Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
You have to be careful about experience overruling statistics though. In this case, it probably isn't but it definitely happens. People tend to think of something as more likely because it happened to someone they know. Sometimes people go the other way - the "gambler's fallacy" - and think something is less likely to happen because it has already happened to someone in the family or social circle (odds of a series have no effect of odds of each sequential event in a series).
this is really how most of us do things , other wise when we are young and starting to raise a family we would never have life insurance , heck dying young is pretty remote in the statistic world .. probably less then the odds of our house burning down and yet most would not think of going without fire insurance .
when it comes to ltc and the statistics on nursing homes the numbers are flawed that are thrown about . for one thing there are more then 2x the numbers of people who will be eventually in that zone for care age wise then there was . also medicaid slashed its budget for snf and has been redirecting potential nursing home patients to other types of facility's and care .
medicaid has spent 1/2 as much on nursing homes as they did in the late 1990's .
so there are a whole lot more folks who needed care then the statistics show .
Last edited by mathjak107; 06-14-2016 at 02:57 PM..
this is really how most of us do things , other wise when we are young and starting to raise a family we would never have life insurance , heck dying young is pretty remote in the statistic world .. probably less then the odds of our house burning down and yet most would not think of going without fire insurance .
when it comes to ltc and the statistics on nursing homes the numbers are flawed that are thrown about . for one thing there are more then 2x the numbers of people who will be eventually in that zone for care age wise then there was . also medicaid slashed its budget for snf and has been redirecting potential nursing home patients to other types of facility's and care .
medicaid has spent 1/2 as much on nursing homes as they did in the late 1990's .
so there are a whole lot more folks who needed care then the statistics show .
The stats on people who got care also don't show covered care among those who were insured. From what I have been able to glean from various sites, it is almost certainly under 1 in 3 and probably closer to 1 in 4. Most affordable policies don't kick in until day 91 and 2/3 of stays are under 90 days. Of the remaining third, about half get disqualified (often because the insured doesn't have a strong advocate; something to consider if you are retiring single - the policy is worthless if no one picks up your mail and fills out forms if you become unable to do so). The more I research LTC insurance, the more problems I find. They are fixable, but it is not a policy you buy and then forget about until you need it. Others need to be committed to helping.
The stats on people who got care also don't show covered care among those who were insured. From what I have been able to glean from various sites, it is almost certainly under 1 in 3 and probably closer to 1 in 4. Most affordable policies don't kick in until day 91 and 2/3 of stays are under 90 days. Of the remaining third, about half get disqualified (often because the insured doesn't have a strong advocate; something to consider if you are retiring single - the policy is worthless if no one picks up your mail and fills out forms if you become unable to do so). The more I research LTC insurance, the more problems I find. They are fixable, but it is not a policy you buy and then forget about until you need it. Others need to be committed to helping.
If you're single, you're not trying to protect your assets so you don't have the compelling need for long term care insurance. You spend your assets down to zero and then join the unwashed masses clamoring for Medicaid-funded long term care. By the time I get there, I kind of have to assume that private nursing homes aren't going to take Medicaid since they lose money on it. It's just like today where it's increasingly common that private practice physicians are refusing Medicaid patients. They lose money because Medicaid compensation levels don't even cover their overhead. I pay my mother's assisted living bills so I'm familiar with the math. The equity in my primary residence plus my Social Security check would easily cover a half-dozen years of assisted living even if it's paying for incontinence, bathing, and dressing. Memory care is pretty much the same money. As you say, most people don't last 90 days in a nursing home and, at least today, Medicare pays that.
like we saw with my dad over the 6 years he was in the home , the words "most people " have no meaning when it is you that ends up on the wrong side of the statistic . it was impoverishing for his wife and a drain on us as we were raising a family and had to contribute towards the home as well . so i have never paid attention to most stats when it comes to the fact something won't happen to " most people "
i pick and choose what i think would be an exceptional financial hardship and make the insurances mitigating those things the base of the financial pyramid , using a small percentage of the return on the assets above that it protects to pay for that mitigating ..
it all depends what you have to protect and who you are doing it for . i wasn't going to spin the wheel on the fact "most " long term care is under 90 days when it comes to my wife and even kids if she became a financial weight on them or i did ..
Last edited by mathjak107; 06-15-2016 at 03:00 AM..
You have probably done the math, but let me do a recap to see if you missed anything:
1). You will give-up $1500 per month income over 8-years = $18000 x 8 =$144,000
2). At 70, you will gain $900 per month ($2400 lifetime) over the $1500 you would have now
3). In 13+ years you will recoup your $144K at $900 per month - getting you to break even at 83
4). Assuming 7% IRA withdrawal will offset the $18K-$30K per year SS, you will pay 30-35% in taxes, so must actually withdraw about $25K-$42K to net $18K-$30K per year -- Over 8-years, that's another $67K-$92K in taxes (at 30%).
5). In will take another 6-8 years to recoup the $67-92K at $900 per month - getting you to break even at 89-91. (Ultimately, you or your heirs will pay these taxes anyway, so it may be a wash.
6). Your remaining estate (IRA) will have decreased by $200K - $340K - against which you will achieve no investment gain over the years. (Even at 3% AAG, that is $6K-10K per year -lifetime)
7). At 70-1/2, your RMD's will start, so even though you might want to reduce you withdrawals, to 3%, you will still need to take 5-6% in RMD's, against which you will pay 30-35% taxes (unless rates go-up). (At $15K (?) per year, that is another $5K in taxes, which will offset about 6-months of your $900 per month SS increase).
My math includes hypothetical numbers. Test it with your own $'s for a more accurate picture.
Did you discount the cash flows for the two alternatives?
LTC coverage may turn out to be far too expensive in my case. Until I start filling out forms, I tend to forget I have apnea. I am a 100% compliant CPAP user and have been for several years, so I don't suffer from it unless you count paying for insurance. Assuming we retire as a couple (probably more likely than the house burning down but not by much) it gets worse. My wife takes medicines for a heart condition and blood pressure and she smokes. The agent I spoke to is doing more research; the companies he prefers would either not write it at all or be very high. But he did not seem to be holding out much hope.
Assuming you live past the break even point, why draw down your savings just to get $900 more at 70 but miss out on the $144k?
The same reasons anyone else buys an annuity. Risk free income. In this case, it is not only risk free, it is COLA income, and transfers to your living spouse on your death (assuming you had one and your SS is the larger of the two). If you can find an annuity that allows payments over an 8 year period of $1500/mo,mand allows you to change your mind at anytime, get a refund of 6 months premiums, amd still collect a partial annuity for the premiums paid, but then pays $900/mo COLA for life if you do complete the payments, please show me.
Jgh's numbers are too negative. No one (or extremely highly unlikely) that only gets $1500/mo@62 SS and a savings of approx $420k would be anywhere near paying 30% in taxes. More like an effective of 10% . And assuming the OP is planning only living on just SS and the 3% withdrawal of the remaining assets should he delay, then we are talking about an income of (assuming earning 4% on his $420k during the 7% withdrawals) (2400 x12) + .03 x $288k) = $37,400/yr. on which he would pay no taxes on any SS (so the additional $900/mo COLA is tax free for life) and basically nothing on the 3% which covers most of his typically 4% RMD after 70. And that's the key. How much does he want to have as income for life, and what risk to achieve it. He doesn't make it clear if the 3% is in addition to the RMDs, or if he had neglected the RMD and assumed the 3% would cover it. So based on those numbers, and using Firecalc, he would have a 100% chance of never running out of money with an income of $37,400 for life, and a $288k nest egg that grows at approx 1% net per year, assuming only 4% growth. Not extravagant by any means but comfortable with a paid off residence and zero/very low risk.
To live the same way, on $1500/mo SS, he would need to draw $19400/yr from his savings, for life. $37400- (1500x12) = $19400. That is 4.62% of his nest egg, every year, regardless of sequence risk. Firecalc would give about an 83% chance of not running out of money by age 90. If something catastrophic happens, and he loses a major portion of his nest egg early, which has to be more severely monitored for life, his income is greatly reduced to his basic $18k yr instead of his delayed $28,800 per year. Hmmmm, sure doesn't sound like that bird in the hand is very risk adverse, now does it? Like I've been saying, hundreds of thousands of people have done this same calculation for many years, and IF you can afford it, the prudent, less risky, higher income for life is always to delay. Break even means NOTHING unless you know you will die at 80 and plan to spend all your money by then. You are trading risk for guaranteed low/no tax income. Simple as that.
I try not to have Lake Wobegone or Dunning-Kruger....there are really smart people out there that have already done the financial math. I'm just an engineer, and the numbers make sense. The question is how low are you willing to let your savings go to a oid sequnce risk for a higher lifetime income.
Last edited by Perryinva; 06-15-2016 at 06:42 AM..
Did you discount the cash flows for the two alternatives?
One of the biggest problems with the analysis is that on his #4 the tax estimate is wrong. Because the withdrawals would start at dollar 1 of income, some of it would not be taxed at all due to exemption/deductions and most of it would be taxed at the lowest rate and it would average out to being taxed under 10% (possibly under 5% at the low range of possible income). Using the other figures from that post, that might be a $50k tax savings in the long run.
LTC coverage may turn out to be far too expensive in my case. Until I start filling out forms, I tend to forget I have apnea. I am a 100% compliant CPAP user and have been for several years, so I don't suffer from it unless you count paying for insurance. Assuming we retire as a couple (probably more likely than the house burning down but not by much) it gets worse. My wife takes medicines for a heart condition and blood pressure and she smokes. The agent I spoke to is doing more research; the companies he prefers would either not write it at all or be very high. But he did not seem to be holding out much hope.
I waited 2 years from when I first thought about getting it , ended up having some blood tests that were prediabetic range and now got surcharged forever
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
