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I've figured out how much I need to save for retirement on a day-to-day/year-to-year basis which will permit a modest growth in savings.
This allows for the occasional big-ticket expense such as major home repair or new vehicle.

What I can't account for are potential health issues.
I understand there's no crystal ball.

Assuming fair health, with Medicare and perhaps a Medicare supplement, what might be a prudent amount to set aside to cover unexpected health expenses?


Thanks,
Jim
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Do you have long term care insurance?

PF
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Do you have long term care insurance?

I do not. Good idea.


Jim
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http://finance.yahoo.com/news/the-retirement-threat-few-peop...
Financial risk can be notoriously hard to spot, but there is one thing people can be certain of -- we get old. So why do so few people buy long-term care insurance?

In part, it's because only about 20 to 30 percent of the U.S. population is optimally suited to benefit from such coverage, according to a recent study by Boston College's Center for Retirement Research (CRR). But there are compelling reasons to make long-term care insurance a key element in your retirement planning.


PF
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Assuming fair health, with Medicare and perhaps a Medicare supplement, what might be a prudent amount to set aside to cover unexpected health expenses?

Long term care insurance can be important to consider. If you have the assets, self insuring is better than the insurance. Insurance works best for those with minimal assets.

Nursing home costs can be one of the biggest ones out there. Typical stay is abt two years. But independent living or assisted living can accommodate many at lower cost.

Serious diseases like cancer, heart problems, or diabetes can result in charges of thousands for years.

Suppose you had Medicare insurance and Medicare supplemental. Work out your bottom line cost for say a $30K trip to the hospital and for a $100K trip. Those can give you a good idea of the reserves you would like to have for you and your spouse.

And what about the new medications that cost $100K per year. Are you insured? Will you be covered?

Medicare supplemental plans offer complete coverage for higher premiums. Medicare advantage offers low premiums but high copays.

What works best for you in each situation?
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A coworker's father had Alzheimer's, so he bought a long-term care policy at a specific facility to take care of him when he became to ill for his son and family to care for him in their home.

When that day came, they called the facility and were told something along the lines of "Too bad, but he can't come here."

I don't think long-term care policies have a very good reputation, do they?

Karen
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I don't think long-term care policies have a very good reputation, do they?


Right or wrong, this is a concern of mine. Anecdotally, I haven't heard anything good about them when it came time to use the insurance.

Jim
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he bought a long-term care policy at a specific facility

That is not long term care insurance. That is a prepaid agreement with a single facility. I would not recommend that for exactly the reason you state.

The product to consider is actual insurance - something sold by an insurance company which is supervised by some state department of insurance.

--Peter
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What I can't account for are potential health issues.
I understand there's no crystal ball.

Assuming fair health, with Medicare and perhaps a Medicare supplement, what might be a prudent amount to set aside to cover unexpected health expenses?


After watching my mom's struggles in retirement, I will say that in my planning there's no "perhaps" as to a Medicare supplement. I will get the best one they offer at the time. My mom has experimented with different Medicare supplements ranging from none to the good one she has now, which essentially covers everything Medicare doesn't pay. The premium is relatively high as a percentage of her income, but it represents a "sure thing" in her budget rather than some unknown amount. The couple of times she's gone with the lower-coverage one were good (early in her retirement) and bad (the year she had knee replacement, of course).

The true unknown is drugs. A lot of drugs aren't covered by insurance of any kind, some even with insurance are expensive, then you get the "donut hole." I'll budget more for drugs, I think. For example, the one drug that works best for my mom's Parkinson's isn't covered at all, and it's about $500/month. She can't afford it and makes do with other things that are covered, and her doctor has been very good about understanding her budget constraints. Hopefully that particular drug will be approved by Medicare at some point. (My dad was on some kind of chemotherapy that literally cost $250 a pill, several years ago. It wasn't covered).

Long term care coverage was cost prohibitive for my mom, and the premiums are quite high, really, for what you get.

I don't include long term care coverage in my planning either. I can actually get it through my job (not job dependent) at a slight discount, but even so, it's just not in the budget--and I'm 50. The premium costs will only go up. Perhaps I've got a pie-in-the-sky attitude about it (or maybe I'm fatalistic....) but I think technology is going to continue to improve--by leaps and bounds--which will allow more and more people to be able to stay in their homes much longer. And if I get some dread disease where long-term care is needed, I'll probably pull the plug on myself assuming I'm physically and mentally able. I have no desire to continue to live and not at least be able to enjoy some of my life.

What I AM planning for, however, are certain modifications that will let me stay in my house longer--like an accessible shower and kitchen, probably eventually something in my yard once I know I'm living where I'm going to stay, etc.

And there are some things you just can't plan for, you know? Stay as healthy as possible and hope for the best, and keep some money socked away is pretty much my philosophy.
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Assuming fair health, with Medicare and perhaps a Medicare supplement, what might be a prudent amount to set aside to cover unexpected health expenses?

I'm personally aiming for $100k (a nice round sum of the roughly appropriate order of magnitude) in my Health Savings Account (HSA), by the time I retire, to cover myself and my wife and co-investor Anna.

I'm a bit over 1/3 there, and my employer has been offering a high-deductible insurance (a must to get an HSA) for only 3 years now, and, I think I'll be working for at least 6 more years from now, so I should make it. It does help that my employer matches my HSA contributions up to what they're saving by giving me a high-deductible plan in lieu of a more ordinary one... and that they've negotiated hard enough to allow in the HSA (with healthequity.com ) a good selection of mutual funds, especially a spread of very low cost Vanguard ones.

The best thing about an HSA, of course, is that withdrawals for health expenses are tax-free -- depending on your tax rate in retirement that means $100k there may be `worth` anywhere between $125k and $200k in an IRA (withdrawals from which are fully taxable as income, no matter what).

I could be withdrawing yearly from the HSA to pay my deductible and co-pays, but that would waste the tax-free compounding within the account... so, I don't, I pay my out-of-pocket expenses out of my pocket, and let the HSA compound and grow. Not everybody can afford that, but I have good earnings and a frugal lifestyle, so I can (and still max out my 401k and have some left to invest in a taxable account).
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MissEdith: "After watching my mom's struggles in retirement, I will say that in my planning there's no "perhaps" as to a Medicare supplement."

Same here. Dad's AFLAC policy costs about $1,000 quarterly and apparently has the power to write down the excess bills not covered by Medicare and pay 'approved amounts'. So even when they don't pay $1,000 out of pocket every quarter, they usually pay off bills in excess of that if we had to pay them out of pocket. Furthermore, they spot double billings and when they spot them, they itemize the double billing and send an explanatory letter to both me and the doctor (Dad has dementia so I get the notices). That enables me to avoid the aggravation of scrutinizing the bills every month. It also eliminates the threat of being sued for failing to pay small unpaid balances that should not have been owed in the first place. (Even good doctors sometimes have nightmarish billing departments.)

Our experience with Medicare D has been more positive than yours. The premium is $62 a month, including the penalty for being several years late because Dad did not buy it when it was first available and there is no allowable excuse for missing the deadline even if it was due to dementia...

Anyway, it costs $62/mo. and has reduced his monthly drug bills from as much as $1,000/mo. to a few hundred/mo.

Dad's bills at Westminster Canterbury total *only* roughly $5,000/mo. Without supplemental insurance plus Medicare D, I think they would be in the $6500-7000 range.
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In his March 27 2014 post that can be found here ( http://theretirementcafe.blogspot.com/2014_03_01_archive.htm... ), Dirk Cotton discusses the risks associated with long term care management. What struck me was the pie chart showing the percentage of retirees incurring various levels of long term care costs. 62% of retirees incur less than $10k of long term care costs, while 16% incur more than $100k. Depending on your financial and health circumstances, LTC insurance may or may not make sense.
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Assuming fair health, with Medicare and perhaps a Medicare supplement, what might be a prudent amount to set aside to cover unexpected health expenses?

Fidelity has a planner that suggests that a 65 year old couple retiring in 2014 would need an average of $220k in today's dollars to cover the typical retirement until 82 for the man and 85 for the woman. Here's an article that has a link to the planner, and some other information about planning for health care in retirement: https://www.fidelity.com/viewpoints/retirement/health-care-c...

You also can use Fidelity’s annual Retiree Health Care Costs Estimate as a basis for planning. This estimate suggests that a 65-year-old couple retiring in 2014 would need $220,000 (in today's dollars) in total to pay for medical expenses throughout their retirement (17 years for men, 20 years for women, on average), not including nursing home or long-term care.

That figure is an average cost, to be used as a general guideline, because it applies only to a 65-year-old couple retiring in 2014 and assumes other behaviors as well, including future lifestyle and needs. “If you’re younger, this is not the right number for you,” says Patel. To arrive at a figure that better reflects your personal situation, he suggests adjusting the number to take into account your family history and your health status, which might mean planning for a longer or shorter retirement and a larger or smaller total cost. You might want to earmark a portion of your budget for purchasing long-term care insurance as well.5 The cost is based on age, so the earlier you purchase a policy, the lower the annual premiums.


You can adjust figures in the planner to fit your situation. If you don't have a Fidelity account already, I think that you can get a 30 day free trial to their retirement planning tools.

AJ
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idelity has a planner that suggests that a 65 year old couple retiring in 2014 would need an average of $220k in today's dollars to cover the typical retirement until 82 for the man and 85 for the woman. Here's an article that has a link to the planner, and some other information about planning for health care in retirement: https://www.fidelity.com/viewpoints/retirement/health-care-c......


I suspect 82 and 85 might not cover it....people are living longer and longer. $220K...you better have a big SS check coming and a pension too. If you are young enough, you should aim for at least 1M or more for a couple.

As for medical, I have a LT policy I took out with my company years ago. Does not cover all that much...$100 a day (3yrs), I pay 81.20 monthly. I have not increased it as I can self pay. I told my kids if I am so disabled, just shoot me.

Birgit
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I suspect 82 and 85 might not cover it....people are living longer and longer. $220K...you better have a big SS check coming and a pension too. If you are young enough, you should aim for at least 1M or more for a couple.



I think earmarking $1M for a couple for medical expenses is ridiculous, unless you 1) have a great income now and 2) have some medical issue that you know about right now that's going to significantly affect your later years.

Medicare and your supplemental insurance will cover a good bit of the medical expenses forecasted.

If you think about it, $220K for almost 20 years for 2 people isn't really all that much--it's only about $5500/year per person from 65 to 85. Medicare is going to pay 80% of your medical expenses, so assuming both of you are average, your out of pocket is actually only $44,000 or an average of $2200 per year. (Of course you can expect the bulk of your medical expenses later in life).

There's a calculator on the AARP website where you can put in your vital info, info on the diseases and stuff you currently have, and it will project your likely medical costs, and then also account for Medicare and your supplement, etc.

https://healthcostscalc.aarp.org/HWDS/HealthExpenseCalculato...

As for medical, I have a LT policy I took out with my company years ago. Does not cover all that much...$100 a day (3yrs), I pay 81.20 monthly.

This seems like a high amount of money to me, for not much return. I don't know how old you are, but say you pay on this policy for 30 years at $81/month. That's a total of $55,689 after 30 years, assuming you make 4% a year. That'd give you a $100/day for over a year and a half if you need it... and you can use the cash for other stuff if you don't, like having someone come into your home, etc. (Unless that, too, is covered by the policy).

I dunno... I work in risk management. There are some things it just makes sense to self-insure for. The government says that 70% of people "will at some point in their lives need long-term care." But then when you break it down, statistically it's not quite so scary. Average stay in a nursing home or assisted living, for those who go, is about a year. Me, I'm going to take my chances.

http://longtermcare.gov/the-basics/how-much-care-will-you-ne...

And sure, it wouldn't hurt anyone to have a million bucks socked away for medical care, but that's just not realistic for most people.
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I suspect 82 and 85 might not cover it....people are living longer and longer. $220K...you better have a big SS check coming and a pension too. If you are young enough, you should aim for at least 1M or more for a couple.

Are you saying that's what's needed for all retirement expenses? Or just for healthcare in retirement?

The $220k was just for healthcare in retirement. It does not include non-healthcare retirement expenses. The question being answered was
Assuming fair health, with Medicare and perhaps a Medicare supplement, what might be a prudent amount to set aside to cover unexpected health expenses? I would say that, depending on the lifestyle that the couple wants to live and the other income they may have, they may actually need to plan for the $1MM you suggest, plus the $220k suggested for healthcare expenses.

Your 'plan' of
As for medical, I have a LT policy I took out with my company years ago. Does not cover all that much...$100 a day (3yrs), I pay 81.20 monthly. I have not increased it as I can self pay. I told my kids if I am so disabled, just shoot me.
seems to leave a lot of things unaccounted for. There's a lot more to healthcare expenses in retirement than being so disabled that you need long term care or to have your kids shoot you.

AJ
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As for medical, I have a LT policy I took out with my company years ago. Does not cover all that much...$100 a day (3yrs), I pay 81.20 monthly. I have not increased it as I can self pay.

If you can self pay, why pay for the insurance at all ?

Medicare will cover days 0-20 after a hospital stay of 4 days. For days 21-100, there's currently a $152/day copay. After 100 days, it's full pay. Some medicare supplement policies will cover the copay for some number of days after day 20. Have you looked to see what yours does ? Hospice care is an entirely different benefit. Do you know what you have covered for that ?

Personally, I feel there's way too much emphasis on planning for bad aging and too little emphasis on maintaining health.
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http://finance.yahoo.com/news/the-retirement-threat-few-peop...

Financial risk can be notoriously hard to spot, but there is one thing people can be certain of -- we get old. So why do so few people buy long-term care insurance?

In part, it's because only about 20 to 30 percent of the U.S. population is optimally suited to benefit from such coverage, according to a recent study by Boston College's Center for Retirement Research (CRR). But there are compelling reasons to make long-term care insurance a key element in your retirement planning.

PF



From your link, I found a nice series of articles on the subject, starting with:

http://www.cbsnews.com/news/should-you-buy-long-term-care-in...

At the end of that article are the links to the follow-on articles.

Very informative.

If my retirement finances occur as planned, it looks like self-financing will cover me for all but the very worst events as a minimum.


Thanks,
Jim
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I'm glad you followed the MarketWatch links. I was going to mention them but got distracted by life.

PF
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I'm a bit over 1/3 there, and my employer has been offering a high-deductible insurance (a must to get an HSA) for only 3 years now, and, I think I'll be working for at least 6 more years from now, so I should make it. It does help that my employer matches my HSA contributions up to what they're saving by giving me a high-deductible plan in lieu of a more ordinary one... and that they've negotiated hard enough to allow in the HSA (with healthequity.com ) a good selection of mutual funds, especially a spread of very low cost Vanguard ones.

How are you contributing $10K a year? My max HSA contribution is something like $3000, I think, and my employer throws in another $500. I thought those were the limits of HSA contributions.
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How are you contributing $10K a year? My max HSA contribution is something like $3000, I think, and my employer throws in another $500. I thought those were the limits of HSA contributions.

You may be single (where the limits are $3,300 for youngsters, $4,300 for people 55 and over); for a family, the 2014 limit was $6,550 for youngsters, $7,550 for people 55 and over. That includes all contributions, no matter whether they come from you or an employer.

I've actually been contributing for 4 years, not 3 (my bad) -- and the internal rate of return of my chosen mix of low-cost mutual funds (about 50/50 equities/debentures) has been about 10%. The maximum contribution was a little bit lower in previous years, but this reached $35k in 4 years.

With 6 more years of contributions (ignoring the possibility that the maximum will be raised again), if the IRR stays at, say, 10%, the projection is $120k. Which is why I think $100k is not a crazy-high goal (I expect IRR to sag a little, but also maximum contributions to keep going up a bit -- e.g, it's already been announced that in 2015 I'll be able to contribute $7,650, $100 more than this closing year 2014); to reach $100k in 6 more years, with hypothetically unchanged maximum contributions, would only require an IRR below but close to 6%.
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You may be single (where the limits are $3,300 for youngsters, $4,300 for people 55 and over); for a family, the 2014 limit was $6,550 for youngsters, $7,550 for people 55 and over. That includes all contributions, no matter whether they come from you or an employer.

Yes, that is what I was missing, thanks!
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If you can self pay, why pay for the insurance at all ?

Depends on what you want to do with all the money/assets you have saved of your lifetime. Want to use it for health costs, then go ahead and self pay. If you want to leave a "legacy" to your kids/alma mater/what ever, you might want the insurance option so you don't burn through your money.

Call me pessimistic, but I think Medicare will either start cutting benefits or increase it's "means testing" by the time I get there (in 15 years). Just demographics and economics.

Personally, I feel there's way too much emphasis on planning for bad aging and too little emphasis on maintaining health.

I agree. However, you can do all the health maintaining you want but that doesn't protect you from the dumba$$ drunk driver.

JLC
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JLC analyzes,

Depends on what you want to do with all the money/assets you have saved of your lifetime. Want to use it for health costs, then go ahead and self pay. If you want to leave a "legacy" to your kids/alma mater/what ever, you might want the insurance option so you don't burn through your money.

</snip>


You do realize that on average when you buy insurance you're paying for your expected medical costs, plus the insurance company's overhead, which adds another 12% to 20% to the bill? Maybe you'll "win" the insurance lottery and come down with an expensive illness and make money on the deal. But the insurers are pricing the policy to stack the odds against you.

Any time I'm wealthy enough to cut an insurance company out of the equation and self-insure, I'm ahead of the game.

intercst
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If you can self pay, why pay for the insurance at all ?

This wasn't a rhetorical question. It was specific to the OP.
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Assuming fair health, with Medicare and perhaps a Medicare supplement, what might be a prudent amount to set aside to cover unexpected health expenses?

With a decent Medicare supplemental insurance plan or enrolling in a Medicare Advantage plan, I would say that a person doesn't need anything beyond the usual emergency fund that covers unexpected expenses. Obamacare has changed the healthcare landscape significantly for the better in this regard.

The key to your question is the "assuming fair health" part. Fair health isn't something that can assumed, as you probably know. It's something that takes work. The most important drivers of good health are things that don't cost a penny extra: eat right, exercise regularly, don't smoke, drink only in moderation, get enough sleep but not too much, wear your seat belt, etc., etc.

Too many Americans can't hack that, unfortunately. They're too busy coming up with excuses for why they can't. I have been fortunate to get to know people in wheelchairs and with amputated limbs who are much healthier and more active than most "able-bodied" folks. You find a way or make a way.
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Paul I have to respectfully disagree with you on a few points. If you have assets, it's important to not rely on self-insuring since most people ideally want to preserve the family wealth and pass it on to other family members. The insurance works well for those with minimal assets but works best for those that have the assets to lose. Nursing home costs are the biggest LTC costs. According to the LTC Tree, Long Term Care Insurance Statistics: March 2014 Update, 43% of LTC claims are for less than 1 year. However, once a claim lasts over a year, the typical need for LTC is about 4 years. You can see how even someone with more than modest assets (let's say a couple million dollars) can have a serious dent put into the family finances. And assuming this happens to one spouse, if the other spouse needs care down the road, an even bigger financial dent can be caused. If a serious disease of heart problems arises, then the likelihood of needing LTC for more than a couple of years is pretty low since the patient in likely to die in a relative short time period. I'd take a look at this article: http://457planinfo.com/your-457-plan-and-long-term-care/ because it gives a lot of good stats backed with references and then the typical cost of insurance.
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Thanks, Sean. I understand where you are coming from.

The basic problem is still that most people never collect a dime from their Long Term Care insurance. Of those that do, only a fraction recover their premiums in benefits.

So I think its a bad gamble. I estimate the odds of getting your money back at abt 9%.

Typical nursing home stay costs $200/day for two years. Or abt $150K. If you have the assets to cover that expense, I think you should self insure.

Sure, alzheimers and various long term care situations (paralysis from stroke or accident) can be more costly. That is the risk.

People say costs will rise. True, but we hope you invest that $150K to get returns and keep up with inflation.

I would also note that I am aware of nice independent living facilities that accept HUD patients for essentially a fraction of their Social Security check. So long as you are reasonably able to care for yourself, that can be very economical. They say LTC insurance will pay for Assisted Living with certain combinations of disabilities.

I keep getting the message you are negotiating with the insurance company asking them to let you spend your own money. Why are they needed?

When you have a spouse to protect, the prospect of nursing home costs depleting resources needed for support of surviving spouse can be a real concern. But Elder Attorneys help people deal with this problem all the time. It is something to look into when the first person enters a nursing home. Social workers there can usually direct you to a capable expert to advise you.
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pauleckler: "The basic problem is still that most people never collect a dime from their Long Term Care insurance. Of those that do, only a fraction recover their premiums in benefits.

So I think its a bad gamble. I estimate the odds of getting your money back at abt 9%."


Is that how you analyze all insurance?

What are the odds of getting your money back on your home owner's insurance?

What are the odds of a healthy 25 year getting back his/her money on a 20 year level term life insurance policy?

"Typical nursing home stay costs $200/day for two years. Or abt $150K. If you have the assets to cover that expense, I think you should self insure.

Sure, alzheimers and various long term care situations (paralysis from stroke or accident) can be more costly. That is the risk."


I think your estimate are low.

"Some average costs for long-term care in the United States (in 2010) were:
?$205 per day or $6,235 per month for a semi-private room in a nursing home
?$229 per day or $6,965 per month for a private room in a nursing home"

http://longtermcare.gov/costs-how-to-pay/costs-of-care/

"The national average daily rate for a private room in a nursing home is $248, while a semi-private room is $222 up from $239 and $214 respectively in 2011.

•The national average monthly base rate in an assisted living community rose from $3,477 in 2011 to $3,550 in 2012."

https://www.metlife.com/mmi/research/2012-market-survey-long...

Why not bifurcate the risk. A policy with a long lead period (elimination period) would allow self-coverage for a year or two before benefits started being paid.

"I would also note that I am aware of nice independent living facilities that accept HUD patients for essentially a fraction of their Social Security check. So long as you are reasonably able to care for yourself, that can be very economical. They say LTC insurance will pay for Assisted Living with certain combinations of disabilities."

How many and how likely are you to be admitted if all you have ins fraction of SS check? Or are all those people who arrived with assets that have been spend down and the facility does not kick them out but keeps them for the part of SS?

"I keep getting the message you are negotiating with the insurance company asking them to let you spend your own money. Why are they needed?"

To spread the risk.

"When you have a spouse to protect, the prospect of nursing home costs depleting resources needed for support of surviving spouse can be a real concern. But Elder Attorneys help people deal with this problem all the time. It is something to look into when the first person enters a nursing home. Social workers there can usually direct you to a capable expert to advise you."

I strongly suspect that if you wait until the first spouse enters a nursing home, you have probably waited at least five years too long. BWDIK?

Regards, JAFO
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Paul insurance is one of the funny things that you hope never to have to use but certainly glad to have it when it's needed. I've noticed that a lot people have modest assets - let's say $300K not including their house. I'm not saying it's a layup, but it's reasonable to get 1-2% on your money, and then just put the earnings into an LTC policy. That policy of course protects the principal. I'd just hate to be the guy that needs care for 5 or more year and then leave my wife in a bad spot. Even a modest policy ($100/day) with a long elimination period is worth the gamble in my opinion.
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SeanTankarian analyzes,

Paul insurance is one of the funny things that you hope never to have to use but certainly glad to have it when it's needed. I've noticed that a lot people have modest assets - let's say $300K not including their house. I'm not saying it's a layup, but it's reasonable to get 1-2% on your money, and then just put the earnings into an LTC policy.

</snip>


If we assume you shouldn't withdraw more than 4% of assets in retirement, you're advocating that a retiree spend 25% to 50% of his annual retirement withdrawal on an LTC policy?

Good Lord.

intercst
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