Time to start thinking about LTC insurance - Where to start (pensions, mother-in-law)
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when you (or spouse) need care and you sell the house, where will you live?
Look it's pretty simple. If over the next year or so I can pay out of pocket. We can put the house up for sale at any time with no urgency needed. After our next 5 years we will be in travel mode so we will be renting or in some expat situation. The key here is we have in place annual income as high as we earned annually while working. That before we talk savings.
Look it's pretty simple. If over the next year or so I can pay out of pocket. We can put the house up for sale at any time with no urgency needed. After our next 5 years we will be in travel mode so we will be renting or in some expat situation. The key here is we have in place annual income as high as we earned annually while working. That before we talk savings.
I appreciate your comments. You stated, quite correctly, that it's very important to have a plan. And I agree with you, 100%, that having a plan is different from having long-term care insurance. Long-term care insurance is not a plan, it's just one way to fund a plan.
I'm not trying to upset you, I just want to get a better understanding of what your plan is. And I appreciate your willingness to help others by sharing your thoughts.
If you sell the house yourself for the full $500,000 then what? You still need a place to live.
If you earn 5% on the $500,000 (after taxes) the $500,000 would generate only $25,000 of income per year. That's enough to cover the cost of renting a house or an apartment.
If you use the $500,000 to pay for your care, then it won't be there to generate the $25,000 per year to cover the rent.
Many people who say they plan to "self-insure" are guilty of double counting their assets.
They say, "I will use my 401(k) to self-insure if one of us needs long-term care."
I ask, "What are you using your 401(k) for now?"
They answer, "We're not using it."
I ask, "What do you do with the interest and dividend earnings in your 401(k) each year?"
They answer, "We take money out every January and that covers a portion of our living expenses for the year."
I ask, "If you use up the 401(k) to pay for your care, how are you going to replace the income that the 401(k) is generating for you each year?"
That's what happened to a relative of mine. He told me he'd never need long-term care. A year and a half later he had a massive stroke.
In six years he and his wife went through their entire life's savings paying for his care. They both died, impoverished, in a cramped Medicaid nursing home.
Here's the funny thing: if he'd had a long-term care policy that covered ONLY HALF of the cost of his care, they never would have run out of money and they never would have had to go to a Medicaid nursing home. They could have stayed at home or in a nice assisted living facility for their final years.
Since they had to withdraw the full cost of care from their retirement accounts every month, those accounts stopped producing as much income as they had produced. It becomes a negative spiral. Every dollar you spend from your assets decreases your income every year forever.
If, for example, care in your area cost $100,000 per year, the actual cost of care is not $100,000 per year. The actual cost is $100,000 per year plus the $5,000 per year that $100,000 would have generated for you for the rest of your life.
In other words, if someone needs care for 5 years and it costs $100,000 per year, the actual cost is $550,000 because of the loss of earnings on your money.
That's why a lot of smart wealthy people own long-term care insurance. They understand the value of leverage and the opportunity costs inherent in "self-insuring".
It always "makes sense" to self-insure for something that will never happen.
I appreciate your comments. You stated, quite correctly, that it's very important to have a plan. And I agree with you, 100%, that having a plan is different from having long-term care insurance. Long-term care insurance is not a plan, it's just one way to fund a plan.
I'm not trying to upset you, I just want to get a better understanding of what your plan is. And I appreciate your willingness to help others by sharing your thoughts.
If you sell the house for yourself for the full $500,000 then what? You still need a place to live.
If you earn 5% on the $500,000 (after taxes) the $500,000 would generate only $25,000 of income per year. That's enough to cover the cost of renting a house or an apartment.
If you use the $500,000 to pay for your care, then it won't be there to generate the $25,000 per year to cover the rent.
Many people who say they plan to "self-insure" are guilty of double counting their assets.
They say, "I will use my 401(k) to self-insure if one of us needs long-term care."
I ask, "What are you using your 401(k) for now?"
They answer, "We're not using it."
I ask, "What do you do with the interest and dividend earnings in your 401(k) each year?"
They answer, "We take money out every January and that covers a portion of our living expenses for the year." I ask, "If you use up the 401(k) to pay for your care, how are you going to replace the income that the 401(k) is generating for you each year?"
That's what happened to a relative of mine. He told me he'd never need long-term care. A year and a half later he had a massive stroke.
In six years he and his wife went through their entire life's savings paying for his care. They both died, impoverished, in a cramped Medicaid nursing home.
Here's the funny thing: if he'd had a long-term care policy that covered ONLY HALF of the cost of his care, they never would have run out of money and they never would have had to go to a Medicaid nursing home. They could have stayed at home or in a nice assisted living facility for their final years.
Since they had to withdraw the full cost of care from their retirement accounts every month, those accounts stopped producing as much income as they had produced. It becomes a negative spiral. Every dollar you spend from your assets decreases your income every year forever.
If, for example, care in your area cost $100,000 per year, the actual cost of care is not $100,000 per year. The actual cost is $100,000 per year plus the $5,000 per year that $100,000 would have generated for you for the rest of your life.
In other words, if someone needs care for 5 years and it costs $100,000 per year, the actual cost is $550,000 because of the loss of earnings on your money.
That's why a lot of smart wealthy people own long-term care insurance. They understand the value of leverage and the opportunity costs inherent in "self-insuring".
It always "makes sense" to self-insure for something that will never happen.
Okay first the colored line. We do not need the income from the sale of the house to live. In fact we do not need it at all except as an insurance should we need it for LTC. When we are done traveling our merry way we can take our extra nest egg (house sale) and get a condo or rent.
If we need to tap into 401k for anything it wont deplete it either. We can always replenish that from the sale of the house later.
We have enough income to live off while renting and still travel where we will and how we want. Our plan is renting as expats while we travel regionally using a hub type system to reset. Having our situation is good for us and unique in the grand scheme of things. We are a very different couple.
I am not upset and I am glad you asked the questions. You had good questions and that is fine. I hope you have all you need to understand that we are different. It took me a long time look at our finances and our ideas for the first 10 to 15 years and came up with the answer you just pulled out of me. After discussing it with other people and putting together the numbers we (DW and I) have agreed that we want to travel that path.
Okay first the colored line. We do not need the income from the sale of the house to live. In fact we do not need it at all except as an insurance should we need it for LTC. When we are done traveling our merry way we can take our extra nest egg (house sale) and get a condo or rent.
If we need to tap into 401k for anything it wont deplete it either. We can always replenish that from the sale of the house later.
We have enough income to live off while renting and still travel where we will and how we want. Our plan is renting as expats while we travel regionally using a hub type system to reset. Having our situation is good for us and unique in the grand scheme of things. We are a very different couple.
I am not upset and I am glad you asked the questions. You had good questions and that is fine. I hope you have all you need to understand that we are different. It took me a long time look at our finances and our ideas for the first 10 to 15 years and came up with the answer you just pulled out of me. After discussing it with other people and putting together the numbers we (DW and I) have agreed that we want to travel that path.
Thank you for your kind reply. However, I didn't say that you needed the income from the sale of the house to live. You're living in the house so obviously you don't need the money from the sale of the house in order to cover your everyday living expenses.
My question was, and still is: Are you going to use the $500K from the sale of the house to:
1) pay for your long-term care expenses, or
2) buy a new residence, or
3) invest the funds in order to generate about $25K per year (which might be enough to cover rent).
Judging from your answer above, it sounds like you will sell the house and buy a condo which would mean that instead of $500K set aside to pay for LTC, you'd have much less set aside for LTC (depending upon the cost of the condo.)
Thank you for your kind reply. However, I didn't say that you needed the income from the sale of the house to live. You're living in the house so obviously you don't need the money from the sale of the house in order to cover your everyday living expenses.
My question was, and still is: Are you going to use the $500K from the sale of the house to:
1) pay for your long-term care expenses, or
2) buy a new residence, or
3) invest the funds in order to generate about $25K per year (which might be enough to cover rent).
Judging from your answer above, it sounds like you will sell the house and buy a condo which would mean that instead of $500K set aside to pay for LTC, you'd have much less set aside for LTC (depending upon the cost of the condo.)
none of the above.
4) invest the money in something that is not stagnant like a bank but less volatile then 100% equities not to generate income but to reinvest to grow. We can live on our income without pulling anything from the sale of the house.
It will be in funds that we can make payments from pay taxes on the dividends and growth but no tax should be paid on principle since that money is after sale and the taxes will have already been paid.
We do not need the approx. $25k for anything. If it generates 25k per year we should be able to buy any condo in 10 to 15 years any place we chose. I am thinking maybe on Cape Cod or even in the Boston area (ie south shore Plymouth area).
Of course this is all speculation. We do not know exactly what will happen tomorrow. But as long as I can I plan to enjoy life. That is as good a way as I can envision it.
Sweet*Tea no this is the exact forum to ask these questions. You can go back using the search and find many threads on LTC and read the varied posts and comments on them. Having a policy can help. Living in a state like NY with partnerships are great but we all don't live there. The one factor that does help in all circumstances is to have a plan. That does not mean having a policy. It does mean that you and your family sit down and talk about the plan. What happens in a situation that requires someone to need in home or out of home care over a longer period of time. Policies will pay not just for nursing but for in home care as well. They are pricey as you will find out the older you are. Once you start paying those premiums you will need to continue. It is like all insurance policies. You pay those payments so when you need it the policy is ready to pay off.
Another thing on this topic is if you do have a policy you will need to be prepared to fork out the first couple of months or more as the claim takes time to process. Meantime you or your husband may be in immediate need of that care. That is why having a plan is paramount to all other considerations. Knowing what needs to be done if X Y or Z happens. You most likely will need to react quickly after a catastrophic event so having an emergency fund to be able to cover the unexpected is critical too.
You will find that many here if you do some reading are self insuring. Some are in denial saying that they have a .38 caliber bullet with LTC written on it. I think that is flippant but it is what they said. Then we have our resident LTC experts and those with estates big enough to protect yet too small to feel comfortable to self insure.
If you want to know my wife and I have decided we will self insure. Our LTC money if needed is our home. We are in a home too big for us in the future and we have other plans on where to live. We do not have a huge nest egg but we have a steady solid income that can provide us with more than enough to do what we want. We also have a decent emergency fund that we can tap at any time and for any reason if the same of the house has not started. We both know where all the money is and how it is accessed.
Thank you oldsoldier! I just finished reading that thread. Good info. All this just scares me to death. I just don't think it's fair to impoverish the healthy spouse if/when Medicaid kicks in.
Thank you oldsoldier! I just finished reading that thread. Good info. All this just scares me to death. I just don't think it's fair to impoverish the healthy spouse if/when Medicaid kicks in.
I completely agree with you. That is why we sat and talked to a FP. Then took what we learned and came up with our plan. It is also why I started that thread. DW and I are in unique positions. But our path can show others a path as well.
I completely agree with you. That is why we sat and talked to a FP. Then took what we learned and came up with our plan. It is also why I started that thread. DW and I are in unique positions. But our path can show others a path as well.
Yes, it helps so much to hear what others have done and what plans they have in place. Helps with perspective and makes you think of different scenarios.
Any other articles or threads you can point me to for information?
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