How to stretch 86 yo mom's portfolio

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Topic Author
Exurbanite
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How to stretch 86 yo mom's portfolio

Post by Exurbanite »

Hi friends,

My mom has worsening dementia and my siblings and I have decided she will need to move from my sister's home to a memory care facility in the next couple of months.

Until about two years ago, my mom was easily able to manage her own Trad IRA investments and has lived on her retirement nest egg for the past 26 years; she currently has about 440k in low cost stock and bond mutual funds of various flavors. Approximately 250k is in intermediate bond funds (corporate, total bond, international bond) with about 190k in stock funds with a mix of large cap, extended market, and total international stocks.

One thing that stood out to me when reviewing her funds is that she doesn't have any cash except for about 65k in a money market fund outside the IRA. I don't see her portfolio as having any downside protection aside from that. She receives 2200 per month in social security but it's just a small fraction of what her care will be.

My siblings and I researched the cost of memory care facilities in her area and it will cost about $100,000 per year for the facilities we consider to be of good quality; her portfolio withdrawal rate will suddenly go from about 35k per year to 100k. My mom was very frugal and before she needed some in-home care, she was largely able to live on her SS checks except for lumpy expenses from time to time.

I'm looking for ideas about how to best reallocate/protect/stretch her current assets but am a bit queasy about radically reallocating everything. However, I know this portfolio will no longer serve my mom. My brother suggested we sell stocks and bonds to set up a two year CD ladder. My sister who has power of attorney over my mom's finances is stressed by having to make any more financial decisions on top of taking care of my mom. My brother and I are trying to help; we may need to automate monthly withdrawals for the memory care facility to take the burden off of my sister. I believe we need to preserve a good chunk of the 440k but keep some stock mutual funds to allow for some growth in case the cost of her care exceeds the 100k per year. I'm uncomfortable with a large sudden change to her portfolio, but understand it may be needed since her living expenses are about to balloon. I'm still in the accumulation phase and have no experience with evaluating decisions that involve large portfolio withdrawals or reallocations.

Thank you in advance for any suggestions you may have!
bombcar
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Re: How to stretch 86 yo mom's portfolio

Post by bombcar »

Wouldn’t it be $100k-$26k or so? Will SS be entirely wiped out?
delamer
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Re: How to stretch 86 yo mom's portfolio

Post by delamer »

While there will be a big jump in her expenses, it will be closer to $75,000/year than $100,000/year given her Social Security (and not accounting for medical insurance and related copays).

First question is whether the facilities that you’ve found will keep her on as a Medicaid patient if she runs out of funds to self-pay. This is an option in many places. The facility would take her Social Security as payment (with a small personal allowance) and Medicaid will pay the balance of her bill (although not as much as self-pay). Usually, you need to be able to self-pay for 2 to 5 years to be eligible to be retained as a Medicaid patient.

Given her limited resources, that is an important benefit.

She has roughly 6 years of self-pay available (assuming $80,000 net of SS). The stock market has been kind lately. Take advantage of that and sell her stock holdings. Fortunately there will be no tax consequences since its an IRA. Put the stock money and the bonds funds into some combination of CDs and short & intermediate government bond funds.

If she was 76, there’d be an argument for holding some stocks for growth. At age 86, however, preserving principal is key.

All the best.
Last edited by delamer on Sun Jun 09, 2024 1:55 pm, edited 1 time in total.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
bltn
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Re: How to stretch 86 yo mom's portfolio

Post by bltn »

I m not sure about this, but I ve heard in the past that some facilities will take on a new resident for full charges for a few years until the resources are spent. At that point, the facility will let the resident remain for the reimbursement covered by Medicaid and Social Security. You might check on this when deciding about the next home for your mother.

This may not be factual now. Maybe more knowledgeable members will confirm or correct this.

Good luck.
Fairfox
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Re: How to stretch 86 yo mom's portfolio

Post by Fairfox »

Sorry to hear your mom’s conditioning is worsening. All the best to you and your family.

On the money front, you might consider swapping the fixed income part of her portfolio for actual fixed income, in the form of an immediate annuity. The estimator at immediateannuities.com indicates that for $250k she could get about $3200/month in income. With $2200/mo in SS, that’s about $65k in guaranteed income, which will flow every month. It’s not $100k, but it leaves only $35k to come up with from a remaining portfolio of $255k (cash plus stocks, currently). Earning enough to keep up with inflation, that would last ~7.3 years. This is a slight increase in what you could achieve with comparable certainty without the annuity, and sets a floor on the amount of income she’ll have for life (and lowers the ceiling on any financial assistance you and your siblings may need to provide if she lives longer).

There are likely other more investment-based approaches, but given your concern about a floor on income, this may be worth considering.
SchruteB&B
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Re: How to stretch 86 yo mom's portfolio

Post by SchruteB&B »

The facilities that will let her come in as full pay and then stay as a Medicaid patient will be not for profit and (almost always) faith based organizations.

And, agree with delamar. At 86, preserve the principal.
Last edited by SchruteB&B on Sun Jun 09, 2024 2:10 pm, edited 1 time in total.
Topic Author
Exurbanite
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Re: How to stretch 86 yo mom's portfolio

Post by Exurbanite »

Hi bombcar, I see what you are saying.

The facilities are about 10k per month so will cost about an additional 7.8k per month after we apply the 2.2k SS check.

So about 7.8 x 12 = 93.6k per year starting out without any other incidental costs she may have during the year.
delamer
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Re: How to stretch 86 yo mom's portfolio

Post by delamer »

Exurbanite wrote: Sun Jun 09, 2024 2:10 pm Hi bombcar, I see what you are saying.

The facilities are about 10k per month so will cost about an additional 7.8k per month after we apply the 2.2k SS check.

So about 7.8 x 12 = 93.6k per year starting out without any other incidental costs she may have during the year.
You said in your initial post that the facilities were $100,000/year. Now you are talking about $10,000/month. That $20,000/year is significant.

It probably doesn’t change the recommendations for investing your mother’s assets.

But it muddies the waters in terms of the math.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
blahblahsunshine
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Re: How to stretch 86 yo mom's portfolio

Post by blahblahsunshine »

My Mom is not quite as far along as your mom. She is also oppositional. So in the aftermath of my fathers death, I arranged her accounts with a strong cash position with the thought being a loss was a bigger concern than missing the upside benefit for her and having a long glide path where intervention was unnecessary in the finances was a good thing. In your situation where you are considering a 4 year runway asset wise I would probably just go money market with most, if not all of it.

I am curious - did you get POA from your Mom or is she still on record as the financial decision maker?
Topic Author
Exurbanite
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Re: How to stretch 86 yo mom's portfolio

Post by Exurbanite »

Delamer and Fairfax,

Thank you both for the great suggestions regarding ways to go about preserving assets.

The facilities in her area are surprisingly very expensive considering she is in a moderate cost of living area. But the ones we've identified that offer high quality care and don't have any state violations (we hired a consultant to research facilities for us) do accept Medicaid eventually after a period of self-payment.

I think we need to get clarity on how long self-payment is required for each of them.
Topic Author
Exurbanite
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Re: How to stretch 86 yo mom's portfolio

Post by Exurbanite »

hi blahblahsunshine,

Thankfully, my sister has POA over my mom's finances which will make it possible for us to take action and make the necessary portfolio changes. I wish we had done a better job of evaluating her finances sooner, though. It has been a gradual coming to grips with comprehending her diminishing capacity--with a fair amount of denial about what was happening along the way.
HomeStretch
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Re: How to stretch 86 yo mom's portfolio

Post by HomeStretch »

It sounds like your mom’s portfolio will last 4-5 years. Preservation of principal is key. Even bond funds have risk. Consider moving a large portion of her portfolio to treasuries of varying duration to lock in yields. If you decide to keep some equities, consider a low allocation in a total stock market fund.

Keep in mind that memory care (MC) facility costs usually increase annually (5-6%/year in my area). The monthly cost can also increase significantly unilaterally after admission based on periodic care assessments that can result in your mom’s care level being raised along with the monthly cost. For example, a family member started in a good memory care facility 2 years ago at $14k/ month that has escalated to $18.5k/month currently as the quarterly facility assessments determined her care level increased.

With advanced dementia, the entire facility cost may be tax deductible for Federal. State tax, if any, may be different. This may mitigate the tax impact as her IRA is emptied.

In the event your mom outlives her portfolio:
1. have you looked into whether Medicaid LTC in her state provides any assistance towards MC costs and whether the facility you are considering accepts Medicaid assignment?

2. Also check whether the facility offers any financial assistance for long term residents who run out of funds. In my area, almost all the assisted living and MC facilities have been bought up by PE/VC firms who offer zero assistance. When you can’t pay, you are out. As another poster suggested, a non-profit facility may be more willing to assist.

3. It’s also possible your mom’s condition may deteriorate and she becomes eligible for a skilled nursing home. In my state, this is the only type of facility that Medicaid LTC covers. But the good facilities usually require 1-2 years of private pay ($20k/mo in my area) before accepting Medicaid assignment.

4. If your mom is a US armed forces veteran or the widow of a veteran, look into VA Aid & Attendance,

Keep an eye on your mom’s portfolio and as it starts to diminish keep in mind #3-#4. Both programs have long review times so be prepared with your Plan B if her funds run low.

Best wishes. It’s a tough road for family. Your mom is lucky to have you and your sibling(s) to support her.
Topic Author
Exurbanite
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Re: How to stretch 86 yo mom's portfolio

Post by Exurbanite »

HomeStretch, thank you for your thoughtful responses and the suggestion about treasuries. I was wondering if you think individual treasuries would be more beneficial than treasury mutual funds or if it matters. In our case, funds would be easier.

I'm sorry your family member has been going through this, as well, and that on top of it the costs in your area have escalated so rapidly.
HomeStretch
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Re: How to stretch 86 yo mom's portfolio

Post by HomeStretch »

Exurbanite wrote: Sun Jun 09, 2024 4:09 pm HomeStretch, thank you for your thoughtful responses and the suggestion about treasuries. I was wondering if you think individual treasuries would be more beneficial than treasury mutual funds or if it matters. In our case, funds would be easier. …
Thank you.
I think a treasury fund(s) works. You may need to buy a couple (short term, intermediate) to achieve the appropriate duration.
rossington
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Re: How to stretch 86 yo mom's portfolio

Post by rossington »

Hello OP,
How much dividend and interest income is her portfolio currently producing?
If it hasn't been done so already turn off reinvestment of those payments and direct them to the highest paying MMF available to her.
If this is income in addition to the numbers you have provided it could possibly help to slow the draw down rate.
Sometimes the most expensive facility is not necessarily the best so visit as many as you can and ask all the questions you can think of.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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arcticpineapplecorp.
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Re: How to stretch 86 yo mom's portfolio

Post by arcticpineapplecorp. »

Exurbanite wrote: Sun Jun 09, 2024 1:33 pm Until about two years ago, my mom was easily able to manage her own Trad IRA investments and has lived on her retirement nest egg for the past 26 years; she currently has about 440k in low cost stock and bond mutual funds of various flavors. Approximately 250k is in intermediate bond funds (corporate, total bond, international bond) with about 190k in stock funds with a mix of large cap, extended market, and total international stocks.

One thing that stood out to me when reviewing her funds is that she doesn't have any cash except for about 65k in a money market fund outside the IRA. I don't see her portfolio as having any downside protection aside from that. She receives 2200 per month in social security but it's just a small fraction of what her care will be.
sorry about your mom's situation.

one thing to start doing is saving all financial statements for each month from here on out. Even though she has assets to cover close to 6 years there is a 5 year lookback if/when you apply for medicaid (when she runs out of funds). They will ask you for certain financial statements (possibly all 5 years) for every account she has/had during the lookback period (5 years prior to application).

if you close any account as a result of spending it down, keep records of those as well (closures and where the money went) so you can answer what happened to any resources she had during the lookback period that she may no longer have at the point you're applying for medicaid.

do not make any gifts with the money or it could cause a period of ineligibility for medicaid if done within the lookback period.

you may need to verify other things like birth certificate, social security/medicare/supplemental insurance cards, death of spouse or divorce, tax returns for the lookback period if filed, etc. If she has life insurance, you'll need to get proof of face and cash value when you apply for medicaid. it's a mountain of paperwork depending on how many accounts/investments she has, but you should start filing stuff away now just in case.

I guess you could sell stocks each year (to replenish case/bonds) as you deplete cash/bond positions to pay for care or just hold cash/bonds of a duration of 5 years or less since you know you're going to spend down over that time (i.e., sell all stocks, since her time horizon for needing the money isn't sufficiently long enough to take that kind of risk).
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2BRetiredsn
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Re: How to stretch 86 yo mom's portfolio

Post by 2BRetiredsn »

I'm sorry you're going through this. I worried about my mother's finances as well when she went into memory care at about age 92. One thing I will say - stays in memory care are generally not in the four-year range, when the patient is elderly. My mother was in memory care for about 14 months before she passed away at age 93. She only had about $200k left in her retirement account when she moved in and the facility would not take Medicaid. I worried the whole time that she would run out of money and need to move. That would have been disastrous given her anxiety due to the Alzheimer's. After about a year she was falling a lot and eventually she fell and broke her hip and ended up in hospice where she lingered for about 10 days before passing away. From what you described I predict your mother will outlive her money.
AlaskaTeach
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Re: How to stretch 86 yo mom's portfolio

Post by AlaskaTeach »

Sorry you are going through this. My grandfather was in an Alzheimer's unit for 10 years. He was not the same person the last few years, but his body didn't know how to quit.

Here is a slightly different suggestion: Instead of trying to protect your mom's assets, try to make her care as good as possible, and have no financial worries at all. Sell all assets and put almost all of them in a Single Premium Immediate Annuity.

The thought is that if she is reasonably decent health now, with the exception of the Alzheimer's, she will easily outlast this money.

I just punched in female born in 1938, a random state on Blueprintincome.com, $430,000,and it spit out a benefit of $69919 per year until she dies.

Add the SS, $26400, which will give her COLAs, and you get $96319. If the total is $100,000, you and your brother can easily split the difference every year. If the total really is $120,000 per year then you may end up doing something else. If you and brother are in very good shape now, you could add in the amount necessary upfront to the annuity. Play with the numbers on bluepprintincome.com and see what you think.

I know this is "out of the box," but if you get it done now, before hand, it gives you one less thing to worry about while she is going through the nursing home experience.
Topic Author
Exurbanite
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Re: How to stretch 86 yo mom's portfolio

Post by Exurbanite »

2BRetiredsn and AlaskaTeach, my heart goes out to you having had to navigate these devastating diseases within your families, as well.

Thank you everyone for your excellent suggestions and for sharing your perspectives and helpful guidance around the various aspects of planning the way forward.
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LilyFleur
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Re: How to stretch 86 yo mom's portfolio

Post by LilyFleur »

There is another important factor in stretching your mother's portfolio? Does she have an advance health care directive?

Dementia can cause people to die of physical causes. It can cause people to aspirate while eating, which can cause pneumonia. My mother ended up in the hospital several times while in the nursing home, with pneumonia caused by aspirating. Despite her wish NOT to have a feeding tube, the hospital was going to give her one. Her children had to send the hospital a copy of her advance health care directive (yes, they had it during her previous stay, but they lost it!), and make the decision for her not to have a feeding tube. That meant that she went back to the nursing home on hospice.

Another physical challenge for seniors with dementia is that if they have a hospital stay due to a broken hip (or other lower extremity), they are much less likely to live past six months than seniors who do not suffer from dementia.

We only knew these things because we had a private-pay geriatric social worker helping us, who sent us links to the research. The doctors did not share much of this relevant information. It was relevant to her quality of life and it helped us in our decision making.
Syner01
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Re: How to stretch 86 yo mom's portfolio

Post by Syner01 »

is a live in aide not an option? 24/7 care at home. if you have a room for the help it will definitely be a cheaper option and potentially give you a longer runway. my grandmother had dementia and was bed bound 89-92 and that's what we did. it's not totally hands off like a home would be but it will allow her to age in place. We found she was alert to person, place, and thing at her personal home as it had constant reminders for her. We added things like large clocks on the wall in front of her bed, tv in front of her bed, large utensils and rubber bowls for her shaking hands, adjustable beds and also medical grade air bed for automatic repositioning to keep bed sores to a minimum. aides can be certified to give medications in addition to cleaning, cooking, changing, etc. along with some basic exercise program. just make a log book and direction book for them as they transition sometimes and onboarding new aides can be sped up with these. also get a good automatic pill dispenser. we had if i remember correctly a 30 day one (round that rotated). add a dvr and cameras internally in the house so u can monitor remotely as well. many have 2 way so u can talk through them as well remotely.

also power of attorney keep good records. you will be audited at the end and will need to account for everything.
delamer
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Re: How to stretch 86 yo mom's portfolio

Post by delamer »

Syner01 wrote: Tue Jun 11, 2024 12:45 am is a live in aide not an option? 24/7 care at home. if you have a room for the help it will definitely be a cheaper option and potentially give you a longer runway. my grandmother had dementia and was bed bound 89-92 and that's what we did. it's not totally hands off like a home would be but it will allow her to age in place. We found she was alert to person, place, and thing at her personal home as it had constant reminders for her. We added things like large clocks on the wall in front of her bed, tv in front of her bed, large utensils and rubber bowls for her shaking hands, adjustable beds and also medical grade air bed for automatic repositioning to keep bed sores to a minimum. aides can be certified to give medications in addition to cleaning, cooking, changing, etc. along with some basic exercise program. just make a log book and direction book for them as they transition sometimes and onboarding new aides can be sped up with these. also get a good automatic pill dispenser. we had if i remember correctly a 30 day one (round that rotated). add a dvr and cameras internally in the house so u can monitor remotely as well. many have 2 way so u can talk through them as well remotely.

also power of attorney keep good records. you will be audited at the end and will need to account for everything.
I had one friend whose MIL did really well at home with two aides (related to each other) who covered different shifts each day.

Another friend tried to do the same with her mother through an agency (whose owner she knew) and it was a nightmare of no-shows, poor care, etc.

So home care is a crapshoot.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
rossington
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Re: How to stretch 86 yo mom's portfolio

Post by rossington »

delamer wrote: Tue Jun 11, 2024 10:31 am
I had one friend whose MIL did really well at home with two aides (related to each other) who covered different shifts each day.

Another friend tried to do the same with her mother through an agency (whose owner she knew) and it was a nightmare of no-shows, poor care, etc.

So home care is a crapshoot.
delamer,
Unfortunately it's all a crapshoot for those who are in charge of making the decisions for those in need of care.
It's an exercise in vigilance to provide the best care for loved ones because so few others really do care.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Clairvoyant
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Re: How to stretch 86 yo mom's portfolio

Post by Clairvoyant »

In upstate NY (fairly rural area near the Finger Lakes) round the clock care at home (paid under the table) is $4200/week.

Memory care is about $8000 per month.

Maybe these numbers will be pertinent.
Topic Author
Exurbanite
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Re: How to stretch 86 yo mom's portfolio

Post by Exurbanite »

I'm pretty sure my mom has an advance health care directive now. My sister got this in place recently. We hadn't really considered 24/7 aides but this seems like an option worth evaluating in our case. It would spare my mom the emotionally devastating experience of having to move, also.
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