I wanted to see what others think about how to we are planning for the potential need for LTC in retirement. We are both age 63 and healthy this year and plan on retiring in 3-years. We own a traditional LTC policy that will partially cover us.
Our LTC Policy:
Up to $206/day,
180 day Elimination Period,
Up to 1,095 days each insured and
An additional shared 1,095 days,
3% inflation rider
So in today’s dollars that is up to $75,190/year or $225,570/1,095 days or a total of $676,710 for the full 3,285 days.
Cost of Skilled Nursing Care:
The two areas of the country that we are considering retiring are Boise and Colorado Springs. I looked at the Genworth Survey (2021) to get a sense of the regional median cost for a skilled nursing care facility.
Colorado Springs (median, Genworth 2021 survey)
Private Room $310
Boise (median, Genworth 2021 survey)
Private Room $350
Elimination Period Costs:
If I look at today’s costs and use $350/day, a 180 day elimination period would cost $63,000 out of pocket. With 3% inflation in 20 years that would be $113,785 and with 5% inflation $167,158.
A 3-Year Stay in a Nursing Home and Potential Gap:
A skilled nursing care facility private room costs on average $127,750/year today in those areas of the country we are interested in. In 20-years with 3% inflation that would be $230,731/ year or with 5% inflation $338,959/year. Costing a 180 day elimination period and a 2.5 year stay (3 years total) per person would require $576,828 with 3% inflation and $846,398 for 5% inflation.
Our policy with its 3% inflation rider will provide no coverage for the first 180 days (elimination period) and would cover $339,505 of a 2.5 year stay. So if we look at the projected costs and subtract the policy coverage I see a gap in 20 years of $351,108 per person with 3% inflation or $674,051 per person with 5% inflation.
Discount Rate to Determine the PV of How Much to Set Aside:
Using a conservative discount rate of 3% for invested portfolio assets dedicated to fund the gap, the PV today is $194,400 per person for 3% inflation and $371,545 per person for 5% inflation. So to fully cover both of us it is $388,800 to $743,090 respectively depending on inflation. This is to fully cover both of us for two 180 day elimination period and two 2.5 years in a private room in a skilled nursing care facility.
Given that this is an unlikely scenario vs.the more likely assisted living or home care, that both of us end up in a skilled nursing facility, and we will likely move to a CCRC with a Type B or C plan using some of the proceeds from the sale of our home as we approach age 80, I am thinking to set aside $400,000 in our IRAs to fund LTC beyond our insurance coverage.
I figured it is best use IRA dollars which are taxed as income but LTC costs of that magnitude would be deductible. This is enough to cover two people for elimination period and 2.5 year stays in a private room in a skilled nursing if inflation is 3% and one person if inflation is 5%.
So our LTC plus $400,000 was my thought as a reasonable plan. What say you?
Our LTC Policy:
Up to $206/day,
180 day Elimination Period,
Up to 1,095 days each insured and
An additional shared 1,095 days,
3% inflation rider
So in today’s dollars that is up to $75,190/year or $225,570/1,095 days or a total of $676,710 for the full 3,285 days.
Cost of Skilled Nursing Care:
The two areas of the country that we are considering retiring are Boise and Colorado Springs. I looked at the Genworth Survey (2021) to get a sense of the regional median cost for a skilled nursing care facility.
Colorado Springs (median, Genworth 2021 survey)
Private Room $310
Boise (median, Genworth 2021 survey)
Private Room $350
Elimination Period Costs:
If I look at today’s costs and use $350/day, a 180 day elimination period would cost $63,000 out of pocket. With 3% inflation in 20 years that would be $113,785 and with 5% inflation $167,158.
A 3-Year Stay in a Nursing Home and Potential Gap:
A skilled nursing care facility private room costs on average $127,750/year today in those areas of the country we are interested in. In 20-years with 3% inflation that would be $230,731/ year or with 5% inflation $338,959/year. Costing a 180 day elimination period and a 2.5 year stay (3 years total) per person would require $576,828 with 3% inflation and $846,398 for 5% inflation.
Our policy with its 3% inflation rider will provide no coverage for the first 180 days (elimination period) and would cover $339,505 of a 2.5 year stay. So if we look at the projected costs and subtract the policy coverage I see a gap in 20 years of $351,108 per person with 3% inflation or $674,051 per person with 5% inflation.
Discount Rate to Determine the PV of How Much to Set Aside:
Using a conservative discount rate of 3% for invested portfolio assets dedicated to fund the gap, the PV today is $194,400 per person for 3% inflation and $371,545 per person for 5% inflation. So to fully cover both of us it is $388,800 to $743,090 respectively depending on inflation. This is to fully cover both of us for two 180 day elimination period and two 2.5 years in a private room in a skilled nursing care facility.
Given that this is an unlikely scenario vs.the more likely assisted living or home care, that both of us end up in a skilled nursing facility, and we will likely move to a CCRC with a Type B or C plan using some of the proceeds from the sale of our home as we approach age 80, I am thinking to set aside $400,000 in our IRAs to fund LTC beyond our insurance coverage.
I figured it is best use IRA dollars which are taxed as income but LTC costs of that magnitude would be deductible. This is enough to cover two people for elimination period and 2.5 year stays in a private room in a skilled nursing if inflation is 3% and one person if inflation is 5%.
So our LTC plus $400,000 was my thought as a reasonable plan. What say you?
Statistics: Posted by iim7V7IM7 — Sat Feb 17, 2024 8:46 pm — Replies 3 — Views 366