Investing for long term care needs

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Investing for long term care needs

Post by beanie » Tue Dec 05, 2017 1:10 pm

My spouse and I have set aside a bucket of assets for our potential long term care needs. I am reviewing how we have this money invested, and would like comments on my asset allocation.

We are currently in good health, retired, ages 65 and 73. Our income fully covers our current core expenses. We have no children – no heirs to preserve assets for, but also no possibility of support if our assets are insufficient. So I am looking for upwards of 90% probability that this money will be enough when we need it.

The amount we need, in some ways, is a wild guess. It’s hard to know what the future might look like. At some point we will likely choose to move to a continuing care community, maybe 10 to 15 years from now, and the odds are that at some point we will need assisted living or memory care or a nursing home. We live in a high cost area. My assumption is that the costs of continuing and long term care will continue to far exceed the general inflation rate. So we’ve set aside an amount that I think should cover most scenarios, but who knows?

Given the uncertainties of when we will need the money and how much we might need, it’s hard to decide how much risk to take. At the moment, we have about 63% invested in stocks. But I am questioning whether this is too risky. Should I use age-in-bonds instead?

The specifics:
TIPS 15%
Bonds 22%
Large cap stock funds 23%
Mid & small cap stock funds 15%
International stock funds 15%
Real estate fund 6%
Health care fund 2%
Natural resources fund 2%

I would greatly appreciate comments and perspective.

Edited to clarify questions about asset allocation.
Last edited by beanie on Wed Dec 06, 2017 1:39 am, edited 1 time in total.

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Re: Investing for long term care needs

Post by inbox788 » Tue Dec 05, 2017 1:46 pm

beanie wrote:
Tue Dec 05, 2017 1:10 pm
We both have long term care policies, but the benefits are limited to $200k each.
Is the limit annual or lifetime? What is your premium? You might be in a situation where you have sufficient resources to self insure the LTC. ... _insurance


As far as how aggressive to invest, you're left with the usual dilemma of market risk vs inflation risk. Most of the time, taking market risk turns out for the better, but you're not in a position to wait out a major downturn. So begin with 50/50 and see how that feels, and move towards 60/40 or 40/60 as needed or a bit more.

It appears this is a separate fund from your retirement and insurance, which appear to be very conservative on the whole, and would add significantly to your bond or bond equivalent portfolio, thus it's very likely your overall portfolio is at 40/60 and you don't know it.

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Re: Investing for long term care needs

Post by KlingKlang » Tue Dec 05, 2017 1:57 pm

There are a number of threads here on Continuing Care Retirement Communities, here's a recent one that has links to a number of others: viewtopic.php?t=217290

One thing that struck me was that many of the more upscale communities have several year waiting lists, so that you shouldn't wait until you are at the point of requiring their services before you apply. If you already have a community selected I would investigate whether you can lock in the current rates by applying early. I would also investigate how your current LTC policies benefits would dovetail with the CCRC benefits, I assume that the LTC benefits would not kick in until you required actual skilled nursing care.

As far as investments I don't see any reason for differentiating between continuing care funds and general retirement funds unless you are using a bucket strategy. Your current investment allocation looks very reasonable.

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Re: Investing for long term care needs

Post by visualguy » Tue Dec 05, 2017 2:51 pm

We're planning a combination of home equity and part of our retirement savings for long-term care purposes. Instead of 30x expected annual expenses, we're shooting for 35X (invested in the same way), and we'll use the difference for the first person who needs to go to nursing home (or needs home care). The second person can use whatever is left in the retirement savings plus the home equity. If both of us go to a CCC or nursing home at the same time, we can use a combination of the retirement savings and home equity. The key is that we are working on having significantly more than the 30x expenses that we would otherwise shoot for if we didn't have to worry about long-term care. Basically, we are self-insuring.

The most likely scenario I see is that one of us will deteriorate first, and the other person will take care of them up to a point (maybe with the help of some home care), and then bigger bucks will be needed when that is not possible anymore, and even bigger bucks will be needed when both of us are in bad shape, or when one surviving person is left.

It's depressing to think about this, but that's life and it's important to be prepared. It's good that you are planning for it. I'm always surprised when people think they "hit their number" without taking long-term care into account. It's a lot of money, and most people end up needing it to varying extents. The unbelievable costs of health care and long-term care are one of the most frustrating aspects of retiring in the US!

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Re: Investing for long term care needs

Post by beanie » Wed Dec 06, 2017 1:55 am

Thanks for the replies. I did edit my post to answer some of your questions and to better focus my question. I see that some of the information I had included was extraneous to my main concern — which is how to invest this pool of money, given the inherent uncertainties of amount and timing of the expenses.

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Re: Investing for long term care needs

Post by Watty » Wed Dec 06, 2017 7:57 am

beanie wrote:
Tue Dec 05, 2017 1:10 pm
At some point we will likely choose to move to a continuing care community, maybe 10 to 15 years from now,.....

At the moment, we have about 63% invested in stocks.
Even if your 10+ year figure is right as an average there is also a chance that long term care could be needed much sooner if one of you has something like a stroke or a broken hip. With that in mind 63% sounds too high to me.

You listed a portfolio of 8 mutual funds which will be hard to manage as you age so you might look at using something like a life strategy fund to simplify that. ... estrategy/#/

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Re: Investing for long term care needs

Post by Dandy » Wed Dec 06, 2017 8:44 am

As noted above you may be getting too complex with 8 funds. I'm not a fan of TD or Life Strategy Funds - don't like their composition or habit of making major changes. However, they might be fine -- I'd choose Balanced Index Fund.

I am wrestling with this issue also. I am using Value Index, Wellesley Income, Short term Investment Grade, and Ltd Term Tax exempt. These are spread over two Roths and a taxable account. I will probably end up with Balanced Index and Ltd Term Tax exempt. I am targeting about $300k. The issue is it is like having an emergency fund but you probably need more growth than that given the inflation rate for long term care will be much higher. I'll be interested in hearing other opinions.

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