-insured in the meantime or the system is fixed and does t seem hopelessly rigged against me.
Re: Self-Insuring for Long Term Care
A quick google search says that there are two studies which indicate an either 52% or 70% chance of needing some form of long term care if the person reaches age 65.
The odds of using your homeowners insurance is pretty low, about 5/6 claims per 100 house years per iii.org
https://www.wsj.com/articles/the-odds-o ... 1559836590
https://acl.gov/ltc/basic-needs/how-muc ... l-you-need
https://www.iii.org/fact-statistic/fact ... -insurance
The odds of using your homeowners insurance is pretty low, about 5/6 claims per 100 house years per iii.org
https://www.wsj.com/articles/the-odds-o ... 1559836590
https://acl.gov/ltc/basic-needs/how-muc ... l-you-need
https://www.iii.org/fact-statistic/fact ... -insurance
Re: Self-Insuring for Long Term Care
Thanks for your input. It's helpful to hear how other people think about this issue. I noticed in your comment that you used the words hope and hopefully a few times and it reminded me of something a Marine colleague once told me: "hope is not a plan". I'm not knocking you. As you indicated, there are not a lot of great options available to mitigate the financial risk of an extended stay in an assisted living facility.mnnice wrote: ↑Thu Aug 05, 2021 2:20 pmJoeRetire wrote: ↑Thu Aug 05, 2021 12:46 pmSometimes. My late sister-in-law spent almost 7 years in a memory care unit with dementia.
You generally don't insure for the "average".I am sure there must be a study that outlines the average stay nationally.
On average, your home won't burn down. Still, most folks purchase homeowners insurance.
On a related note - does anyone "self-insure" their home?
If someone casually asked me I probably would say I was self-insured. The long answer is probably that I don’t trust the product and hope to never need it. Hopefully, if I do need it market gains have will have made me self-insured in the meantime or the system is fixed and does t seem hopelessly rigged against me.
Re: Self-Insuring for Long Term Care
I personally do not do this "bucketing" or "mental accounting" approach of setting aside an amount specific to LTC. I have one portfolio for retirement, and it is anticipated to cover my living costs whether my living is at home or in a facility for an extended period of time. I weigh my target assets against not only my expected normal costs but also against the possibility of LTC needs. To me it's a combo of math and personal risk assessment (i.e. the weighing of adverse outcome probabilities against the concrete "cost" of extra years in the workforce). For that last piece, I think data can help guide the decision but ultimately it's highly personal.JTcheek wrote: ↑Thu Aug 05, 2021 12:15 pm Whenever the topic of long term care insurance comes up, a large number of respondents reply that they don’t intend to buy LTC insurance, but plan to self-insure instead. My question for those who plan to self-insure is whether or not you have set aside a separate corpus from your portfolio to cover any potential costs? I’m trying to decide if it would be best to separate the portion I have earmarked for possible long term care costs from my portfolio and not subject it to regular withdrawals. For example, if my total portfolio is $2M I might set aside $500K in safe assets for possible long term care costs, which would leave $1.5M remaining to make regular withdrawals for living expenses. Assuming a four percent withdrawal, I’d pull an inflation adjusted $60K annually from the $1.5M and leave the remaining $500K untouched until long term care costs were needed. Is this how others are thinking about self-insurance? If so, how much have you (or plan to) set aside?
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Re: Self-Insuring for Long Term Care
About 18 years ago we decided not to buy LTC insurance, and that we would put money away instead into a separate brokerage-type fund account comprised of US and foreign indexes plus money market to cover any future LTC needs. We fed the money market which in turn automatically fed the index funds.
The funds have done very well, and are way weighted stock-to-money market. We called this our "medical fund"
Then when I thought about it, I realized that it would probably make sense to pay any actual large long term care costs out of our IRA/401K funds because the LTC expenditures would probably qualify as tax deductible. Given our current tax bracket and the increment that would be imposed by the added $90 or $100K per year withdrawn for the LTC services, the deductibility would be a better applied to draining the bracket-based IRA withdrawals than draining the cap-gains based "medical fund" whose contents are roughly 40% "investment" and 60% "gain."
Or - - long story short - - one's pre-tax retirement funds may be a better source for LTC expenses than any cap-gains or savings or Roth funds.
As a sidelight that may be interesting. It ended up that our medical account, as it grew, became much more difficult to rebalance thn our IRA-type funds. So to retain something like a 60-40 ratio, our IRA-type funds became more conservatively invested over time as the "medical fund" became more aggressively invested.
My takeaways from all this are:
(1) Consistent saving/investing and living within or below your means is a good idea
(2) diversifying investments/savings both in types (domestic - foreign - stock - bond - cash and other) and in taxation categories makes sense because even if one is savvy about current taxation (and other) policies and conditions, both policies and conditions can change in dramatic unknown ways in the future.
The funds have done very well, and are way weighted stock-to-money market. We called this our "medical fund"
Then when I thought about it, I realized that it would probably make sense to pay any actual large long term care costs out of our IRA/401K funds because the LTC expenditures would probably qualify as tax deductible. Given our current tax bracket and the increment that would be imposed by the added $90 or $100K per year withdrawn for the LTC services, the deductibility would be a better applied to draining the bracket-based IRA withdrawals than draining the cap-gains based "medical fund" whose contents are roughly 40% "investment" and 60% "gain."
Or - - long story short - - one's pre-tax retirement funds may be a better source for LTC expenses than any cap-gains or savings or Roth funds.
As a sidelight that may be interesting. It ended up that our medical account, as it grew, became much more difficult to rebalance thn our IRA-type funds. So to retain something like a 60-40 ratio, our IRA-type funds became more conservatively invested over time as the "medical fund" became more aggressively invested.
My takeaways from all this are:
(1) Consistent saving/investing and living within or below your means is a good idea
(2) diversifying investments/savings both in types (domestic - foreign - stock - bond - cash and other) and in taxation categories makes sense because even if one is savvy about current taxation (and other) policies and conditions, both policies and conditions can change in dramatic unknown ways in the future.
Re: Self-Insuring for Long Term Care
Or you could just look at the $60K withdrawal as 3% of the $2M portfolio, meaning it's very likely that it will not be depleted, and there will be a healthy chunk of it (quite possibly more than $2M) available for LTC expenses.JTcheek wrote: ↑Thu Aug 05, 2021 12:15 pm For example, if my total portfolio is $2M I might set aside $500K in safe assets for possible long term care costs, which would leave $1.5M remaining to make regular withdrawals for living expenses. Assuming a four percent withdrawal, I’d pull an inflation adjusted $60K annually from the $1.5M and leave the remaining $500K untouched until long term care costs were needed. Is this how others are thinking about self-insurance? If so, how much have you (or plan to) set aside?
Re: Self-Insuring for Long Term Care
If you are single and own an unmortgaged home that’s worth a $200,000+, then that can be viewed as your LTC fund.
If you aren’t single, then it isn’t that simple since if one spouse needs LTC the other will still need a place to live.
Your plan seems reasonable to me, although if you are in early retirement then don’t be too conversative with the asset allocation in the LTC fund.
And remember that your income streams from Social Security, pensions, and the rest of your portfolio will continue. So if LTC costs $100,000/year and your income stream is $60,000, then you’ll just need an additional $40,000. But again, a lot depends on whether you are single or not. If your spouse needs $40,000 to live on then you’ll need $80,000 from your LTC fund.
If you aren’t single, then it isn’t that simple since if one spouse needs LTC the other will still need a place to live.
Your plan seems reasonable to me, although if you are in early retirement then don’t be too conversative with the asset allocation in the LTC fund.
And remember that your income streams from Social Security, pensions, and the rest of your portfolio will continue. So if LTC costs $100,000/year and your income stream is $60,000, then you’ll just need an additional $40,000. But again, a lot depends on whether you are single or not. If your spouse needs $40,000 to live on then you’ll need $80,000 from your LTC fund.
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Re: Self-Insuring for Long Term Care
Not that I’ve heard. The policies of which I’m aware cover a few years of initial costs after a short waiting period (60 to 90 days). My policy covers up to 3 years, with a cap on total dollars.bsteiner wrote: ↑Thu Aug 05, 2021 12:52 pmIs there a way to insure against needing care for 7 years (or longer)? If you're budgeting $500,000 (the figure in the original poster's example), can you buy a policy with a $500,000 deductible, or one that covers everything after the first 3 years?JoeRetire wrote: ↑Thu Aug 05, 2021 12:46 pmSometimes. My late sister-in-law spent almost 7 years in a memory care unit with dementia.
You generally don't insure for the "average".I am sure there must be a study that outlines the average stay nationally.
On average, your home won't burn down. Still, most folks purchase homeowners insurance.
On a related note - does anyone "self-insure" their home?
If there was a very high deductible policy or one that covered expenses after a 3-year waiting period, that would be popular with Bogleheads (assuming a reasonable cost).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Self-Insuring for Long Term Care
The cost of nursing care is highly dependent on where it is located. It is going to be the highest in a major metropolitan area, but if you go perhaps 100 miles away in the boonies, the costs will drop dramatically.
My mother was in a very nice CCRC and had to be moved to their health care unit because of dementia, where she spent five years. She was a private pay patient the entire time, but at the end, her monthly bill was around $12k. We live near Chicago. This was in 2010.
Fourteen years earlier, my mother-in-law was in a similar situation, but her monthly bill was only around $3k per year. You can expect these rates to go up faster than the general inflation rate. Edit: correct that to $3k per month.
My mother was in a very nice CCRC and had to be moved to their health care unit because of dementia, where she spent five years. She was a private pay patient the entire time, but at the end, her monthly bill was around $12k. We live near Chicago. This was in 2010.
Fourteen years earlier, my mother-in-law was in a similar situation, but her monthly bill was only around $3k per year. You can expect these rates to go up faster than the general inflation rate. Edit: correct that to $3k per month.
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Re: Self-Insuring for Long Term Care
LTCi is, to my mind, similar to dental insurance: it covers expenses that I can easily pay and it requires a course in contract law to get proper reimbursement. I can pay for my covered tooth cleanings, thanks, but it would be nice if insurance helped on my multi-thousand dollar restoration. But, I digress.
We have enough to pay for a LTC facility for a reasonable duration. I’d buy LTCi that paid unlimited $ after a 5 year elimination period.
I get the FI part but not the RE part of FIRE.
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Re: Self-Insuring for Long Term Care
If you’re self insuring you need sufficient funds in safe assets. We do a quasi-Liability Matching Portfolio, but that’s only one way to approach this.
I don’t see the point of having a separate stash of money for LTC. That’s like disease specific life insurance; silly.
I get the FI part but not the RE part of FIRE.
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Re: Self-Insuring for Long Term Care
One option for those who own their home, and one of a couple needs such care, would be in the form of a reverse mortgage.
So long as one person is living in the home, there is no repayment or worry about losing the home, assuming the house can be maintained, insurance and taxes kept current.
Probably a good solution for those who have most of their NW tied up in their home.
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So long as one person is living in the home, there is no repayment or worry about losing the home, assuming the house can be maintained, insurance and taxes kept current.
Probably a good solution for those who have most of their NW tied up in their home.
Broken Man 1999
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Re: Self-Insuring for Long Term Care
JTcheek wrote: ↑Thu Aug 05, 2021 12:41 pmThe value to me in separating the funds is to make sure that they ate there if needed. If invested in risky assets and subjected to withdrawals, then there’s no guarantee that the funds would be there if needed.Colorado13 wrote: ↑Thu Aug 05, 2021 12:27 pm We have money set aside for care but it's not in a separate account from other investments. Hopefully the money will not be needed for 30-40 years, so I don't see the value in separating it at this point in time. If you anticipate needing the money in 10 years (for example) then a different approach could be reasonable.
My perspective is that I can control (or at least highly influence) both risk level (via asset allocation or investment choice for example) and withdrawal rate, so separate funds are not needed to address these factors (in my situation. YMMV.)
That's not to say that separate funds would not benefit you. If you perceive value in having separate funds, then you certainly should allocate your funds accordingly. But your OP asked what others are doing...
Re: Self-Insuring for Long Term Care
The plan is to have enough to get into a good facility that keeps you in your same room if you are switched to Medicaid. (Some facilities move you to a medicaid wing with inferior rooms.) The facility that I would use should it be needed today has a lengthy financial disclosure with verification. Based on my conversations with a social worker there, I do not believe they have a strict requirement. But I believe that the generic off the record minimum amount of funds need to be able to cover 3 years. But, if a person is expected to have a much shorter life expectancy then they will accept you with less. And if a person is physically healthy but with dementia then they may require closer to 5 years.
If the need for LTC occurs with a community spouse, we are prepared to used techniques to preserve enough funds for the community spouse to continue to live an independent lifestyle.
Making projections on LTC need is even more difficult than trying to predict investment returns for me. According to the last industry survey numbers that I have seen, 1 in 10 75-84 year olds will need more than 5 years of care. But 3 of 10 will need less than 100 days. And then you must guess about care available in home, either free or paid. A majority of nursing home patients spent 3 to 6 years at home living with family support though needing support for multiple ADLs.
If the need for LTC occurs with a community spouse, we are prepared to used techniques to preserve enough funds for the community spouse to continue to live an independent lifestyle.
Making projections on LTC need is even more difficult than trying to predict investment returns for me. According to the last industry survey numbers that I have seen, 1 in 10 75-84 year olds will need more than 5 years of care. But 3 of 10 will need less than 100 days. And then you must guess about care available in home, either free or paid. A majority of nursing home patients spent 3 to 6 years at home living with family support though needing support for multiple ADLs.
Re: Self-Insuring for Long Term Care
Agreed.TomatoTomahto wrote: ↑Thu Aug 05, 2021 3:36 pmLTCi is, to my mind, similar to dental insurance: it covers expenses that I can easily pay and it requires a course in contract law to get proper reimbursement. I can pay for my covered tooth cleanings, thanks, but it would be nice if insurance helped on my multi-thousand dollar restoration. But, I digress.
We have enough to pay for a LTC facility for a reasonable duration. I’d buy LTCi that paid unlimited $ after a 5 year elimination period.
We have LTCi from my federal job. Decent benefits, reasonable cost, and very limited underwriting.
But we bought it when we in our early 50’s because if one of us needed LTC then - with the commensurate loss of income — it could have been catastrophic. My husband had a colleague whose wife developed early-onset dementia and I had a friend-of-a friend who was completely disabled by MS. Two low probability but extraordinarily high cost situations.
Right now, the premiums cost about 3% of annual income, so we’ve continued them.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Self-Insuring for Long Term Care
The point to separate the funds is to make sure you have sufficient funds to cover your LTC costs should they arise. Or, as another poster recommended, I could just withdrawal 3 percent of my total portfolio instead of 4.TomatoTomahto wrote: ↑Thu Aug 05, 2021 3:41 pmIf you’re self insuring you need sufficient funds in safe assets. We do a quasi-Liability Matching Portfolio, but that’s only one way to approach this.
I don’t see the point of having a separate stash of money for LTC. That’s like disease specific life insurance; silly.
Re: Self-Insuring for Long Term Care
Well put!TomatoTomahto wrote: ↑Thu Aug 05, 2021 3:36 pmLTCi is, to my mind, similar to dental insurance: it covers expenses that I can easily pay and it requires a course in contract law to get proper reimbursement. I can pay for my covered tooth cleanings, thanks, but it would be nice if insurance helped on my multi-thousand dollar restoration.
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Re: Self-Insuring for Long Term Care
Yes, I understand that.
Our safe assets are sufficient to cover our travel, groceries and dining out, replacement vehicles, normal medical bills, clothing, entertainment, etc. Those are expenses that we would no longer be paying, or paying at drastically reduced amounts. And, our risk assets might well have grown before we need LTC.
I get the FI part but not the RE part of FIRE.
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Re: Self-Insuring for Long Term Care
The standard line about LTC insurance is that if you are poor, you can't afford it, and if you are rich enough, you don't need it. What is "rich enough"? Well, if
(a) you have some buffer, e.g. 50x annual expenses rather than 25x; or
(b) your normal annual expenses are large enough that they will cover the annual LTC cost (at that point you are unable to travel or spend); or
(c) your home, when you no longer need it, will cover the cost; or
(d) the money you have planned to leave to others will, if necessary, cover the cost,
then you are rich enough. So those are the people who will say there is no need to set aside any money for this specific purpose. Others with tighter budgets may need to do so.
(a) you have some buffer, e.g. 50x annual expenses rather than 25x; or
(b) your normal annual expenses are large enough that they will cover the annual LTC cost (at that point you are unable to travel or spend); or
(c) your home, when you no longer need it, will cover the cost; or
(d) the money you have planned to leave to others will, if necessary, cover the cost,
then you are rich enough. So those are the people who will say there is no need to set aside any money for this specific purpose. Others with tighter budgets may need to do so.
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Re: Self-Insuring for Long Term Care
It would seem to me that people with tighter budgets are the people who can’t really afford to put aside a bunch of money, into idle safe havens, just in case they experience one of the possible expenses of older age. The rich do fine regardless.Chuckles960 wrote: ↑Thu Aug 05, 2021 4:09 pm [snip…]then you are rich enough. So those are the people who will say there is no need to set aside any money for this specific purpose. Others with tighter budgets may need to do so.
I get the FI part but not the RE part of FIRE.
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Re: Self-Insuring for Long Term Care
Yes, if you're poor, you can't afford to either insure or self-insure. But some people are somewhere in between "rich enough" and "can't possibly afford".TomatoTomahto wrote: ↑Thu Aug 05, 2021 4:13 pm It would seem to me that people with tighter budgets are the people who can’t really afford to put aside a bunch of money, into idle safe havens, just in case they experience one of the possible expenses of older age. The rich do fine regardless.
PS I didn't mean to agree with the OP about putting some money in "safe assets". Any self-insurance funds should be a matter of mental accounting, and if desirable physically separated into a different account, but should be invested just like all other assets.
Last edited by Chuckles960 on Thu Aug 05, 2021 4:29 pm, edited 1 time in total.
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Re: Self-Insuring for Long Term Care
It’s probably the case that that kind of insurance can’t be purchased commercially. Similar to the impossibility of buying a true COLA annuity commercially that adjusts like SS.
I get the FI part but not the RE part of FIRE.
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Re: Self-Insuring for Long Term Care
Do we have a bucket for LTC? No, we don’t have a bucket for anything. But…we do have a home with $1m+ in equity (actually, closer to $1.5m, at current values). When I’m figuring out what our spending can be each year, I don’t really consider the home equity as part of that calculation. We’ve always considered the house our Plan Z, worst case scenario slush fund, and paying for something like extended LTC is exactly what we have in mind for it.
In practice, though, we’re retiring with a large enough portfolio that we could cash flow long term care, for one of us, anyway. The problem happens if both of us needed LTC at the same time. That would put us into the deep end of the pool, and we would eventually need to tap into the home equity.
As far as what we need to save for, most nursing home stays are less than six months. But there are also a non negligible number of nursing home stays that go on for years. I don’t have to look very far to see cheese_breath’s wife, who was in for a long haul, or the mother of the matron of honor at our wedding, who went into a SNF when she was 88, and is now 102. It does happen. Medicaid is always the backstop if we run out of money, but I saw what a Medicaid bed looks like when dad was in one for a short period of time. Let me just say it’s not something I want for myself.
In practice, though, we’re retiring with a large enough portfolio that we could cash flow long term care, for one of us, anyway. The problem happens if both of us needed LTC at the same time. That would put us into the deep end of the pool, and we would eventually need to tap into the home equity.
As far as what we need to save for, most nursing home stays are less than six months. But there are also a non negligible number of nursing home stays that go on for years. I don’t have to look very far to see cheese_breath’s wife, who was in for a long haul, or the mother of the matron of honor at our wedding, who went into a SNF when she was 88, and is now 102. It does happen. Medicaid is always the backstop if we run out of money, but I saw what a Medicaid bed looks like when dad was in one for a short period of time. Let me just say it’s not something I want for myself.
Last edited by quantAndHold on Thu Aug 05, 2021 8:59 pm, edited 1 time in total.
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Re: Self-Insuring for Long Term Care
The best advice I've seen is.... for home owners...
Don't waste money paying insurance premiums for decades that you may never need for this. Instead, designate your home equity for LTC. If you get old enough that you need LTC... sell your house and use those funds.
--- Brian
Don't waste money paying insurance premiums for decades that you may never need for this. Instead, designate your home equity for LTC. If you get old enough that you need LTC... sell your house and use those funds.
--- Brian
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Re: Self-Insuring for Long Term Care
Some great info about LTC is frequently compiled by Christine Benz of Morningstar:
https://www.morningstar.com/articles/10 ... ic-edition
https://www.morningstar.com/articles/10 ... ic-edition
"Take calculated risks - that is quite different from being rash." |
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Re: Self-Insuring for Long Term Care
Those stats are daunting!Dinosaur Dad wrote: ↑Thu Aug 05, 2021 8:21 pm Some great info about LTC is frequently compiled by Christine Benz of Morningstar:
https://www.morningstar.com/articles/10 ... ic-edition
The renovation of our house was in part to make it suitable for aging in place, housing caregivers if necessary, wheelchair accessible, etc.
I get the FI part but not the RE part of FIRE.
Re: Self-Insuring for Long Term Care
A reverse mortgage might be an alternative for a married couple.brian91480 wrote: ↑Thu Aug 05, 2021 6:18 pm The best advice I've seen is.... for home owners...
Don't waste money paying insurance premiums for decades that you may never need for this. Instead, designate your home equity for LTC. If you get old enough that you need LTC... sell your house and use those funds.
--- Brian
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Re: Self-Insuring for Long Term Care
If you are talking about an individual, and not a group of people, please do not say "self-insured." Simply say "uninsured" or "can afford to take the risk." A better title for this thread would be "planning for uninsured long-term care."
"Self-insured" is a misnomer if you aren't spreading a risk across a group of people. It can be self-deceptive, because instead of saying the simple truth ("I have chosen to accept the risk") it suggests "Oh, I am 'insured,' just in a different way."
When (e.g.) a company says "We are self-insuring" it means that instead of paying an insurance company to calculate a premium for the average risk in a large group, and manage premiums and claims accordingly, they are choosing to do the same work themselves.
"Self-insured" is a misnomer if you aren't spreading a risk across a group of people. It can be self-deceptive, because instead of saying the simple truth ("I have chosen to accept the risk") it suggests "Oh, I am 'insured,' just in a different way."
When (e.g.) a company says "We are self-insuring" it means that instead of paying an insurance company to calculate a premium for the average risk in a large group, and manage premiums and claims accordingly, they are choosing to do the same work themselves.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Self-Insuring for Long Term Care
Notch one of the few times I disagree with you, nisiprius. “Self-insure” is a misnomer for the way we treat LTC, but for OP, who has a segregated amount of money put aside for LTC, it probably is appropriate.
I get the FI part but not the RE part of FIRE.
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Re: Self-Insuring for Long Term Care
I invite you to try a reverse mortgage calculator website. Enter reasonable numbers. Then compare the "monthly payment for life" with the average monthly cost of long-term-care in your state.
For me, the cost of long-term care would be well over five times what a reverse mortgage would pay.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Self-Insuring for Long Term Care
Good analysis ... you are right that a reverse mortgage is not "the solution" but it could be just enough of a "partial solution" for couples where one is far better off or very much wants to stay in their home.nisiprius wrote: ↑Fri Aug 06, 2021 7:45 am1) The current value of my house is equal to the average cost of 2½ years of long-term care in my state. What's your comparable number?brian91480 wrote: ↑Thu Aug 05, 2021 6:18 pm The best advice I've seen is.... for home owners...
Don't waste money paying insurance premiums for decades that you may never need for this. Instead, designate your home equity for LTC. If you get old enough that you need LTC... sell your house and use those funds.
--- Brian
2) You're adding local real-estate market risk into the equation.
3) What would my spouse do, given that a reasonable planning assumption is that the full proceeds of the house sale might be fully consumed paying for long-term care?
I went to a reverse mortgage calculator website. I entered the current value of our home, expected occupancy "for life," entered our ages, left all other numbers as defaulted.
The average monthly cost of long-term-care in my state is nine times what it estimated as "monthly payment for life."
The calculator is at least ballpark-credible because the "monthly payment for life" number it quotes is about 75% of the number I get if I assume selling the home for a lump sum and using the proceeds to buy a level-payment immediate annuity. No simple adjustments or tweaks in assumptions is going to bridge that huge gap. I don't believe there are reverse mortgages that pay nine times as much as whatever the website is showing.
Based on the numbers from that calculator, the proceeds from a reverse mortgage would be a substantial assistance for meeting the routine expenses of life, but wouldn't come close to meeting the expense of a nursing home stay.
Your analysis does demonstrate that a sale and purchase of a SPIA might be a better solution for singles that are most likely facing a permanent move to assisted living.
So much of this is personal and the "best" approach is elusive and highly variable.
Re: Self-Insuring for Long Term Care
Are you not similarly worried about exposing the financial assets you intend to use to pay your expenses in retirement?JTcheek wrote: ↑Thu Aug 05, 2021 3:52 pmThe point to separate the funds is to make sure you have sufficient funds to cover your LTC costs should they arise. Or, as another poster recommended, I could just withdrawal 3 percent of my total portfolio instead of 4.TomatoTomahto wrote: ↑Thu Aug 05, 2021 3:41 pmIf you’re self insuring you need sufficient funds in safe assets. We do a quasi-Liability Matching Portfolio, but that’s only one way to approach this.
I don’t see the point of having a separate stash of money for LTC. That’s like disease specific life insurance; silly.
I think about having the resources to pay for LTC costs the same way that I think about paying all of my other expenses.
Keep in mind that if you end up in a LTC facility, there are lots of other expenses you had, up to that point been incurring, that will either go away or be dramatically reduced. You will also (under current tax rules) get a large tax deduction for the medical care costs you are paying, which will dramatically reduce your tax bill. There are other assets that might be a source of cash flow too (downsize current home or outright sell the home if the surviving spouse is the one who ends up needing LTC).
For these reasons, I think the incremental expenses (over and above the prior years run rate) that need to be covered won't be as large as one might think.
Real Knowledge Comes Only From Experience
Re: Self-Insuring for Long Term Care
A society might be judged on how well or not it cares for its elderly/infirm. Collective insurance/care. The alternative of individual funding/care has such a vast range of potential outcomes its simply uncaring.
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Re: Self-Insuring for Long Term Care
It’s outside the acceptable scope of this forum; a similar case can be made that a society is judged by how it treats the unwell, the poor, the “other,” etc.
For better or worse, in this country it’s pretty much down to the individual.
I get the FI part but not the RE part of FIRE.
Re: Self-Insuring for Long Term Care
And if that means your spouse has no place to live...brian91480 wrote: ↑Thu Aug 05, 2021 6:18 pm The best advice I've seen is.... for home owners...
Don't waste money paying insurance premiums for decades that you may never need for this. Instead, designate your home equity for LTC. If you get old enough that you need LTC... sell your house and use those funds.
This isn't just my wallet. It's an organizer, a memory and an old friend.
Re: Self-Insuring for Long Term Care
It's one of those misnomers that makes people feel better.nisiprius wrote: ↑Fri Aug 06, 2021 7:26 am If you are talking about an individual, and not a group of people, please do not say "self-insured." Simply say "uninsured" or "can afford to take the risk." A better title for this thread would be "planning for uninsured long-term care."
"Self-insured" is a misnomer if you aren't spreading a risk across a group of people. It can be self-deceptive, because instead of saying the simple truth ("I have chosen to accept the risk") it suggests "Oh, I am 'insured,' just in a different way."
Like saying "side hustle" instead of "second job".
This isn't just my wallet. It's an organizer, a memory and an old friend.
Re: Self-Insuring for Long Term Care
The US has a very expensive Medicaid program that pays for many of the elderly infirm to be cared for.TomatoTomahto wrote: ↑Fri Aug 06, 2021 8:38 amIt’s outside the acceptable scope of this forum; a similar case can be made that a society is judged by how it treats the unwell, the poor, the “other,” etc.
For better or worse, in this country it’s pretty much down to the individual.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Self-Insuring for Long Term Care
Large companies that self-insure the health insurance for their employees use a 3rd part administrator to manage premiums and process claims. These 3rd party administrators frequently are major health insurers.nisiprius wrote: ↑Fri Aug 06, 2021 7:26 am If you are talking about an individual, and not a group of people, please do not say "self-insured." Simply say "uninsured" or "can afford to take the risk." A better title for this thread would be "planning for uninsured long-term care."
"Self-insured" is a misnomer if you aren't spreading a risk across a group of people. It can be self-deceptive, because instead of saying the simple truth ("I have chosen to accept the risk") it suggests "Oh, I am 'insured,' just in a different way."
When (e.g.) a company says "We are self-insuring" it means that instead of paying an insurance company to calculate a premium for the average risk in a large group, and manage premiums and claims accordingly, they are choosing to do the same work themselves.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils