4% SWR when you are really old

[Vagabond76]

We are planning to put my last surviving grandparent in an independent living facility.  It is not a nursing home (yet), but it really made me think about MMM's and other's ER plans that are based on a 4% SWR.  MMM spends ~$24k a year right now, and presumably will continue to spend that level (adjusted for inflation) until he is old.  But what happens when it is time to go to a nursing home, which costs about ~$48k a year in current dollars?

Like all healthcare costs, that amount id bound to skyrocket.  Only difference--long term care is not covered by medical insurance.  You either get long term care insurance, whole life insurance (which is what I did), pay out of pocket, or go to whatever shit care service that Medicaid covers.

[mamagoose]

Not every old person goes to live in a nursing home.

[A440]

When someone runs out of money, they are eligible for Medicaid which will pay their nursing home costs.   I am not familiar with the all the details about Medicaid and nursing homes, but I worked as a CNA in a nursing home, and had no idea which patients had Medicaid and which had private pay. 

I think in MMM's situation, he would also be selling the house at that point.  Or if one spouse is going into a nursing home and the other is staying in the home, could consider reverse mortgage. 

An interesting article:
http://www.geripal.org/2010/08/length-of-stay-in-nursing-homes-at-end.html

[Nemesis.]

My parents who are mid-sixtie and early seventies live in a retirement community where they are some of the youngest people there. There are a fair amount of people in their nineties there and yes, they do have a certain aloof people who pass away each year.
Some people end up in nursing homes or other care facilities.
But as personal health and fitness are tenants of Mustachianism, hopefully a lot of us won't need to go down that road.

[Beriberi]

You should change a few assumptions -- nursing home care costs around 72k per year, not 48k.  In my HCOL area, it's closer to 100k. 

Also, when you get to nursing home care, it is likely reasonable to change your withdrawal rate - full nursing home care is usually followed by death in a short while. 65% will die within the first year of admission.  Very few people live longer than 2 years. A 25% withdrawal rate would be reasonable.

Also, Medicaid home are often the same places that private pay patients (especially mustachians!) are going to go.  They are the most affordable choices.  So, it may be a shitty place, but it the same shitty place you will be paying for out of pocket. 

[deborah]

Only about 10% or less end up in a nursing home - and that really doesn't depend upon how fit or healthy you are. My great aunt lived to 105, but was blind and deaf for the last 10 years, and went into a nursing home when she was 103 - life had become just too difficult for her on her own.

If you self-insure your health, by the time you need is you should have built up a healthy nest egg in your self-insurance.

[Vagabond76]

The $4k/mo ($48k/yr) is what was quoted for basic care in north Florida.  I'm sure they will tack on many more $1000s as soon as one walks in the door and signs the intake papers.

That doesn't even begin to cover the "memory care" facility, which is where all the Alzheimers patients go.

I'm disheartened, but given the age of the forum members not surprised, by the bury-your-head-in-the-sand mentality.  There is no known lifestyle means that will prevent brain decay or Alzheimers.  A high magnesium diet and regular exercise is suggested, but by is no means proven.

Whatever 'stache one thought was there will be gone in no time.  Forget leaving money to heirs or charity, the patient will soon be a ward of the state Medicaid program.  We looked at those facilities...it is not a happy thought.

[waltworks]

Almost all of the 4% SWR outcomes that survive 30+ years will leave you with many many times more money in the bank than you'll need for a nursing home. Go play with Cfiresim and you'll feel better (unless you were just trying to scare people, in which case better luck next time).

-W

[Vagabond76]

Almost all of the 4% SWR outcomes that survive 30+ years will leave you with many many times more money in the bank than you'll need for a nursing home. Go play with Cfiresim and you'll feel better (unless you were just trying to scare people, in which case better luck next time).

-W

Fair enough.  Using all of Cfiresim's defaults with the following exceptions: I used my age today (40) and expect to last another 50 years and changed the allocation to 60/40.

No long term care expense: 72%
$48k/yr expense: 66%
$100k/yr expense: 58%

I hardly feel better.

[JLee]

Almost all of the 4% SWR outcomes that survive 30+ years will leave you with many many times more money in the bank than you'll need for a nursing home. Go play with Cfiresim and you'll feel better (unless you were just trying to scare people, in which case better luck next time).

-W

Fair enough.  Using all of Cfiresim's defaults with the following exceptions: I used my age today (40) and expect to last another 50 years and changed the allocation to 60/40.

No long term care expense: 72%
$48k/yr expense: 66%
$100k/yr expense: 58%

I hardly feel better.

Your 60/40 allocation isn't doing you any favors.

[marion10]

50 years from now- who knows what will be in place? In the US, most nursing homes have a certain number of Medicaid beds.  These often go to residents who entered as private pay, but exhausted their assets. My MIL had Alzheimer's and went into a very good nursing home - she exhausted her assets ( she was widowed) - about a year in and lived for six more years there- paid by Medicaid.

[mathjak107]

Almost all of the 4% SWR outcomes that survive 30+ years will leave you with many many times more money in the bank than you'll need for a nursing home. Go play with Cfiresim and you'll feel better (unless you were just trying to scare people, in which case better luck next time).

-W

90%  of all time frame you died with more than you started . 67% left you with 2x or more . but that is based on todays dollars . in 30 years having the same thing can mean having 1/2 of what you started with adjusted for inflation . .

skilled nursing facility's are 120-140k in our area . we have a fair amount of savings but that would not support a home for one of us and a stay at home spouse very long .

my dad was in a home for 6 years .

there were no scenario's in the past either that duplicated what retirees are seeing now . high valuations and low real returns on bonds and cash never happened prior . when rates were low back in the 1930's they were really not low. the cpi fell 18% so even 2% was a  big real return .

this is my 2nd year in retirement and we already burned principal year 1 and 2 . these early years can make a big difference in outcome . they are like a trader having a string of losing trades day 1 when you are spending down early on with not enough offsetting gains .

[happy]

If you retire at 40, its really impossible to predict all the challenges that might face you in the next 40-50 years. Also you might die in your 50s. Bernstein reckoned you couldn't predict more accurately than 80%, because you just can't predict the future with greater certainty than that.

If you retire with 4%WR, then if the past predicts the future, you are most likely to end up with your stash growing and growing. If you play with a calculator you will realise there is actually a fairly slim margin of spending between ending up with millions or using up your principle some 40-50-60years down the track.

Therefore:
1. ER, no matter how well you plan it, has some risks and takes some balls. Life's just like that.
2. Keep an eye on the stash every now and then and make sure you stay on the side of the line that ends you up with excess for you can pay for care. Small reduction e.g. 5% of draw down over many years can make a big difference to the amount of stash .

[waltworks]

Fair enough.  Using all of Cfiresim's defaults with the following exceptions: I used my age today (40) and expect to last another 50 years and changed the allocation to 60/40.

No long term care expense: 72%
$48k/yr expense: 66%
$100k/yr expense: 58%

I hardly feel better.

Hahaha. 60/40 for a 50 year retirement. You're a funny guy.

Keep your nose to the grindstone then, friend. I'll be out riding my bike.

-W

[mathjak107]

50 years at 4% inflation adjusted  with 60/40 failed way to many times already to last . not something i would consider doing myself

Here is how your portfolio would have fared in each of the 96 cycles. The lowest and highest portfolio balance at the end of your retirement was $-1,823,762 to $10,531,670, with an average at the end of $1,945,661. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 26 cycles failed, for a success rate of 72.9%.

[undercover]

Fair enough.  Using all of Cfiresim's defaults with the following exceptions: I used my age today (40) and expect to last another 50 years and changed the allocation to 60/40.

No long term care expense: 72%
$48k/yr expense: 66%
$100k/yr expense: 58%

I hardly feel better.

Hahaha. 60/40 for a 50 year retirement. You're a funny guy.

Keep your nose to the grindstone then, friend. I'll be out riding my bike.

-W

Exactly. I don't get these types of threads. What would you rather do - have lived 5 absolutely amazing years of your life with a chance you'd have go back to work someday (as if that's an impossible feat) or worry everyday that things might not go right? I mean, unless you're dead, there's nothing to worry about. And you don't worry when you're dead, so...

Sequence risk, rising healthcare costs, Donald Trump, Hilary Clinton, nuclear warfare, China calling our national debt...I mean there's countless ways you can come up with as to why you can't do something - but again, I'd rather plan for "the best" and then adapt as necessary. This site is built upon proven principles and ideas that don't really care about the things outside of our control. It's about prioritizing your life and the things you want to accomplish over living someone else's life or becoming paralyzed to life's uncertainties.

[mathjak107]

if anyone thinks it is tough working and or finding a job at 50 try it at 80 if you have to

[ooeei]

Someone living 5+ years in a nursing home is the exception, not the rule.  With that being said, it's possible it'll be you.  The question you have to answer for yourself is, what amount of savings to cover that DOES make you comfortable? 

Someone above mentioned they cost $140,000/year in their area.  If they assume that as the cost, and worst case 10 years staying there, that's an extra $1.4 million they have to make to cover the risk.  Is it worth it?  Probably not for most people.  Similarly, basing your plan on running out of money when you hit 79 years old and statistically die probably isn't a good idea either.  There's somewhere in the middle that each person feels comfortable.  If you live somewhere where nursing homes cost $140,000/year, consider moving once you have to go to a nursing home.

If you plan on preparing for every possible outlying situation, you're going to be working as long as humanly possible.  Planning to work a bit in down years during ER seems like a good plan, and can make a big change to cFiresim predictions.  The doom and gloom strategy of planning a 3% withdrawal rate and having a floor where you don't withdraw even 3% if investments go down and working in down years and having a supplement fund for healthcare and getting every type of insurance is probably overkill.

As for the OP, I don't think MMM is sweating 48k/year.

[mathjak107]

we mitigate the risks we feel are important . in our case we didn't work longer to cover long term care . rather we mitigated the potential damage by using insurance .