Investing for long-term care

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addicted2travel
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Joined: Sat Feb 25, 2017 2:40 pm

Investing for long-term care

Post by addicted2travel » Wed Jul 11, 2018 1:44 am

I have a recent windfall sum of money that I'm allocating towards long-term care expenses. I'm considering investing all of it in a high-ish volatility ETF (in a taxable account), and if I take a loss on it I have income and future capital gains that I can use for tax loss harvesting. I'm considering putting it in something like a small cap growth ETF, and if I do TLH in the future I'd either wait the 31 days or swap for QQQ. Do you have any thoughts/suggestions? If I invest in small cap growth and take a loss, would small cap value be different enough to avoid wash sale, or would I have to go with something like QQQ (obviously moving out of small cap but still more volatile than VTI). Here are a few other data points that may be helpful: age 60 & life expectancy ~95 (hopefully LTC wouldn't be for another 20 years), no dependents or heirs to worry about, currently retired and FI from a small pension and investment income (from investments other than the above money, in tax-free, tax deferred, taxable accounts, and a small rental property), no mortgage or rent, 22% fed tax bracket + CA tax, already declined for traditional LTC insurance due to pre-existing condition. If I need LTC in the near future and the above investment is down, I have other sources I can pull the money from in taxable accounts (so only would incur capital gains tax).

bloom2708
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Re: Investing for long-term care

Post by bloom2708 » Wed Jul 11, 2018 9:40 am

I would invest in broad based total market index funds at your desired mix of stocks and bonds.

If your desire to take more risk has increased, then add 5 or 10% more stocks (Total US and/or Total International).

You want to invest in small cap grow to hopefully get losses to tax lost harvest? That would mean you take on a bunch of additional risk and plan on the value dropping. I don't know if that seems like a good plan.

We don't know what your portfolio looks like, so hard to say. A slice of small cap value is a popular "tilt". I guess I would continue to see your portfolio as one entity. Stick with total return as a strategy and tinker with your mix of stocks/bonds if you desire more risk.

Hopefully others will read into your question and offer alternatives.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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VictoriaF
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Re: Investing for long-term care

Post by VictoriaF » Wed Jul 11, 2018 11:38 am

I am waiting until the age of 70 to collect Social Security. If I ever need long-term care, I want most of it to be covered by my inflation-indexed income.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

delamer
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Re: Investing for long-term care

Post by delamer » Wed Jul 11, 2018 1:46 pm

What do you mean by “allocating toward long-term care expenses?”

Why not invest this money according to your overall preferred asset allocation for your assets?

With no heirs and no dependents, presumably all of your money would go to your LTC if needed?

adamthesmythe
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Re: Investing for long-term care

Post by adamthesmythe » Wed Jul 11, 2018 2:13 pm

delamer wrote:
Wed Jul 11, 2018 1:46 pm
What do you mean by “allocating toward long-term care expenses?”

Why not invest this money according to your overall preferred asset allocation for your assets?

With no heirs and no dependents, presumably all of your money would go to your LTC if needed?
I don't see the need for a separate investment for LTC.

addicted2travel
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Re: Investing for long-term care

Post by addicted2travel » Wed Jul 11, 2018 3:49 pm

Thanks for all the great replies. Here is my thinking, which I hope will help you understand what I'm trying to accomplish. I use a bucket approach to allocation, where the assets are invested according to the purpose rather than simply saying a given % should be in this asset, and another % in this type of asset, etc. So I have a short-term bucket, a medium-term bucket, and a long-term bucket. Because I have a small pension and a little bit of rental income, I subtract the passive income from my total expenses and my withdrawal rate makes up the difference. I calculate my safe withdrawal rate (SWR) from the total of the 3 buckets. Now, the new windfall came from the sale of a property and I'm creating a 4th bucket for long-term care costs. I want to make it a separate bucket because I don't want to include this money when calculating and adjusting my SWR according to market cycles (i.e. spending more or less depending on market. Because LTC is most likely to be needed towards the end of life, this is a separate long-term bucket. But, since I expect LTC costs to rise much faster than the CPI, I'm thinking it should be an even more aggressive allocation than the long-term bucket used for regular retirement funding. Does that make sense? Some may say that I'm over thinking it because I may never need LTC, or that even if I do it can come from my overall portfolio if I include this money in bucket 3. But I would feel a lot more confident if I figure my SWR without this money. In addition, since I consider this money more aggressive than the bucket 3, and since it's also a taxable account, I feel more comfortable using it for tax loss harvesting if the investment takes a significant loss in the first phase of the life of the investment. If I need LTC sooner than expected and this bucket is in a downward cycle, I can pull the money needed for LTC from buckets 1 & 2, and then assuming I recover I can use the 4th (LTC) bucket for retirement expenses once LTC is not needed, and THEN I can include the $ in bucket 4 in my SWR.

addicted2travel
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Re: Investing for long-term care

Post by addicted2travel » Wed Jul 11, 2018 3:58 pm

One more data point that may be helpful... Because of the WEP, my Social Security will be very small and probably only amount to "fun money" when I take it at 70.

addicted2travel
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Re: Investing for long-term care

Post by addicted2travel » Wed Jul 11, 2018 5:02 pm

VictoriaF wrote:
Wed Jul 11, 2018 11:38 am
I am waiting until the age of 70 to collect Social Security. If I ever need long-term care, I want most of it to be covered by my inflation-indexed income.

Victoria
Where I live LTC can easily cost $100k/year if full-time care is needed. My 87 year old mother lives in a continuous care senior living facility without any LTC and she pays almost $8k/month. I'm not aware of anywhere in the US where the typical SS benefit would cover most of the costs of a live-in assisted living facility, let alone full LTC facility.

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VictoriaF
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Re: Investing for long-term care

Post by VictoriaF » Wed Jul 11, 2018 5:56 pm

addicted2travel wrote:
Wed Jul 11, 2018 5:02 pm
VictoriaF wrote:
Wed Jul 11, 2018 11:38 am
I am waiting until the age of 70 to collect Social Security. If I ever need long-term care, I want most of it to be covered by my inflation-indexed income.

Victoria
Where I live LTC can easily cost $100k/year if full-time care is needed. My 87 year old mother lives in a continuous care senior living facility without any LTC and she pays almost $8k/month. I'm not aware of anywhere in the US where the typical SS benefit would cover most of the costs of a live-in assisted living facility, let alone full LTC facility.
In addition to Social Security, I have an inflation-indexed pension. And at some point, I may additionally buy SPIAs. If I end up in a situation where I need long-term care, I will have a limited ability to manage my investments. The best preparation to the extreme level of dependence is converting assets into income.

Victoria

P.S. Other options exist such as caretaking robots and final exit, but the OP has specifically asked about financial solutions.
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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