Investing for end-of-life healthcare?

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I don't have long term care insurance and don't plan to. I'm wondering how folks are investing to provide for their possible assisted-living / nursing home care. Given the cost of this care, this could mean a big bump up in expenses at some point, so there should be a financial reserve to cover this. I'm thinking of setting aside a sufficient portion of my portfolio to cover 2-3 years of care in something like a "cash reserve" portfolio. Since you don't really know when you'll need these funds, I don't think they should be invested in stocks or other risky investments. Maybe a TIPS ladder, or something like that. Would like to hear what folks are thinking and/or doing about this.

[ResNullius]

My wife and I self-insure, and we're very comfortable with this. As for whether this changes our investment strategy or portfolio mix, the answer would be no. We currently have a 60% fixed portfolio, with thought of possibly nudging the fixed portion down to 55%. Other than maintaining a conservative portfolio, which also has some growth opportunities, we have done nothing else. Absent an economic collapse, the money should be there if we need it down the road. If we don't need it, then our son will inherit that much more.

[earlyout]

We also decided to self insure with the idea of selling our residence to generate funds for assisted living or whatever. If we have to dip into investments to pay the bills we will do that. We made no changes to our AA (50/50) as a result of this decision.

[Quickfoot]

We have a 401K, 2 Roth IRAs, and a HSA (which my employer contributes $3500 a year to). Our strategy is to ignore the HSA for retirement purpose and at 65 use a portion of it to purchase a deferred fixed annuity or two that will kick in at age 80, the remainder of the HSA funds will be held in reserve and somewhat conservatively invested (30/70), the annuity will give us around a 30% boost in income at 80 and the HSA provides considerable reserves outside our traditional retirement assets. We will also wait to claim SS until all delayed credits have been achieved. Guaranteed income alone (SPIA + deferred annuity) would more than pay for nursing home care for both of us yet would make up only about 1/3rd of our overall assets.

The house will be paid off but I do not count it as an investment asset, rather it offers protection from rent inflation (even with a mortgage buying keeps your rent at the same amount for 15-30 years rather than having it increase every year) and having it paid off considerably lowers our cost of living.

We want a secure retirement but we also want to be free to spend and not die with millions in the bank wishing we had enjoyed our nest egg while we were able to.

[Dale_G]

Self insured, and no funds are separately earmarked for this purpose. It is all one pot of money.

Dale

[Watty]

My Mom survived my Dad and she was adamant that she would live in her paid off house until she had to go to a nursing home. We had firm instructions and the paperwork to sell off the house to pay for the nursing home if she ever needed to move to one.

Even though she lived in a moderately priced house between her social security and the home equity the numbers worked so she could have paid for a nursing home for a very long time without having to dip into her retirement funds at all if it had been needed.

It helps to live in moderate to low cost of living area.

According to this link, in my state it will cost in the neighborhood of $60K per year.
https://www.genworth.com/corporate/abou ... -care.html

That isn't all that different than what my normal retirement spending will be so if it is just being paid for one person it could just be paid out of normal retirement funds and social security. When you budget for possible nursing home needs be sure to only plan for what you will need ABOVE your normal retirment budget.

There are of course permutations where both spouses are surviving and one or both could need a nursing home that will stretch the budget but if you have planned to be able to fund your retirement well into your 90's then there are lots of ways that it will probably work out, especially since there is about a 50% chance that your investments will have higher than average returns.

[Watty]

One more comment;

Since you don't really know when you'll need these funds, I don't think they should be invested in stocks or other risky investments. Maybe a TIPS ladder, or something like that. Would like to hear what folks are thinking and/or doing about this.

Most people only need nursing care for a few years if at all.

if you are 65 today and need a nursing home when you are 75, then you likely will not need the funds you had planned to spend in your 80's or 90's so you likely would not need a special fund.

When you will really start to need the nursing home money is when you are maybe 85 or older since you will have already drawn down your retirment funds a lot. That is a 20 year time frame before you would really need it because you would not have other good alternatives then. With a 20 year time frame having a diversified conservative portfolio would likely be more appropriate.

[Browser]

if you are 65 today and need a nursing home when you are 75, then you likely will not need the funds you had planned to spend in your 80's or 90's so you likely would not need a special fund.

When you will really start to need the nursing home money is when you are maybe 85 or older since you will have already drawn down your retirement funds a lot.

That's kind of what I was thinking too. If I have an income plan that is supposed to last me 30 years, then there should be enough left in it to fund healthcare if that happens in 20-25 years or earlier. I'm still thinking that there should be a reserve of some sort that is earmarked for healthcare if I make it more than 25 years or so. If that were to happen, then I might need it since my income portfolio might be getting kinda thin by then. Otherwise, it goes to my estate. Maybe put that "reserve" in a TIP ladder with 25-30 year maturities or something like that. If I'm still kicking by then it would be there for my healthcare. Otherwise to my estate.

[nisiprius]

I don't have long term care insurance and don't plan to.

Here's what you're up against. First of all, although many people need long-term care, many do not, so no matter what you do you have a significant chance of setting aside money that you can't spend but never will need.

Second of all:


This chart fits reasonably well with what I know anecdotally. There is a long tail at the high end. It is not incredibly rare to have nursing home days of more than five years. If Alzheimer's is involved, the time can easily stretch to more than ten.

I don't think it is prudent to have only enough saved to cover "two or three" years. If you're serious about it, what you need to have is an earmarked portfolio that is capable of sustaining about $70,000 a year indefinitely. Except it's worse than that, because long-term care expenses have been growing at around 6% per year and I think it would be optimistic to plan on that ending any time soon. So, whatever number you arrive at, if you invest it in low-volatility, low-risk, cash-like investments you can draw on at any time, you also need to plan to continuing to add money to the fund at the rate of several percent per year.

[sscritic]

have is an earmarked portfolio that is capable of sustaining about $70,000 a year indefinitely.

Or a house. Own a $2.5 million house that you can rent out for $6,000 a month (that's only 1/4 percent a month). Raise the rent each year to match the increase in your care costs.

[ourbrooks]

Nisiprius has left one critical factor out of his chart: age. To live in a nursing home for ten years, you have to actually live for ten years, but life expectancy is reduced with Alzheimer's Type dementia and similar disorders and these are the dominant diagnoses for long term nursing home stays. Odds are high that if you need continuous nursing home care at age 70 you won't need the money for living expenses at age 85 or 90. Odds are also high that if you enter a nursing home at age 80, you won't be alive 10 years later.

You don't really need an earmarked portfolio just to provide $70,000 a year for nursing home care. If you're in a nursing home, you can use part or all of your regular income to pay the cost; you probably don't have much use for it for other purposes. If both members of a couple are in nursing homes, then it is probably unnecessary and unwise to hold onto their personal residence and the proceeds can also be used for care expenses. In fact, one could argue that a good strategy for handling nursing home expenses if you (or your caretakers) believe you that you will be there a long time is to use all of your assets to buy an SPIA. Late in life, the payout percentages become very large and nursing homes are know to prefer patients who can foot, say, 75% of the bill for a long time over those who can only pay the full freight for a short period of time.

[Honobob]

You don't really need an earmarked portfolio just to provide $70,000 a year for nursing home care.

$70,000 a year! That's low end for TODAYS cost. In 20 years when the odds are greater that I will need LTC my LTCi will be paying $238,000 a year for life! And I doubt that will pay for everything.

I'd like to see the "self insured" plan that will generate that kind of money in 20 years. I do have a backup plan that involves rental properties but don't see how you can protect yourself from medical inflation otherwise except for "playing the odds". That's just not the gamble I want to take when I'm old and sick.

[hq38sq43]

I don't have long term care insurance and don't plan to. I'm wondering how folks are investing to provide for their possible assisted-living / nursing home care. Given the cost of this care, this could mean a big bump up in expenses at some point, so there should be a financial reserve to cover this. I'm thinking of setting aside a sufficient portion of my portfolio to cover 2-3 years of care in something like a "cash reserve" portfolio. Since you don't really know when you'll need these funds, I don't think they should be invested in stocks or other risky investments. Maybe a TIPS ladder, or something like that. Would like to hear what folks are thinking and/or doing about this.

End of life care seems to me an oxymoron. It almost always just prolongs a life no longer of value to the dieing, his/her family , or passersby. If the body politic chooses not to provide for a civilized final departure, let it pay the cost through Medicaid or otherwise.

Sooner or later, a better way will be found. The sooner, the better.

Best regards,

[ourbrooks]

You don't really need an earmarked portfolio just to provide $70,000 a year for nursing home care.

$70,000 a year! That's low end for TODAYS cost. In 20 years when the odds are greater that I will need LTC my LTCi will be paying $238,000 a year for life! And I doubt that will pay for everything.

I'd like to see the "self insured" plan that will generate that kind of money in 20 years. I do have a backup plan that involves rental properties but don't see how you can protect yourself from medical inflation otherwise except for "playing the odds". That's just not the gamble I want to take when I'm old and sick.

No, $70,000 isn't the low end; it's the average and it includes care in Manhattan and on Lake Shore drive in Chicago. In Texas the median for a semi-private room is $47, 450 with a 4% annual growth rate. https://www.genworth.com/corporate/about-genworth/industry-expertise/cost-of-care.html

In any case, long term care insurance is clearly not the answer either. Rates for the insurance is increasing even faster than overall medical care expenses and declining numbers of insurance companies are offering it. An LTC policy is like car insurance; the insurance company can drop coverage or raise rates at any time. Would you still keep a policy which paid $238,000 a year if the annual premiums were $158,000? How about that letter that you get at age 80, before you've made any claims, saying that the insurance company has decided no longer to offer coverage in your area? Alas, currently, there's no way out of the health care gamble.

[nisiprius]

To live in a nursing home for ten years, you have to actually live for ten years, but life expectancy is reduced with Alzheimer's Type dementia and similar disorders and these are the dominant diagnoses for long term nursing home stays. Odds are high that if you need continuous nursing home care at age 70 you won't need the money for living expenses at age 85 or 90. Odds are also high that if you enter a nursing home at age 80, you won't be alive 10 years later. You don't really need an earmarked portfolio just to provide $70,000 a year for nursing home care.

The point is that the distribution has a very long tail. It can't be cleanly budgeted. The "odds are high" that you won't need a nursing home at all. The odds are high that if you do, it will be for less than a year. But the possibility of a ten-year stay isn't negligible at all. It's somewhere in the same ballpark as having your house burn down.

You can argue forever over whether the right number is $70,000 a year or $35,000 (in Arkansas) or $140,000 a year (Connecticut), and whether the rate of increase is 6% per year or whether it has just got to be less than that because it just can't possibly go on that way.

The fact is that the statistics are just really intractable to any conservative, frugal form of self-insurance. Perhaps you don't need an endless income of $100,000 increasing 6% per year, but it's hard to believe that 3 times current nursing home costs in a CD or bank account or short-term bond fund is going to be enough, either.

It's just a really ugly probability distribution, and knowing that the "average" nursing home stay is 2.4 years (one random number I plucked out of the cyber-air) doesn't mean that 2.4 years is enough. The most rational way to attack the problem would be first to state, without peeking, what you think is an acceptable risk of running out of money, and only then look at the distribution and calculate how many years you need to make the risk acceptable.

There is some sort of line you can draw at 5 years, the current Medicaid lookback period--up from 3--but I don't want to get into that because a) I don't understand it, and b) it's sailing close to the wind legally.

It's sort of like what they said about a yacht: if you have to ask how much it costs, you can't afford it.

[Honobob]

Alas, currently, there's no way out of the health care gamble.

I should give up, spend all my money and live off the govt.

Although TODAY, my LTCi can/will pay $90,000 a year. Semi private room? Also, do you have any idea WHAT YOU DON'T GET FOR YOUR $70,000 A YEAR? If you're fine with communal living and communal underwear good for you. Not for me. I'm 13 years into my plan and it's working! What's your plan?

[Browser]

The long tail distribution that Nisiprius describes is certainly one that cries out for a pooled risk solution - i.e. an insurance annuity. It's just too bad that LTCI is turning into such a mess with rising premiums and the uncertainty that your insurer is going to deliver 20-30 years down the road. Anyway, at my age the premiums would be ridiculous. How about a tontine? You and 9 friends can get together and pool a million bucks and the one who ends up in the memory garden for 10 years is the winner!

[Jessica S]

My mother was a prototypical boglehead, as well as an atheist, and a pragmatist. When faced with a diagnosis of advanced brain cancer she chose to do an assisted suicide. She wanted to avoid both the anguish of losing her mental facilities and also having her assets decimated by medical costs since she was without health insurance. The suicide, which was a painless overdose of barbiturates, allowed her to meet both her goals.

I know that most people wouldn't choose this route, but it was the right choice for her. Just something to think about...

A side note: In order to avoid burial costs, her body was donated to the medical school of a respected university. Slightly ironic, since she'd always hated doctors. After her body had served the cause of science it was cremated and the ashes were scattered at sea, courtesy of the university. Rather nice, actually.

[hicabob]

My mother was a prototypical boglehead, as well as an atheist, and a pragmatist. When faced with a diagnosis of advanced brain cancer she chose to do an assisted suicide. She wanted to avoid both the anguish of losing her mental facilities and also having her assets decimated by medical costs since she was without health insurance. The suicide, which was a painless overdose of barbiturates, allowed her to meet both her goals.

I know that most people wouldn't choose this route, but it was the right choice for her. Just something to think about...

A side note: In order to avoid burial costs, her body was donated to the medical school of a respected university. Slightly ironic, since she'd always hated doctors. After her body had served the cause of science it was cremated and the ashes were scattered at sea, courtesy of the university. Rather nice, actually.

I'd like to think I would have done the same. I wonder how many people are so brave when it comes down to it?

[nisiprius]

My mother was a prototypical boglehead, as well as an atheist, and a pragmatist. When faced with a diagnosis of advanced brain cancer she chose to do an assisted suicide.,,,After her body had served the cause of science it was cremated and the ashes were scattered at sea, courtesy of the university.

A. C. Swinburne, "The Garden of Proserpine:"

From too much love of living,
From hope and fear set free,
We thank with brief thanksgiving
Whatever gods may be
That no life lives for ever;
That dead men rise up never;
That even the weariest river
Winds somewhere safe to sea.

Then star nor sun shall waken,
Nor any change of light:
Nor sound of waters shaken,
Nor any sound or sight:
Nor wintry leaves nor vernal,
Nor days nor things diurnal;
Only the sleep eternal
In an eternal night.

[Honobob]

she chose to do an assisted suicide. She wanted to avoid both the anguish of losing her mental facilities and also having her assets decimated by medical costs since she was without health insurance.

.

I don't understand worrying about your assets when you need them for your health. I do understand worrying about your loved ones assets when YOU are in charge of their care. I'm making plans that will hopefully NEVER put someone in that situation. I was that guy with my dad for almost 10 years. His assets would have been depleted in less than three years without my care. Huge cost to me.

Despite his dementia/alzheimers he clung to life till the end.

[Bob's not my name]

It is not incredibly rare to have nursing home days of more than five years.

Yes, they can be long.

[mgcfo]

I apologize if I'm getting a little off track - part of my long-term care insurance is taking care of myself now. I weighed 216 November, 2010 (age 50 at the time). Today, I'm in the low 170's eating right and exercising about 6 days per week. No, this will not keep certain forms of cancer away. Nor can I control dementia or Alzheimer disease. But I'm taking my lifestyle seriously to do what I can to stay away from extended hospital visits down the road. While I have 'compartmentalized' some of our assets that can be earmarked for long-term health care, taking care of my health now and in the future is a serious priority.

Having said this, I'm not naive. My father-in-law lives in assisted living and he has Alzheimer's and my mother lives in a skilled nursing facility and was diagnosed with dementia some 6 years ago. My wife and I handle the finances for our parents and we truly understand the cost of this care. And perhaps, it's these experiences causing me to manage my health much better than in the past.

[Dandy]

Good question. I would love to contribute to an efficient LTC product but the huge rate changes and companies that are leaving the market makes me not pull the trigger. A side benefit on how I am investing now probably serves me well in self insuring. I have about 1/2 of my fixed income in "safe" assets e.g CD ladder, short term bond funds, EE/HH bonds etc. If we should need money to cover LTC I would probably be using that part of my portfolio and gradually shifting allocations as those funds become depleted.

I thought of a seperate portfolio or ear marking certain funds but just plan to follow the above unless someone suggest a better approach.

[Browser]

And then there is the CCRC solution (continuing care retirement community). Kinda like a tontine really. You pony up your buy-in fee and travel from independent living to assisted living and finally to nursing care in the same facility without the huge monthly cost jumps. You need to have the front end fee, which can be substantial, enough financial assets to cover your monthly fee, and you need to get the timing right so you can still do independent living when you are admitted. Then you have to be sure to find a good one with financial stability. This seems preferable to LTCI to me, except you have to be comfortable with group living when you are probably still capable of living in your own place. LTCI owners need not apply because their insurance isn't worth much of anything in this setting. I doubt that the buy-in cost of a CCRC would be much more than the premiums paid out on LTCI over a 20 year period or so. You have equity in some CCRC's which would go to your heirs. In others you forfeit the buy-in fee.

[ourbrooks]

Alas, currently, there's no way out of the health care gamble.

I should give up, spend all my money and live off the govt.

Although TODAY, my LTCi can/will pay $90,000 a year. Semi private room? Also, do you have any idea WHAT YOU DON'T GET FOR YOUR $70,000 A YEAR? If you're fine with communal living and communal underwear good for you. Not for me. I'm 13 years into my plan and it's working! What's your plan?

I've written the checks for nursing home care in a medium sized city in Michigan and for a home on Lake Shore Drive in Chicago. The first was around $60,000; the other one was around $90,000. I've also visited relatives in a home in the Central Valley of California as well. The one on Lake Shore drive had a really nice lobby but the rooms were smaller than the one in Michigan and they didn't seem to have as many staff. Nursing homes pay prevailing wages and prevailing real estate costs, so where the home is located makes a much bigger difference than the price level in any one location. There's a four to one difference across states, $35,000 a year in Arkansas versus $140,000 a year in Connecticut!!

This difference is enormous and it's part of our plan for coping with possible long term nursing home stays. It's very difficult to predict who will need very long term care in advance, but once a diagnosis has been made, it is possible to predict whether a long nursing home stay is likely; if the diagnosis is heart attack or stroke, then I probably won't be in the home long but if it's senile dementia, then it's time to move me somewhere less expensive. Yes, my family will find it more difficult to visit me if I am in a home in San Angelo, Texas, but if it's that or run out of money by paying three times as much as in Connecticut, I'll accomodate (especially since I'll be living in a nice, high end home.) (Of course, if I'm in the home because of senile dementia, I may not notice that they don't come to visit.)

Will these cost differentials persist or will there be a mass in migration to Arkansas nursing homes which drives up the cost? I don't know. Will the cost of LTCi continue to increase faster than the cost of medical care to the point at which even people who have policies can no longer keep them up? I don't know that either. Still, it seems strange that people's approaches to planning for a low probability event doesn't seem to include the fact that there's a controllable, four to one difference in the cost of that event.