The biggest problem in retirement is spending (not)

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CULater
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The biggest problem in retirement is spending (not)

Post by CULater » Sat Jan 27, 2018 11:45 am

Blackrock study suggests that today's retirees are taking most of their nestegg to the graveyard:
This research conducted by the BlackRock Retirement Institute (BRI) in conjunction with the Employee Benefit Research Institute (EBRI) found that on average across all wealth levels, most current retirees still have 80% of their pre-retirement savings after almost two decades in retirement.

These findings begin to challenge industry norms and academic theories about lifecycle consumption especially during the retirement phase. Across all wealth levels measured, more than one third of current retirees grew their assets—leaving considerable potential consumption on the table. Late in life out-of-pocket medical expenses—a major reason to retain assets—do not appear to be warranted except for a very small portion of the population.

While many might find this puzzling, research suggests that people would rather not touch their savings and instead adjust their lifestyle, making cutbacks where necessary and shifting to “needs” over “wants.” Others may feel the need to hold on to wealth as a form of self-insurance instead of acquiring an annuity to deal with a number of life’s uncertainties, such as longevity risk. Retirees may also hold back due to deeper behavioral biases or tendencies. After being told to “save, save, save,” for decades, the idea of shifting to “spend, spend, spend” underweights the power of inertia and the comfort associated with the status quo.
https://www.blackrock.com/investing/ret ... etirement
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Nestegg_User
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Re: The biggest problem in retirement is spending (not)

Post by Nestegg_User » Sat Jan 27, 2018 3:48 pm

80% of pre-retirement savings after about two decades isn’t all that unexpected
if you examine the arc of wealth for a thirty year retirement under the 4% rule conditions for those cases where the terminal value is about zero the period where the portfolio starts to really start depletion is about 17-18 years in. That the cohort examined is at 80% might be due to the higher inflation rate of medical costs over any COLA’d income

since it noted it was across all wealth levels, it’s masking that those with higher wealth have had significant increases due to the bull market and should be well above even (and would expect those at the lower levels to have had reductions well below the 80% cited, as less of any of their wealth participated in the rise)

heyyou
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Re: The biggest problem in retirement is spending (not)

Post by heyyou » Sat Jan 27, 2018 10:58 pm

Consider using the RMD method or the VPW method if you want to spend more and leave less, since both aim to exhaust the portfolio at very advanced ages, age 105 for VPW if I remember correctly.
VPW is Variable Percentage Withdrawal developed by some posters here at Bogleheads (BHs).

The RMD (Required Minimum Distribution % from your traditional IRA (tIRA)) method uses the IRS's longevity based percentage plus spending annual interest and dividends, but not cap gains, of your entire portfolio.

Many older people today were raised by parents who lived during the Great Depression. That skews your perception of how bad times can be.

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Re: The biggest problem in retirement is spending (not)

Post by Gnirk » Sun Jan 28, 2018 12:11 am

I don’t spend because I may need my investments to cover long term care. My mom needed LTC for 12 years, and one great Aunt needed it for 17 years, and another more than 20. All suffered from Alzheimer’s and had no other health issues.

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randomizer
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Re: The biggest problem in retirement is spending (not)

Post by randomizer » Sun Jan 28, 2018 12:26 am

CULater wrote:
Sat Jan 27, 2018 11:45 am
Blackrock study suggests that today's retirees are taking most of their nestegg to the graveyard
I'm not so worried about today's retirees. More about tomorrow's.
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visualguy
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Re: The biggest problem in retirement is spending (not)

Post by visualguy » Sun Jan 28, 2018 12:52 am

Gnirk wrote:
Sun Jan 28, 2018 12:11 am
I don’t spend because I may need my investments to cover long term care. My mom needed LTC for 12 years, and one great Aunt needed it for 17 years, and another more than 20. All suffered from Alzheimer’s and had no other health issues.
Similar experience - mother in law: 24 years of LTC due to stroke, grandmother: 2 years of home care plus 6 years of nursing home due to Alzheimer's. Not sure how many people take this stuff into account when figuring out how much they need for retirement. It does change the picture - not something that can be ignored, and not something that is rare.

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Re: The biggest problem in retirement is spending (not)

Post by Sandtrap » Sun Jan 28, 2018 12:57 am

visualguy wrote:
Sun Jan 28, 2018 12:52 am
Gnirk wrote:
Sun Jan 28, 2018 12:11 am
I don’t spend because I may need my investments to cover long term care. My mom needed LTC for 12 years, and one great Aunt needed it for 17 years, and another more than 20. All suffered from Alzheimer’s and had no other health issues.
Similar experience - mother in law: 24 years of LTC due to stroke, grandmother: 2 years of home care plus 6 years of nursing home due to Alzheimer's. Not sure how many people take this stuff into account when figuring out how much they need for retirement. It does change the picture - not something that can be ignored, and not something that is rare.
Absolutely true.
Few escape that well worn predictable rut in the road. With age comes diminishing capabilities and mentation. The costs of long term care can be stratospheric.

j :D

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Kalo
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Re: The biggest problem in retirement is spending (not)

Post by Kalo » Sun Jan 28, 2018 1:03 am

One of the purposes of wealth is safety and flexibility. If you spend, you lose some of that to the extent you deplete your savings, and retirees have lost one of the main ways to replenish wealth (earnings from employment).

My personal experience with retirees is that they are interested in having a good time and having nice things, but the cost of the things that satisfy them is not that high. And they don't seem interested in some of the higher cost luxuries, especially travel, after a certain age. I've seen many retirees living well below their means, and this seems to accelerate once they get a ways into their seventies.

I've encouraged my own parents to spend their money on things they really could benefit from, like personal services, and they are still reluctant to do it. Some of this could be from the generation that grew up during the aftermath of the great depression.

I think we tend to underestimate how people feel about their wealth. How important it is to them for their sense of security, and how important that sense of security is to them.

Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.

rj49
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Re: The biggest problem in retirement is spending (not)

Post by rj49 » Sun Jan 28, 2018 1:28 am

The problem with the RMD method is that it results in less spending in early years of retirement, when people want to spend more, and much higher spending later, when people want to spend less.

I keep a copy of Stephen Pollan's "Die Broke", which provides inspiration to spend while you're alive (along with more challenging advice like not to retire at all and to not spend with cards). I actually have to set a spending goal for a year, in order to combat frugal impulses (and I lack a spouse who would be only to glad to help me out with spending).

Doesn't Medicare still provide an out for those needing LTC who have exhausted their savings? I think I would choose to spend my money enjoying life as much as possible while in full health and capacity than to hoard it for the possibility of better care in the likelihood of diminished health and mental capacity. At the same time I've set aside my Roth account for a form of longevity insurance, as something to live on if I exceed my estimated lifetime, and is the easiest thing to pass on to heirs if I never need it.

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Eagle33
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Re: The biggest problem in retirement is spending (not)

Post by Eagle33 » Sun Jan 28, 2018 1:40 am

rj49 wrote:
Sun Jan 28, 2018 1:28 am

Doesn't Medicare still provide an out for those needing LTC who have exhausted their savings? I think I would choose to spend my money enjoying life as much as possible while in full health and capacity than to hoard it for the possibility of better care in the likelihood of diminished health and mental capacity. At the same time I've set aside my Roth account for a form of longevity insurance, as something to live on if I exceed my estimated lifetime, and is the easiest thing to pass on to heirs if I never need it.
Medicaid enters the picture when a person eliminates their wealth.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

visualguy
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Re: The biggest problem in retirement is spending (not)

Post by visualguy » Sun Jan 28, 2018 1:59 am

rj49 wrote:
Sun Jan 28, 2018 1:28 am
Doesn't Medicare still provide an out for those needing LTC who have exhausted their savings? I think I would choose to spend my money enjoying life as much as possible while in full health and capacity than to hoard it for the possibility of better care in the likelihood of diminished health and mental capacity. At the same time I've set aside my Roth account for a form of longevity insurance, as something to live on if I exceed my estimated lifetime, and is the easiest thing to pass on to heirs if I never need it.
Medicare doesn't help with LTC. Medicaid does if you are destitute. However, I wouldn't want to be in that situation... One spouse may need LTC first while the other spouse doesn't. How does Medicaid help in this case? Reaching destitution is very problematic in this case. People sometimes do all kinds of financial shenanigans to become destitute and qualify for Medicaid - I'm not an expert on that. Also, there are types of LTC services and facilities where Medicaid won't be applicable, and also there are waiting lists for facilities for Medicaid patients. Many end up falling as a burden on their families to one degree or another, but what if you don't have a family that is able or willing to do it? The other thing with Medicaid is that it is constantly under attack, and who knows what it will look like in the future, and what care you'll actually be able to get with it.

FraggleRock
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Leave a decent inheritance

Post by FraggleRock » Sun Jan 28, 2018 2:46 am

80%?
I expect to be at over 200% when I am 89 in 20 years.

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Re: The biggest problem in retirement is spending (not)

Post by The Wizard » Sun Jan 28, 2018 7:34 am

CULater wrote:
Sat Jan 27, 2018 11:45 am
... Others may feel the need to hold on to wealth as a form of self-insurance instead of acquiring an annuity to deal with a number of life’s uncertainties, such as longevity risk...
Horse business.
Annuitizing a portion of your portfolio at retirement is actually a strategy which allows one to preserve their remaining portfolio rather nicely, without needing to draw it down for routine expenses.
So it's possible to have decently high retirement income along with a growing portfolio, as the Market allows. What's not to like?
Attempted new signature...

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Toons
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Re: The biggest problem in retirement is spending (not)

Post by Toons » Sun Jan 28, 2018 7:37 am

Black Rock Is "On Point'
with their assessment.

:happy
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Re: The biggest problem in retirement is spending (not)

Post by tennisplyr » Sun Jan 28, 2018 7:44 am

The Wizard wrote:
Sun Jan 28, 2018 7:34 am
CULater wrote:
Sat Jan 27, 2018 11:45 am
... Others may feel the need to hold on to wealth as a form of self-insurance instead of acquiring an annuity to deal with a number of life’s uncertainties, such as longevity risk...
Horse business.
Annuitizing a portion of your portfolio at retirement is actually a strategy which allows one to preserve their remaining portfolio rather nicely, without needing to draw it down for routine expenses.
So it's possible to have decently high retirement income along with a growing portfolio, as the Market allows. What's not to like?
Fear/ignorance surrounding annuities will likely never make them popular. Also, future generations i.e., millenials, who believe in living for today will probably not be carrying these amounts to their graves.
Those who move forward with a happy spirit will find that things always work out.

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Re: The biggest problem in retirement is spending (not)

Post by midareff » Sun Jan 28, 2018 8:19 am

It's something I'm wrestling with at the moment .... expenses and how much to travel in the go-go years (typical retirement to 75). Much of the answer to this question (IMHO) depends on market performance after retirement. Had we entered a stationary market or so to speak, lost decade, napkin math says 2% dividends and 4% withdrawal for the six years I'm retired and at age 70, means I have roughly 88% left... not >160%. Obviously, time to rethink withdrawal strategies and my travel budget for the next few years.

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plannerman
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Re: The biggest problem in retirement is spending (not)

Post by plannerman » Sun Jan 28, 2018 8:33 am

Too early in the morning to wade through the details of this study, but two questions that come to mind that I didn't find the answer to in my quick read:

1) Are the assets reported real or nominal?

2) Are they adjusted for taxes--i.e., Roth IRA assets are worth more that Traditional IRA assets?

plannerman

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Re: The biggest problem in retirement is spending (not)

Post by pennywise » Sun Jan 28, 2018 8:34 am

rj49 wrote:
Sun Jan 28, 2018 1:28 am

Doesn't Medicare still provide an out for those needing LTC who have exhausted their savings?
Most definitely NO! At least for the vast majority of elderly people; Medicare does not fund long term care at assisted living or nursing home levels. That would be Medicaid which kicks in once the individual has exhausted all his/her own resources. And the gotcha on that is that Medicaid care cannot be presumed to be completely equal to what is provided to those who paying for the care from their own resources.

Don't ever count on Medicare to fund long term ongoing elderly health and support needs. It's not intended for that and does not do so.

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Re: The biggest problem in retirement is spending (not)

Post by Ron » Sun Jan 28, 2018 8:56 am

rj49 wrote:
Sun Jan 28, 2018 1:28 am
<snip...> Doesn't Medicare still provide an out for those needing LTC who have exhausted their savings?
No.

If it did, I doubt that you would not see as many people (such as myself/wife) hold on to their portfolio assets "just in case"...

- Ron

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Re: The biggest problem in retirement is spending (not)

Post by bikechuck » Sun Jan 28, 2018 9:12 am

tennisplyr wrote:
Sun Jan 28, 2018 7:44 am
The Wizard wrote:
Sun Jan 28, 2018 7:34 am
CULater wrote:
Sat Jan 27, 2018 11:45 am
... Others may feel the need to hold on to wealth as a form of self-insurance instead of acquiring an annuity to deal with a number of life’s uncertainties, such as longevity risk...
Horse business.
Annuitizing a portion of your portfolio at retirement is actually a strategy which allows one to preserve their remaining portfolio rather nicely, without needing to draw it down for routine expenses.
So it's possible to have decently high retirement income along with a growing portfolio, as the Market allows. What's not to like?
Fear/ignorance surrounding annuities will likely never make them popular. Also, future generations i.e., millenials, who believe in living for today will probably not be carrying these amounts to their graves.
I plan to give annuities a serious look for approx 20 percent of my portfolio once I reach the age where I need to take RMDs.

If we are fortunate the combination of SS plus the annuity income might cover the majority of our spending. The remainder of the portfolio can the be invested aggressively serving as a safety net and legacy gift for our daughters and granddaughters. It might also help fund the granddaughters' college costs.

How well this all works remains to be seen.

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Re: The biggest problem in retirement is spending (not)

Post by Wildebeest » Sun Jan 28, 2018 9:14 am

I really enjoyed the paper. Thanks for posting.

By the data it does not look like BlackRock advisors are needed to save us from eating catfood and living under a bridge.

However till I got to this section of the paper:

Looking forward: need to spend down retirement assets may
only increase
Many of the retirees captured in this research were fortunate to be able to maintain a reasonable standard of living without significantly tapping into their retirement savings principal. Future retirees may not be so lucky. Many will likely retire into an environment with multiple headwinds and face growing pressure to save more and maximize the value of their entire retirement savings—principal and all—unless they are willing/able to make dramatic cuts in their retirement lifestyle. Several major challenges rise to the surface as we look ahead (Figure 10):

Pension benefits—on average, 42% of the retirees tracked in the research received income from a defined benefit (DB) pension: few, if any, of those retiring over the next 10- 20 years can expect income from a DB plan.
Social Security—income from Social Security is the largest component in the retirement income mix for all retirees, but pressure on Social Security finances could lead to a future drop in benefits.
Tax implications—most retirement assets for those working in the 1970’s and 1980’s were post-tax, i.e., before tax-qualified vehicles emerged. Most future retirement savings are in tax-qualified vehicles and would need to be tax-adjusted upon distribution, further reducing income.
Rates of return—over the past 35-plus years asset classes have delivered robust returns in the form of asset appreciation and interest income; few asset classes are expected to perform at the same levels into the near future.
Savings behavior—on a more qualitative level, deeply entrenched saving habits can impede retirees from getting comfortable with the notion of depleting their “nest egg.” Future retirees will need to save more and be more confident around drawing down retirement assets—or else be prepared for potentially significant belt tightening.
Longer life span—people are living longer and will need to have their retirement assets last longer, in some cases much longer. Investment portfolios should be re-assessed in light of this longer time horizon, and consider further diversification into less liquid, higher risk premia assets.
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Re: The biggest problem in retirement is spending (not)

Post by garyt » Sun Jan 28, 2018 9:46 am

visualguy wrote:
Sun Jan 28, 2018 12:52 am
Gnirk wrote:
Sun Jan 28, 2018 12:11 am
I don’t spend because I may need my investments to cover long term care. My mom needed LTC for 12 years, and one great Aunt needed it for 17 years, and another more than 20. All suffered from Alzheimer’s and had no other health issues.
Similar experience - mother in law: 24 years of LTC due to stroke, grandmother: 2 years of home care plus 6 years of nursing home due to Alzheimer's. Not sure how many people take this stuff into account when figuring out how much they need for retirement. It does change the picture - not something that can be ignored, and not something that is rare.
I'd say your average person has no choice but to ignore it. We'd never retire if we didn't. People on a site like this are likely to have far more money than an average Joe. But most people just don't have the money to have any possibility of surviving a long term spouse in LTC. LTC runs about $35K a year or more, so 5 years is close to $200K, not many working class people could absorb that cost. And many have physical jobs that won't allow them to work past 62 yet alone 65. So really, they have to just roll the dice, Even LTC insurance has gone up so much and doesn't cover everything to not be an option. I work at a compan where many of our route sales drivers are struggling to continue working at 60+ cause they can't afford to retire. It's a physical job and many should be retired but are hanging on.

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Re: The biggest problem in retirement is spending (not)

Post by fourwheelcycle » Sun Jan 28, 2018 9:57 am

Kalo wrote:
Sun Jan 28, 2018 1:03 am
My personal experience with retirees is that they are interested in having a good time and having nice things, but the cost of the things that satisfy them is not that high. And they don't seem interested in some of the higher cost luxuries, especially travel, after a certain age.
Kalo
This is absolutely correct. My wife and I like blueberries, but they double in price during the winter. At first we stopped buying them, but then we agreed our retirement savings could support an extra $90 spent on blueberries each winter.

Also, we like to travel and as we enter our seventies we are still healthy enough that most of our trips to Europe are VBT bicycle tours. However, we have found more than one or two trips to Europe each year is more tiring than satisfying. Since our Europe trips generally cost $10K or less, and even $20K per year is less than the college expenses we supported each year before we retired, our annual living expenses for everything except taxes and gifts to children and charities have remained under $100K during retirement.

As others have noted, another reason to hang onto a good portion of retirement savings is the potential for higher costs during the last years. My wife's frail, late 90s mother lives in a retirement community with base-level costs around $50K per year. However, she is now entering her fourth year of 24 hour in-home care, which has added $220K per year to her annual living expense.

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Top99%
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Re: The biggest problem in retirement is spending (not)

Post by Top99% » Sun Jan 28, 2018 10:02 am

visualguy wrote:
Sun Jan 28, 2018 1:59 am
rj49 wrote:
Sun Jan 28, 2018 1:28 am
Doesn't Medicare still provide an out for those needing LTC who have exhausted their savings? I think I would choose to spend my money enjoying life as much as possible while in full health and capacity than to hoard it for the possibility of better care in the likelihood of diminished health and mental capacity. At the same time I've set aside my Roth account for a form of longevity insurance, as something to live on if I exceed my estimated lifetime, and is the easiest thing to pass on to heirs if I never need it.
Medicare doesn't help with LTC. Medicaid does if you are destitute. However, I wouldn't want to be in that situation... One spouse may need LTC first while the other spouse doesn't. How does Medicaid help in this case? Reaching destitution is very problematic in this case. People sometimes do all kinds of financial shenanigans to become destitute and qualify for Medicaid - I'm not an expert on that. Also, there are types of LTC services and facilities where Medicaid won't be applicable, and also there are waiting lists for facilities for Medicaid patients. Many end up falling as a burden on their families to one degree or another, but what if you don't have a family that is able or willing to do it? The other thing with Medicaid is that it is constantly under attack, and who knows what it will look like in the future, and what care you'll actually be able to get with it.
+1 on being cautious about relying on Medicaid to bail you out. If you want a wakeup call go visit an LTC facility that accepts Medicaid. At least in our area they are not a place I would want to be in.
Adapt or perish

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Re: The biggest problem in retirement is spending (not)

Post by investingdad » Sun Jan 28, 2018 10:09 am

tennisplyr wrote:
Sun Jan 28, 2018 7:44 am
The Wizard wrote:
Sun Jan 28, 2018 7:34 am
CULater wrote:
Sat Jan 27, 2018 11:45 am
... Others may feel the need to hold on to wealth as a form of self-insurance instead of acquiring an annuity to deal with a number of life’s uncertainties, such as longevity risk...
Horse business.
Annuitizing a portion of your portfolio at retirement is actually a strategy which allows one to preserve their remaining portfolio rather nicely, without needing to draw it down for routine expenses.
So it's possible to have decently high retirement income along with a growing portfolio, as the Market allows. What's not to like?
Fear/ignorance surrounding annuities will likely never make them popular. Also, future generations i.e., millenials, who believe in living for today will probably not be carrying these amounts to their graves.
As a GenX member, I'll happily list out my personal grievances with millennials and media based millennial obsession. But as life and years go by, they'll grow up and shoulder responsibility just like everyone before them.

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Re: The biggest problem in retirement is spending (not)

Post by cherijoh » Sun Jan 28, 2018 11:23 am

randomizer wrote:
Sun Jan 28, 2018 12:26 am
CULater wrote:
Sat Jan 27, 2018 11:45 am
Blackrock study suggests that today's retirees are taking most of their nestegg to the graveyard
I'm not so worried about today's retirees. More about tomorrow's.
Yes, 20 years ago a significantly higher % of retirees had some form of pension. Even those pensions without a COLA help cover a chunk of retiree expenses leaving more of their nest egg untouched during the early years. Plus future retirees can't count on a long bull run.

theplayer11
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Re: The biggest problem in retirement is spending (not)

Post by theplayer11 » Sun Jan 28, 2018 11:36 am

don't want to spend my nest egg on LTC.....save my whole life to be able to afford a better nursing home? No thanks

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Pajamas
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Re: The biggest problem in retirement is spending (not)

Post by Pajamas » Sun Jan 28, 2018 11:41 am

It's a lot more pleasant to have to find ways to spend or give away money than to figure out what to do if you don't have enough.

wrongfunds
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Re: The biggest problem in retirement is spending (not)

Post by wrongfunds » Sun Jan 28, 2018 11:46 am

As others have noted, another reason to hang onto a good portion of retirement savings is the potential for higher costs during the last years. My wife's frail, late 90s mother lives in a retirement community with base-level costs around $50K per year. However, she is now entering her fourth year of 24 hour in-home care, which has added $220K per year to her annual living expense.
That is $270 x 4 = $1080K already gone for the expenses?

This means if we assume couple spends 10 years each in that situation, they will need about $6M to account for that expenses. How many couples have spare $6M in their retirement account?

CULater
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Re: The biggest problem in retirement is spending (not)

Post by CULater » Sun Jan 28, 2018 11:49 am

Then, there's this:
There will always be a risk of unpredictable, catastrophic expenses — a lawsuit, medical expenses, a child or grandchild who needs your financial support — that can blow up your retirement plan. Insurance may help and a reserve fund might, too, but there is always the risk that neither will be enough.
http://www.theretirementcafe.com


I guess if something like Alzheimer's was common in my family tree, it would be prudent to figure a higher probability of that than a "random event." Outside of this sort of thing, does it make sense to base my spending and standard of living on the possibility of a lightening strike? But, on the other hand, has anyone on their deathbed been heard to say: "I wish I'd spent more money?"
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

Dandy
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Re: The biggest problem in retirement is spending (not)

Post by Dandy » Sun Jan 28, 2018 12:01 pm

Factors I have observed in not spending "enough"
1. Years of being frugal and living below our means. Hard to ramp up spending a lot with such a long history of not doing so.
Working on it - bought a better car, gifting more, extra vacation in the winter, etc.
2. Concern about expenses growing later in life e.g. medical, LTC (self insuring), inflation)
3. Not fully trusting/relying on historical performance of equities especially now after a long bull market and a raging start
to the current year. Don't want any panic or change in lifestyle if/when equities drop 50%.
4. Failure to come to grips with likely life span. I'm am just shy of 70 - do I really appreciate that I might only have 15 years
left? Not really - kind of scary and I feel pretty good now. Only 15 years more to see my grandkids? can't cope with that
very rationally. :oops:
5. I do have heirs so I know whatever is left will be used by loved ones-gifting to them instead of them waiting to inherit.
6. There are no great bucket list wishes that I have been focused on e.g. a trip around the world, vacation home, etc.
7. Financial security seems to make me happier than more things.

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Re: The biggest problem in retirement is spending (not)

Post by cherijoh » Sun Jan 28, 2018 12:03 pm

wrongfunds wrote:
Sun Jan 28, 2018 11:46 am
As others have noted, another reason to hang onto a good portion of retirement savings is the potential for higher costs during the last years. My wife's frail, late 90s mother lives in a retirement community with base-level costs around $50K per year. However, she is now entering her fourth year of 24 hour in-home care, which has added $220K per year to her annual living expense.
That is $270 x 4 = $1080K already gone for the expenses?

This means if we assume couple spends 10 years each in that situation, they will need about $6M to account for that expenses. How many couples have spare $6M in their retirement account?
24-hr in-home care is not the only option - although I expect it delivers much better care than many of the less expensive options.

TN_Boy
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Re: The biggest problem in retirement is spending (not)

Post by TN_Boy » Sun Jan 28, 2018 12:12 pm

visualguy wrote:
Sun Jan 28, 2018 12:52 am
Gnirk wrote:
Sun Jan 28, 2018 12:11 am
I don’t spend because I may need my investments to cover long term care. My mom needed LTC for 12 years, and one great Aunt needed it for 17 years, and another more than 20. All suffered from Alzheimer’s and had no other health issues.
Similar experience - mother in law: 24 years of LTC due to stroke, grandmother: 2 years of home care plus 6 years of nursing home due to Alzheimer's. Not sure how many people take this stuff into account when figuring out how much they need for retirement. It does change the picture - not something that can be ignored, and not something that is rare.
LTC has to be taken account of, but the numbers show that 24 years of care, or even 8 years of care IS relatively rare. The average stays are much less. And the median stay less than that. That said, I don't know exactly how much LTC someone should "plan" for, but planning for as much as 8 years is very conservative.

jasg
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Re: The biggest problem in retirement is spending (not)

Post by jasg » Sun Jan 28, 2018 12:25 pm

visualguy wrote:
Sun Jan 28, 2018 1:59 am
Medicare doesn't help with LTC. Medicaid does if you are destitute. However, I wouldn't want to be in that situation...
Top99% wrote:
Sun Jan 28, 2018 10:02 am
+1 on being cautious about relying on Medicaid to bail you out. If you want a wakeup call go visit an LTC facility that accepts Medicaid. At least in our area they are not a place I would want to be in.
theplayer11 wrote:
Sun Jan 28, 2018 11:36 am
don't want to spend my nest egg on LTC.....save my whole life to be able to afford a better nursing home? No thanks
Having seen several family members and their friends reduced to Medicaid LTC, I consider it hell on earth... I'd rather my dog have me put down before that.

I am setting aside a third for Nursing care, hopefully more. The kids can have the funds if we don't need it or they are willing to provide/supervise inhome caregivers.

visualguy
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Re: The biggest problem in retirement is spending (not)

Post by visualguy » Sun Jan 28, 2018 12:28 pm

CULater wrote:
Sun Jan 28, 2018 11:49 am
Then, there's this:
There will always be a risk of unpredictable, catastrophic expenses — a lawsuit, medical expenses, a child or grandchild who needs your financial support — that can blow up your retirement plan. Insurance may help and a reserve fund might, too, but there is always the risk that neither will be enough.
http://www.theretirementcafe.com


I guess if something like Alzheimer's was common in my family tree, it would be prudent to figure a higher probability of that than a "random event." Outside of this sort of thing, does it make sense to base my spending and standard of living on the possibility of a lightening strike? But, on the other hand, has anyone on their deathbed been heard to say: "I wish I'd spent more money?"
I read that the incidence of Alzheimer's at the age of 85 is 50%. Also, there are many other conditions that could incapacitate you while you keep on living for years. Anything from stroke to spinal degeneration. Being debilitated in old age is the common case, not a lightening strike, unfortunately. Genetics plays more of a part in early onset, but you don't need to have something running in the family to be incapacitated by chronic disease in old age because old age by itself is the biggest factor.

NYCguy
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Re: The biggest problem in retirement is spending (not)

Post by NYCguy » Sun Jan 28, 2018 12:33 pm

tennisplyr wrote:
Sun Jan 28, 2018 7:44 am
The Wizard wrote:
Sun Jan 28, 2018 7:34 am
CULater wrote:
Sat Jan 27, 2018 11:45 am
... Others may feel the need to hold on to wealth as a form of self-insurance instead of acquiring an annuity to deal with a number of life’s uncertainties, such as longevity risk...
Horse business.
Annuitizing a portion of your portfolio at retirement is actually a strategy which allows one to preserve their remaining portfolio rather nicely, without needing to draw it down for routine expenses.
So it's possible to have decently high retirement income along with a growing portfolio, as the Market allows. What's not to like?
Fear/ignorance surrounding annuities will likely never make them popular. Also, future generations i.e., millenials, who believe in living for today will probably not be carrying these amounts to their graves.
I would take annuities more seriously as an option if I had a way to quantify the risk of issuing insurance company being around to perform in 30, 40 or 50 years.

I have also have found annuity pricing to be a bit underwhelming, but I probably could get over that if I could get comfortable with the first issue.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Wildebeest
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Re: The biggest problem in retirement is spending (not)

Post by Wildebeest » Sun Jan 28, 2018 12:37 pm

From the longtermcare.gov web site: https://longtermcare.acl.gov/the-basics ... -need.html


The duration and level of long-term care will vary from person to person and often change over time. Here are some statistics (all are “on average”) you should consider:

Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years
Women need care longer (3.7 years) than men (2.2 years)
One-third of today’s 65 year-olds may never need long-term care support, but 20 percent will need it for longer than 5 years
The table below shows that, overall, more people use long-term care services at home (and for longer) than in facilities.

Distribution and duration of long-term care services
Type of care Average number of years people use this type of care Percent of people who use this type of care (%)
Any Services 3 years 69
At Home
Unpaid care only 1 year 59
Paid care Less than 1 year 42
Any care at home 2 years 65
In Facilities
Nursing facilities 1 year 35
Assisted living Less than 1 year 13
Any care in facilities 1 year 37
Last modified: 10/10/2017


My take it that if you have 1 million you are self insured.
The Golden Rule: One should treat others as one would like others to treat oneself.

staythecourse
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Re: The biggest problem in retirement is spending (not)

Post by staythecourse » Sun Jan 28, 2018 12:44 pm

Dandy wrote:
Sun Jan 28, 2018 12:01 pm
1. Years of being frugal and living below our means. Hard to ramp up spending a lot with such a long history of not doing so.
Working on it - bought a better car, gifting more, extra vacation in the winter, etc.
Not that old, but will say that is our situation. I can't say we live "cheap", but don't live in a fashion that has us wanting "more". We don't like to travel. We don't like any more material things that we don't have already. I don't spend NOT because of some fear of running out of money, but because spending more doesn't bring me any more happiness.

That isn't going to change for us in retirement. Hoping retirement will allow us to actually be more philanthropic with our time AND money to help those in more dire need then us, i.e pay it forward.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: The biggest problem in retirement is spending (not)

Post by CULater » Sun Jan 28, 2018 12:46 pm

I guess the biggest worry people are expressing (including me) is the cost of care in later years. In my area, LTC runs about $80-$90K per year and that's in a tiny shared room with someone else. I'm all too familiar with them. This country is a mess as far as caring for the elderly goes. It costs more money than anyone has and the quality of care is terrible. One should seriously consider where to live if this is big future concern, not just saving back money. Move to a place where the cost of care is lower; if possible, it would be a good idea to move out of the U.S. to a more humane country. Best I can figure at this point is to self-insure for about 2 years of LTC, set that aside, and then figure out how to spend down the rest in reasonable fashion so I don't go broke. My self-insure is basically a home that I can sell for $180K or so. If I end up needing more than that in care expenses, I'll either go on the government dole if Medicaid isn't gone or kill myself, if I remember how to do it. If I don't then it doesn't matter. That's the plan and I'm sticking to it.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: The biggest problem in retirement is spending (not)

Post by theplayer11 » Sun Jan 28, 2018 12:53 pm

jasg wrote:
Sun Jan 28, 2018 12:25 pm
visualguy wrote:
Sun Jan 28, 2018 1:59 am
Medicare doesn't help with LTC. Medicaid does if you are destitute. However, I wouldn't want to be in that situation...
Top99% wrote:
Sun Jan 28, 2018 10:02 am
+1 on being cautious about relying on Medicaid to bail you out. If you want a wakeup call go visit an LTC facility that accepts Medicaid. At least in our area they are not a place I would want to be in.
theplayer11 wrote:
Sun Jan 28, 2018 11:36 am
don't want to spend my nest egg on LTC.....save my whole life to be able to afford a better nursing home? No thanks
Having seen several family members and their friends reduced to Medicaid LTC, I consider it hell on earth... I'd rather my dog have me put down before that.

I am setting aside a third for Nursing care, hopefully more. The kids can have the funds if we don't need it or they are willing to provide/supervise inhome caregivers.
sort of my point...would rather be put down than spending a majority of my retirement savings on a nursing home. Can't think of a more wasteful use of my money...

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Re: The biggest problem in retirement is spending (not)

Post by visualguy » Sun Jan 28, 2018 1:08 pm

CULater wrote:
Sun Jan 28, 2018 12:46 pm
I guess the biggest worry people are expressing (including me) is the cost of care in later years. In my area, LTC runs about $80-$90K per year and that's in a tiny shared room with someone else. I'm all too familiar with them. This country is a mess as far as caring for the elderly goes. It costs more money than anyone has and the quality of care is terrible. One should seriously consider where to live if this is big future concern, not just saving back money. Move to a place where the cost of care is lower; if possible, it would be a good idea to move out of the U.S. to a more humane country. Best I can figure at this point is to self-insure for about 2 years of LTC, set that aside, and then figure out how to spend down the rest in reasonable fashion so I don't go broke. My self-insure is basically a home that I can sell for $180K or so. If I end up needing more than that in care expenses, I'll either go on the government dole if Medicaid isn't gone or kill myself, if I remember how to do it. If I don't then it doesn't matter. That's the plan and I'm sticking to it.
I came to the US from one of those countries with a more humane culture, universal healthcare, and better more affordable elderly care (and child care as well, but that's a different topic).

I remember being shocked by the insane American health care and elderly care systems, so I asked an American-born friend how this works, and how people deal with old age unless they are millionaires. In particular, what his plans were. He said that one good thing here is that there is no gun control, so he can finish himself off in that case. It depressed the heck out of me, and I'll never forget that conversation. I decided to come up with a financial plan instead...

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Watty
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Re: The biggest problem in retirement is spending (not)

Post by Watty » Sun Jan 28, 2018 1:18 pm

visualguy wrote:
Sun Jan 28, 2018 12:52 am
Gnirk wrote:
Sun Jan 28, 2018 12:11 am
I don’t spend because I may need my investments to cover long term care. My mom needed LTC for 12 years, and one great Aunt needed it for 17 years, and another more than 20. All suffered from Alzheimer’s and had no other health issues.
Similar experience - mother in law: 24 years of LTC due to stroke, grandmother: 2 years of home care plus 6 years of nursing home due to Alzheimer's. Not sure how many people take this stuff into account when figuring out how much they need for retirement. It does change the picture - not something that can be ignored, and not something that is rare.
Nursing home costs vary dramatically by location. I live in Georgia where they are not all that much higher than our planned retirement budget, <$7,000 a month) so so we should be OK if only one of use is surviving when LTC is needed. (That is an important "if".)

https://www.genworth.com/about-us/indus ... -care.html

If you live in a high cost area you should be especially concerned.

I don't know all the details but one of the things I have seen with friends that have had parents in LTC is that many of the parents would have run out of money anyway if they lived to be 95.

The type of LTC insurance that might be useful for us would be one that had a several year elimination period, which would be manageable, and long coverage after that. Since that would be rarely used that could be sold for an affordable cost but as far as I know nothing like that is available.

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Re: The biggest problem in retirement is spending (not)

Post by DrGoogle2017 » Sun Jan 28, 2018 1:19 pm

garyt wrote:
Sun Jan 28, 2018 9:46 am
visualguy wrote:
Sun Jan 28, 2018 12:52 am
Gnirk wrote:
Sun Jan 28, 2018 12:11 am
I don’t spend because I may need my investments to cover long term care. My mom needed LTC for 12 years, and one great Aunt needed it for 17 years, and another more than 20. All suffered from Alzheimer’s and had no other health issues.
Similar experience - mother in law: 24 years of LTC due to stroke, grandmother: 2 years of home care plus 6 years of nursing home due to Alzheimer's. Not sure how many people take this stuff into account when figuring out how much they need for retirement. It does change the picture - not something that can be ignored, and not something that is rare.
I'd say your average person has no choice but to ignore it. We'd never retire if we didn't. People on a site like this are likely to have far more money than an average Joe. But most people just don't have the money to have any possibility of surviving a long term spouse in LTC. LTC runs about $35K a year or more, so 5 years is close to $200K, not many working class people could absorb that cost. And many have physical jobs that won't allow them to work past 62 yet alone 65. So really, they have to just roll the dice, Even LTC insurance has gone up so much and doesn't cover everything to not be an option. I work at a compan where many of our route sales drivers are struggling to continue working at 60+ cause they can't afford to retire. It's a physical job and many should be retired but are hanging on.
I agree with your post. You can’t save for 24 years of LTC. But even with a stroke, my dad was able to move on his own with a cane, not bedridden for 4-5 years, really only the last 2 years where he was totally bedridden, when he needed a male nurse to lifer him in/ out of the wheel chair to his bed.

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Re: The biggest problem in retirement is spending (not)

Post by bltn » Sun Jan 28, 2018 1:31 pm

plannerman wrote:
Sun Jan 28, 2018 8:33 am
Too early in the morning to wade through the details of this study, but two questions that come to mind that I didn't find the answer to in my quick read:

1) Are the assets reported real or nominal?

2) Are they adjusted for taxes--i.e., Roth IRA assets are worth more that Traditional IRA assets?

plannerman
The first question also occurred to me. And I ve always thought taxable retirement funds were illusory because of the taxes owed.

And, the idea of counting on Medicaid to fund any shortfalls in long term care expenses because one wants to live a certain lifestyle early in retirement at the expense of conserving emergency funds, is that how most people on this forum got here? Do I actually want opm, through taxes or my children s help, to support me late in life? Would I choose to be that personally irresponsible?
No.

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Re: The biggest problem in retirement is spending (not)

Post by CULater » Sun Jan 28, 2018 1:34 pm

visualguy wrote:
Sun Jan 28, 2018 1:08 pm
CULater wrote:
Sun Jan 28, 2018 12:46 pm
I guess the biggest worry people are expressing (including me) is the cost of care in later years. In my area, LTC runs about $80-$90K per year and that's in a tiny shared room with someone else. I'm all too familiar with them. This country is a mess as far as caring for the elderly goes. It costs more money than anyone has and the quality of care is terrible. One should seriously consider where to live if this is big future concern, not just saving back money. Move to a place where the cost of care is lower; if possible, it would be a good idea to move out of the U.S. to a more humane country. Best I can figure at this point is to self-insure for about 2 years of LTC, set that aside, and then figure out how to spend down the rest in reasonable fashion so I don't go broke. My self-insure is basically a home that I can sell for $180K or so. If I end up needing more than that in care expenses, I'll either go on the government dole if Medicaid isn't gone or kill myself, if I remember how to do it. If I don't then it doesn't matter. That's the plan and I'm sticking to it.
I came to the US from one of those countries with a more humane culture, universal healthcare, and better more affordable elderly care (and child care as well, but that's a different topic).

I remember being shocked by the insane American health care and elderly care systems, so I asked an American-born friend how this works, and how people deal with old age unless they are millionaires. In particular, what his plans were. He said that one good thing here is that there is no gun control, so he can finish himself off in that case. It depressed the heck out of me, and I'll never forget that conversation. I decided to come up with a financial plan instead...
VisualGuy - It's just amazing isn't it, how we've come to accept this state of affairs when a very large percentage of our population is currently dealing with the insane costs and horrid quality of care for elderly parents or relatives; and is now entering the age when it begins to dawn on them that the same fate is awaiting them. What makes it so difficult to change is that the victims are mostly too infirm, poor, or mentally incapacitated to represent themselves. So, we retreat into trying to find individual solutions for ourselves instead of a collective solution, when it is only the latter that will work except for the wealthy and lucky few.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

DrGoogle2017
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Re: The biggest problem in retirement is spending (not)

Post by DrGoogle2017 » Sun Jan 28, 2018 1:46 pm

CULater wrote:
Sun Jan 28, 2018 12:46 pm
I guess the biggest worry people are expressing (including me) is the cost of care in later years. In my area, LTC runs about $80-$90K per year and that's in a tiny shared room with someone else. I'm all too familiar with them. This country is a mess as far as caring for the elderly goes. It costs more money than anyone has and the quality of care is terrible. One should seriously consider where to live if this is big future concern, not just saving back money. Move to a place where the cost of care is lower; if possible, it would be a good idea to move out of the U.S. to a more humane country. Best I can figure at this point is to self-insure for about 2 years of LTC, set that aside, and then figure out how to spend down the rest in reasonable fashion so I don't go broke. My self-insure is basically a home that I can sell for $180K or so. If I end up needing more than that in care expenses, I'll either go on the government dole if Medicaid isn't gone or kill myself, if I remember how to do it. If I don't then it doesn't matter. That's the plan and I'm sticking to it.
I’m planning continuous income stream of about $120k per year for later years, taking SS at age 70 is part of the planning. No need to sell anything for nursing home.
Regarding moving to a humane country, I’ve asked my husband if he wants to move back (years from now) to the UK and he wasn’t too keen about it. He likes the warm and sunshine here. But perhaps he might agree to nursing home care in Hawaii.

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Re: The biggest problem in retirement is spending (not)

Post by DrGoogle2017 » Sun Jan 28, 2018 1:52 pm

jasg wrote:
Sun Jan 28, 2018 12:25 pm
visualguy wrote:
Sun Jan 28, 2018 1:59 am
Medicare doesn't help with LTC. Medicaid does if you are destitute. However, I wouldn't want to be in that situation...
Top99% wrote:
Sun Jan 28, 2018 10:02 am
+1 on being cautious about relying on Medicaid to bail you out. If you want a wakeup call go visit an LTC facility that accepts Medicaid. At least in our area they are not a place I would want to be in.
theplayer11 wrote:
Sun Jan 28, 2018 11:36 am
don't want to spend my nest egg on LTC.....save my whole life to be able to afford a better nursing home? No thanks
Having seen several family members and their friends reduced to Medicaid LTC, I consider it hell on earth... I'd rather my dog have me put down before that.

I am setting aside a third for Nursing care, hopefully more. The kids can have the funds if we don't need it or they are willing to provide/supervise inhome caregivers.
My dad was in one of those Medicaid LTC, he thought it was nice place, I personally would stay there, but my point is maybe by then, all your senses are off, you don’t know, nor care.
The only thing he was often annoyed about was the old people surrounded him, they all lost their mind in one form or another. Not my dad, he was an intellectual, still reading Paris Match and Scientific American, till the last few days, then he refused to eat and one afternoon slumped down at lunch time and died.

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Re: The biggest problem in retirement is spending (not)

Post by visualguy » Sun Jan 28, 2018 1:59 pm

DrGoogle2017 wrote:
Sun Jan 28, 2018 1:46 pm
Regarding moving to a humane country, I’ve asked my husband if he wants to move back (years from now) to the UK and he wasn’t too keen about it. He likes the warm and sunshine here. But perhaps he might agree to nursing home care in Hawaii.
I was thinking about moving back in old age, but my wife is American, and doesn't want to move to a foreign country, which I absolutely understand. It will still be an option if I survive her (which is unlikely based on age and statistics).

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Re: The biggest problem in retirement is spending (not)

Post by Earl Lemongrab » Sun Jan 28, 2018 2:09 pm

I have no idea why people get so spun up these things.

I think the most probable outcome is that I will die with a very large amount of money left. To which I say, "so what?" I'm not going to artificially spend money just to make it go away. If I wanted it to go away I would give it to someone who needed or would appreciate it. My needs and wants are simple. I have never "deprived" myself to save, saving was a natural result of my personality.

The money will be there for contingencies. Whatever is left goes to my family. And that's perfectly fine with me.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: The biggest problem in retirement is spending (not)

Post by bltn » Sun Jan 28, 2018 2:10 pm

Top99% wrote:
Sun Jan 28, 2018 10:02 am
visualguy wrote:
Sun Jan 28, 2018 1:59 am
rj49 wrote:
Sun Jan 28, 2018 1:28 am
Doesn't Medicare still provide an out for those needing LTC who have exhausted their savings? I think I would choose to spend my money enjoying life as much as possible while in full health and capacity than to hoard it for the possibility of better care in the likelihood of diminished health and mental capacity. At the same time I've set aside my Roth account for a form of longevity insurance, as something to live on if I exceed my estimated lifetime, and is the easiest thing to pass on to heirs if I never need it.
Medicare doesn't help with LTC. Medicaid does if you are destitute. However, I wouldn't want to be in that situation... One spouse may need LTC first while the other spouse doesn't. How does Medicaid help in this case? Reaching destitution is very problematic in this case. People sometimes do all kinds of financial shenanigans to become destitute and qualify for Medicaid - I'm not an expert on that. Also, there are types of LTC services and facilities where Medicaid won't be applicable, and also there are waiting lists for facilities for Medicaid patients. Many end up falling as a burden on their families to one degree or another, but what if you don't have a family that is able or willing to do it? The other thing with Medicaid is that it is constantly under attack, and who knows what it will look like in the future, and what care you'll actually be able to get with it.
+1 on being cautious about relying on Medicaid to bail you out. If you want a wakeup call go visit an LTC facility that accepts Medicaid. At least in our area they are not a place I would want to be in.
This is a good point. A Medicaid ltc facility approaches the definition of subsistence.

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