Why We Are NOT Buying Long Term Care Insurance

Buying long term care insurance (or not) is a major decision you should evaluate as you move through your 50’s and 60’s.  I’ve hinted about our decision, but I’ve never written a comprehensive post on the topic.  Today, I’m addressing it and sharing the numbers that led to our decision.  Plot buster:  We have decided that we won’t be buying long term care insurance.  We’re going to self-insure.

Today, I answer the question of Why We ARE NOT Buying LTC Insurance. Share on X

Why now?  A few weeks ago, a reader named “Redfish” left the following comment on my Drawdown Strategy article asking about buying long term care insurance. Following that, I had a podcast host who will be interviewing me ask if I’d written a post on why we are not buying long term care insurance.  With two “asks” in the past two weeks, I felt it was time.

Ask, and you shall receive!

Here’s the comment from Redfish which led to this post:

The assisted living facility my dad happily calls home

Long Term Care – The Risk

One of the biggest financial risks facing a retiree is the potential of spending years in a long term care facility.  I’ve seen this risk play out in my personal life, with both my mother-in-law (nursing home) and my dad (assisted living) facing the reality of long term care.

Long Term Care is expensive.

According to this study, the national median cost for various types of care is as follows:

Imagine having to spend $150k per year (2036 prices) for a 3-year stay, and you’re looking at a $500k hit to your retirement nest egg.  Ouch.

Long Term Care Insurance – The Problem

For years, buying long term care insurance was seen as the solution for LTC risk.  Unfortunately, the normally astute actuaries missed on this one, and they missed big.  Insurance companies started seeing their costs for LTC rise dramatically, and have had no choice but to raise their premiums.  A lot.

As Forbes points out in Another Big Long-Term Insurance Care Insurance Premium Hike, companies have been raising rates in droves, and up to 90% of insurance companies previously covering LTC have abandoned the business.

Even if you decide to buy long term care insurance, it’s not clear how much you’ll have to pay for it in future years. Rates are not guaranteed for the life of the policy, and it’s likely rates will increase as the insurance companies swallow additional cost increases with the aging of the Baby Boomers. As the article in Forbes points out, if your insurance company raises their rates, you have only a few choices, and all are ugly:

  • Swallow hard and pay the premium.
  • Reduce your benefits.
  • Shop around for another policy.
  • Allow the policy to lapse and go bare.

Self Insure – A New Solution?

Given the price increases of LTC insurance, the reduction of competition in the market, and the lack of assurance that rates won’t continue to rise, is there a better solution?

I spent over a month answering that question for myself and will share my analysis with you today.

I did a deep dive analysis on LTC insurance, and decided to self-insure. Share on X

The decision to self-insure should not be taken lightly.  I did a “deep dive” on my analysis, and I still have concerns. There are clearly risks with the “self-insure” route, but there are also risks with the LTC Insurance route. Neither route is obvious.  “The numbers” led me to the decision that was right for me and my family, and I hope sharing my methodology will help as you evaluate your situation.

The Decision To Self Insure

At the age of 51, I decided to tackle the long term care dilemma.  Historically folks have advised buying long term care insurance in your 50’s, as your health and relative youth make it easier to secure coverage.  With the objective clear, I had several meetings with a trusted insurance professional, studied up on the issues, received a formal quotation from a solid insurance company and (of course) built a detailed spreadsheet to aid in my analysis.

The “Break-Even” Spreadsheet

My spreadsheet basically compared the following:

  • Spend the $ on LTC insurance premiums.  Or…..
  • Invest the $ which would go toward LTC insurance, and let it grow.

Below is a picture of the first two years in my spreadsheet, which I’ll explain below:

The left side of the spreadsheet (Columns A-G) shows the cumulative cost of purchasing insurance (column G).  The LTC insurance I was modeling would cost $3,158 in year 1, and increase each year.  Alternatively, I could invest the $3,158 and let it grow.  This scenario is modeled in columns I – M.  As the “self-insurance” balance grew (Column K), I could calculate how many days of coverage I had (Column M) by using a cost of $200/day for coverage, inflated annually at 5%. By comparing the two scenarios, I could determine how many days of “self-insurance” I was building with each passing year.

You’ll note in Column J that I used a conservative growth rate of 4% on the “self-insure” money pool.  While conservative, it’s worth noting that I excluded the impact of taxes for the sake of simplicity.  I figured I’d likely use after-tax money to fund the LTC insurance, and I’d, therefore, use after-tax money to invest for self-insurance.  Any gains in the investments would likely be taxed at the Capital Gains rate, but they’d also likely grow at a rate of greater than 4%.  You can nit-pick my methodology, but it worked for me.  K.I.S.S.

At What Age Does Self-Insurance “Break Even”?

I continued the methodology outlined above for 40 years.  Below are the number of days I calculated that we could cover via “Self-Insurance” money otherwise used to pay for LTC insurance premiums.

According to this analysis by ElderLaw, here are some relevant statistics to consider when evaluating the financial calculations, and making the decision on whether self-insurance makes sense for you:

  • Odds are you won’t need care before age 80-85
  • If you do need care, there’s a 44% chance you’ll need it for less than a year
  • There is only a 1 in 4 chance that your stay will last 3 years or more.

Comparing those two sets of bullet points, I’d conclude that our breakeven point for self-insurance occurs between the age of 80 – 85, which ironically lines up extremely well with the age at which we’re most likely to need the long term care.

Other Considerations In Favor Of Self Insurance

There were other considerations which we considered as we evaluated the pros and cons of self-insuring against Long Term Care Risk.  For the sake of brevity, I’ll summarize these in bullet form below:

  • If we don’t need LTC, we’d have an additional $1.5M at Age 90 to leave a legacy if we self-insure.
  • We’re both healthy and plan to stay that way (Younger Next Year!).  Odds are hopefully in our favor.
  • We’re not guaranteed that our LTC policy costs would remain as projected in our quotation.
  • If costs of LTC increase faster than we estimate, we may have less self-coverage than we think.
  • We could be in trouble if both my wife and I need more than 3 years of LTC.
  • We need to be careful to not “spend” the extra $$ building up due to not buying LTC insurance.
  • We’ve considered setting up a separate account to hold the “Self-Insurance” monies.
  • Redfish mentioned potentially buying Life Insurance with an LTC rider – we did not evaluate this option but suspect the inflationary pressures on LTC costs would also affect the feasibility of this “rider” option.


I hope this post has helped shed some light on “Why We Aren’t Buying Long Term Care Insurance”.  While you may disagree with our analysis and/or conclusion, I trust that explaining our decision-making methodology will be helpful as you evaluate this topic for yourself.  Don’t trust my conclusions for your situation, and don’t ignore taking some time to think through the issue for yourself.  It’s an important decision, and one you must make for yourself and your family. As you move through your 50’s and into your 60’s, you’ll face a future reality in which LTC insurance premiums become prohibitively expensive, and you may not be able to qualify for coverage.  Take some time now, as you finalize your plans for retirement, to evaluate LTC for yourself.  BTW, after I had finished this post and scheduled it for publication, I came across this excellent article on Morningstar, 75 Must-Know Statistics about Long Term Care, one of the best resources I’ve seen on LTC.  If you’d like to investigate the topic further, have a look at that link.

What are you doing to cover yourself against Long Term Care risks?  Do you agree with our logic on why we’re self-insuring, or are we missing something?  Let’s broaden the discussion in the comments below…..


  1. Nice post, Fritz. We’ll likely come to the same conclusion. One other aspect we’ve thought of is if we both were to go to LTC, we’d have the value of our home to sell and help pay for the cost. This would add just another buffer if we needed more than a couple years of care.

    Thanks for sharing your plans!

    1. If you enroll n a stare partnership approved long- term care plan, you can qualify for Medicaid once Ltc care benefit limits are met AND still retain dollar for dollar asset protection. info is here: http://www.partnershipforlongtermcare.com/partnershipmaps.html

      So if you have a $200,000 policy and use every bit of it, you couod still retain $200,000 of assets ( (dollar for dollar asset protection) and qualify for Medicaid. This is significantly higher than what is currently allowed for those without such plans

      This could help a spouse who is not yet in need of nursing home or in-home care…and this may be in addition to keeping the house ( haven’t researched that part yet). Or it could be used to leave something to heirs, pay expenses not covered by Medicaid ( and there are plenty), etc..

      Doesn’t this affect the “break even point” and tip the balance more in favor of long-term care? .

  2. This is very helpful analysis, but I personally think your assumption of a 4% return is very optimistic, not conservative.

    Not that it would matter for LTC, since I would expect rates to go up even more if market returns are very low, but for decisions like this I usually model 2% returns. We are in secular stagnation with insane valuations in all assets right now

    1. Mark, if I were only projecting for the next ~10 years or so, I’d concede your point. However, given that I’m looking at a 40 year horizon, I feel 4% is a reasonable/conservative long term assumption. A 2% assumption would certainly change the breakeven point! We ARE at insane valuations, and I expect a “mean reversion” in the next 2 years. However, LONG term, I’ll stand behind my 4%. That’s why it’s called “Personal” Finance, right!

      1. I know you don’t need me to say this, but based on any very long term historical perspective you are absolutely right – 4% should be good. I am just so emotional over our bleak future for returns compared to the past, I tend to over-correct. That’s my “personal” issue…..

  3. “LTC rider – we did not evaluate this option” – This is the only option I’m currently considering. Standard LTC is a no go for me. Looking at a couple of different companies with strong ratings. The numbers are something like $75K up front now at 53 years old and it generates $2500-$3000 per month LTC when needed, with limits. This may not pay the full needed amount, but it will cover a good portion. The plans I’m looking at also allow you to pull the $75K out after the first 2 years onward for any reason (of course you loose any accumulation/interest), and the policy provides about $150K upon death. My wife can not qualify for LTC, so thinking that I may take it, then if we are in a bad spot and she needs care and I don’t, then pull the $75K for her care, if I die first and she needs it she will have the $150K. Like I said, still looking. It’s a large chunk of change.

    1. Paul, thanks for adding some details on the LTC rider, I didn’t realize they require such a large up front payment, but it does seem to be an interesting option. Keep us posted on what you decide, I’m sincerely interested in your decision.

    2. This sounds like what is also called a ‘linked-benefit’ plan. I’ve always thought for folks who have a large cash balance just sitting there earning nothing, these make a of sense considering you can get the principle back after a certain period. The balance doesn’t grow but you offload a lot of risk in the earlier years.

  4. Nice post my friend!! My bride and I did a similar study / calculation a couple years ago and came to the same conclusion. It’s great to see the math behind your decision and moreover knowing that you have personal experience in both nursing home and assisted living situations and still made this decision is comforting.

  5. Good post and can’t argue the logic. My decision was simpler. I could easily afford to self insure $500k for each of us for long term care costs out of our investments but my wife wanted LTC insurance so I bought it. Same reason she has a big term life policy on me, it makes her feel good, and that is priceless. Although it makes nervous on some of our extreme hiking adventures that I’m worth more dead than alive!

  6. Hi Fritz, thanks for tackling LTC. Great job.
    We have come to the same conclusion as you. We have heard that those with net worth of $1.5 million or greater should consider self-insuring, and those with net worth between $500,000 and $1.5 could benefit most from purchasing LTC. My parents have opted to self insure with a net worth of $1.75 million, and at their ages of 87 and 82. My husband and I are thinking about purchasing a modest, single story home nearby and placing it into service as our own private assisted living including home health care for them when they need it. Cheery, sunny, personalized care is what we all prefer and will strive for.

    1. Thx Cynhuz. I put off tackling this one for long enough, nice to have it published and available for future reference. You’re a great daughter to sacrifice for the care of your parents, if necessary. We did the same for my mother-in-law, who lived with us for her first 4 years of Alzheimer’s. The least we could do, and we were happy to do it.

  7. Oh wow, I didn’t even know there were insurance options out there for long-term care. For us, I think the self-insure route will work best. Long term care is a cost of retirement that we should all consider, especially as we age.

  8. Thanks for digging deep into this. We came to the same conclusion last year for three reasons:
    1) The premiums can change willy-nilly, as you addressed.
    2) We don’t have faith that any insurance company we insure with will still be in business when we need it.
    3) Insurance companies play games and/or hard ball with doling out the coverage when you need it.

    Just FYI, in my experience, Assisted Living Facilities (ALFs) have proven more expensive than nursing homes. They up-sell like crazy, both their services and medical providers they contract with.

    Also, my brother and I are now applying for Medicaid for my aunt whom Mr. Groovy and I look in on in a nursing home here in NC. She’ just about exhausted her funds but she’s in a good facility and will get the same exact care on Medicaid. I’m sharing this because it may be important for those in our community with aging parents to connect with one another and share knowledge. My brother and I also applied and received VA “Aid and Attendance” benefits for my aunt. Many folks are unfamiliar with the A&A program.

    1. Glad to see smart folks like you and Mr. Groovy came to the same conclusion as we did! We also exhausted all of my mother-in-laws $, and get her into Medicaid.

      That’s one “safety net” that’s essential, and I’m pleased to see someone like my mother-in-law (a hard working, low paid person who has maintained a positive attitude her entire life) benefiting from it. Thanks for sharing the note on Medicaid, it’s a good last resort option.

  9. Given today’s LTC climate, I think your analysis is very good.

    My husband and I happened to buy policies years ago, when we were in our mid-40s. Premiums didn’t increase for decades, so the 5% inflation adjustment grew our daily benefit to its current $236. Our total combined premium outlay was just over $1,600.

    This year, however, the company decided to raise rates–and stated they’ve already asked for more increases to take effect in 3 years. For now, since our daily benefit is good, we opted to keep the premiums level and take a cut on the inflation adjustment.

    For some perspective, my mother pays about $4,500 a month for assisted living. She’s been there 5 years already, so I’m not sure how accurate the typical “3 year stay” advice is anymore, given that life spans are increasing.

    We figured the daily benefit of $236 would keep pace with costs for at least a few more years. These policies form our base. From this point on, we’re squirreling away extra funds to self-insure future remaining costs.

    For folks like you and your wife, though, I don’t think I’d even consider buying LTC coverage these days. Too much has changed in this market–and not in the consumer’s favor.

    1. Ann, thanks for the great input from someone who’s living with the increasing rates. You’re fortunate you got in in your mid-40’s (wow, you’re proactive!), and I hope the inflationary increases on your rates are manageable. I hate to think of “the base” having to be whittled down to afford the premiums, but it is one of the only viable options to those facing the increases. Good luck with your plan!

      1. Thanks, we’re keeping our fingers crossed.

        One observation I forgot to mention, which might help anybody else weighing this decision, is that there was only one option which kept our premiums level–reducing the health care inflation protection. Decreasing the number of years of coverage (in our case, from 6 years to 4) wouldn’t have saved any money. Nor would eliminating the restoration of benefits option. For readers not familiar with that term, it means if you had to use your LTC coverage for a while, but then got better and could go back to living independently, your benefits would return to their pre-use level as if you’d never used them in the first place.

        I expect at the next rate increase, the only way we’ll be able to keep level premiums will be to eliminate the inflation protection altogether.

  10. Mrs. PIE and I were only talking this week about the relative cost of assisted living / nursing home in the US vs UK. Your post is very timely. Much cheaper in the UK, in part due to a fundamentally different healthcare system.

    We have not done serious digging on this topic but both of us would have zero qualms with self insuring. A “high enough net worth” combined with low SWR should support a healthy sum towards the end of our days, even with lowish equity returns for chunks of it. Time will tell on that front. Mr. Market will do what he does…..

    I imagine , as we age, we will still spend on travel if we remain fit and healthy and so the notion of reduced spending with age (controversy still exists on this) is still something we can’t get our heads around. If we have enough money left for (a) self-insuring costs, (b) legacy to kids and (c) charitable causes, that will be the ideal scenario. Making choices between those three gets a little harder……

    1. “Making choices between those three gets a little harder….”

      Ah, the story of our financial lives, right! Choices, choices. Great stuff, this! Let’s hope Mr. Market continues to shine his goodwill on us (I’m a bit pessimistic on that front), it certainly helps make those choices a little easier if we have strong returns! Fingers crossed (and Bucket 1 filled!).

  11. Fritz! Great analysis! I had a suspicion that the numerical results should work out that way: After all, that’s how the insurance companies price these products. But thanks for verifying! Did you publish the worksheet somewhere for others to play around?
    We also plan to self-insure and it’s one of the reasons we like to plan with capital preservation not depletion in our calculations. Have a great week everybody!

    1. “Great Analysis”, from ERN (the MASTER of in depth analysis!)? Wow, that’s a real honor! I haven’t shared the spreadsheet, since it had a lot of other stuff on it. I’ll see if I can carve out some time to strip stuff off, clean it up, and get it posted on my Resources page (I’m sure you’d have a good laugh at my simplistic formulas after seeing some of the spreadsheets you’ve created!). Thanks for stopping by.

  12. Thank you for an interesting article and great comments. After researching LTC insurance we also decided not to purchase it. Some of our reasons are the same, others differ.

    I notice that your numbers come from Genworth Financial. And while I appreciate their efforts, I take a large grain of salt when looking at their predictions and advice. Companies that sells LTC insurance have vested interests in presenting numbers that put their products in a highly favorable light.

    Business, like nature, abhors a vacuum, and Assisted Living / nursing homes will be no exception to that rule. It’s already happening. Once Baby Boomers realized that there were good (dare I say better?) options for our aging parents than us moving in with them or they with us, life for the elderly changed. My mother lived in Alzheimer’s Memory Care for 18 months before she passed ($4000 per month) and my 92 year old father in law is in gorgeous, newly renovated Assisted Living facility for $2750 per month. Room, meals, meds dispensed, field trips, transportation to doctors, you name it, are included. Between their SS checks and savings there has been no financial hardship.

    Elderly care options in my area (Los Angeles) have mushroomed over the past ten years and there is no reason to expect the trend will reverse itself. Just as Starbucks changed the way we view coffee (we now expect good coffee at every place that serves a cuppa Joe), the large number of ALs has changed our expectations of elderly care.

    As for Genworth’s dire predictions that AL & nursing home prices will ratchet to sky-high levels, I believe that competition and innovative thinking will keep prices affordable for average folks, just as McDonald’s and Dunkin’ Donuts keep Starbucks in check.

  13. Hi, Fritz. Terrific analysis. I came to the same conclusion for myself. LTC is expensive, limited, and in most cases inappropriate. Notwithstanding the oxymoronic term “self-insured,” I think also it’s the better way to go. You’ll have a larger estate for your kids or other heirs. And speaking of kids, I think it’s a good idea to stay on good terms with your kids (in general and specifically for care when you’re unable to take care of yourself). My daughter says that as she was growing up, I looked after her, so it’s no problem for her to take care of me when I need it. She is a gift from God.

    1. EasyEd, good point about “self-insured” being an oxymoron, I hadn’t thought of that.

      As for the kids, they are indeed a blessing, and we should all strive to stay on good terms with them! Lots of reasons for that, elder care is just another to add to the list!

  14. I feel like I owe you a consultation fee for this excellent information, Fritz! My in-laws have LTC insurance, figuring it’d save us kids from footing any of their future care bills.
    Sad how our society has so warped the elder care equation. I look to the Blue Zones for inspiration- where one can age into their 90s (and 100s!) gracefully and with health. And when they need care, their family and community step in.

  15. Hi Fritz,

    Where did you get that quote for a long-term care policy? $3,158 per year for someone age 51 seems like an unusually high premium. The average age for purchasing long-term care insurance is 59 and the average premium is $2,700 per month (at age 59). So I’m wondering why you were given such a high quote. Also, are the 5% increases every year planned increases or are you just assuming that the premium will go up like that eery year?

    1. Scott, thanks so much for your note, and our subsequent email exchange. Scott’s an expert on this stuff, folks, and after reviewing the details of my quote said it was an “awful” policy. As I mentioned in my post, PLEASE do your own work in this area – it appears the costs I used for the LTC policy were not “typical” for the industry, but were instead on the high side. Good to know, and I appreciate the sharp eyes of my readers (like Scott!) to keep me honest.

      One question, Scott – you cite $2700/month as being typical, do you mean “per month” or is that “per year”?

      1. $2,700 per YEAR is the average premium for a new policy. Sorry about that.

        If long-term care insurance was how you’ve described it, then I wouldn’t own it and I certainly wouldn’t sell it.

  16. This is NOT what you want to read. My wife nor I have LTC insurance. I am 76, wife 66. We both have had parents who suffered long (+ 25 years) with dementia. They were ” beyond the pale” for 25 years and refused to pass on. This destroyed my in-laws family, and only exhausted my family. Both were in LTC homes, one VA, one private. I repeat, they were dead mentally for 25 years, bed-ridden. We cared for them daily, weekly. They were vegetables. But they had great health!
    My/ our plan is having a variety of MDs/ LPNs children and nephews who saw the above and will see that we do not suffer as such. They will administer the medications whereby we die peacefully in our sleep. Why this way? Because they love us so much and know our wishes and how their grandparents suffered. They want to have positive memories, not remember seeing us on our deathbeds for years.

  17. Well done. Thanks for sharing. I did a recent review and came to a similar conclusion. My analysis wasn’t as detailed as yours though, so I’m glad you ended up in the same place. My Dad developed Parkinson’s in his 70’s and ended up in a nursing home. He was there less than a year though – which isn’t all that unusual. He was destitute, but Medicaid/Medicare and other social service agencies took care of all his needs.

    1. Is there a Wealthy Doctor in the house?? Thanks for stopping by, Doc. Glad we came to same conclusion, and sorry about your dad. I’m glad it was brief, and is consistent with some of the nursing home stats. There’s a definite need for the “Safety Net” on this issue, and I’m glad he was able to benefit.

  18. Fritz, Excellent thought process and analysis. My wife and I signed up for LTC plan 19 years ago when we were 36, which kept the premium low.

    I re-evaluated LTC insurance recently. Bottom line – we are going with a hybrid approach: keep the current policy, forego the inflation adjustment, and self-insure the difference because we are financially able to do so now.

    Why keep the insurance? because it’s inexpensive since we started so young. The premium on my policy changed only when I choose to increase the benefit. I think (not sure) it’s because we signed up so young and maintained continuous coverage. I’m now paying $456 per year for $255 daily max nursing home benefit with cap of $475K lifetime. Probably not enough in 20 or 30 years when I will need it, therefore the self insurance part.

    There may be a case to be made to start LTC when very young, if premium is guaranteed level and insurance company is sound.

    1. Sidney, great to see you, enjoying your posts! You’re one of the fortunate ones who got in before they closed the barn door. Good for you. Sorry you have to forgoe inflation, but it’s a common adjustment most folks with LTC are making to keep the premium increases as small as possible. Good point about “starting young” being a benefit, would be interesting to see a 60 year analysis on the breakeven!

  19. Another thing to remember is that you aren’t paying the price of care on top of the cost of living if you are in a nursing home–paying for the nursing home also pays for your housing, utilities, food, etc. Yes, you’ll need a few clothes (which you probably already own) but you won’t need to support a car, or travel. You may have to pay for the barber or beautician, but you won’t be going to the show, or eating in fancy (or not fancy) restaurants. You won’t have to pay your gym membership–and you will still be getting your SS. Further, if you do exhaust your savings, Medicaid will pick you up.

    I read somewhere that what LTC insurance does is insures that your kids get an inheritance. The same article suggested letting the kids buy the insurance.

    1. Good point on “cost avoidance” that results from assisted living. Definitely some savings, which would result in a lower “net” cost when compared to a baseline of independent living.

      Interesting perspective that LTC insurance is an “inheritance insurance” for your kids, I’d never thought of it that way. Great idea to get the kids to pay for it (um, good luck with that!).

  20. There is also always the fear of having to need it earlier then later. My uncle of just 62 recently was diagnosed with early onset dementia and this weekend had a significant turn for the worse. I suspect he will be moving into a full time care center shortly. This is very sad and hard for our family, but in line of your discussion if he had LTC insurance he would be covered. Still at a young age, his retirement savings can be used to pay for the care. Not sure how it will turn out but just a consideration for those who find themselves needing care way before 85.

    1. Sorry to hear about your Uncle, DDD. Ironically, I just finished next week’s post, which focuses on our biggest worries about retirement. #1? Having a health situation which changes your life. Your Uncle is an example of that. Tough situation for him, and for his family. On top of the financial hit, you have to face the reality that the dreams you had for retirement won’t be realized. There’s a reason it’s our #1 worry.

  21. This is very a helpful analysis. Mrs. Grumby and I were considering LTC coverage as part of our plans, but now I have a basis to start my own deep dive on whether to self-insure. At 54 my premiums would be similar to what yours would be, and the potential instability of companies and premiums that Mrs. Groovy and others identified make LTC coverage less palatable as an option.

    1. I’m glad to hear my analysis will help. I’d be interested in your findings, perhaps you can post an article sharing your results? You may also want to contact Scott A. Olsen (see comments above), he’s had some very good input via email, he’s an expert in LTC policies. Good luck with your analysis!

  22. Awesome analysis Fritz. We’re a ways away from this, but I love getting my head wrapped around these topics early so I’ve got time to do my own analysis and adjust if things change. Thanks for sharing your thinking!

  23. A quick analysis comparing:
    1. Put the yearly premium start at age 36 into investments (self insure)
    2. What we did – buy LTC

    It’s actually complicated but to KISS, if the return is 4%, case 2 is better for any time horizon we are looking at. If the return is 8%, case 1 is better starting at age 93. It’s unrealistic to expect 8% average return, since you don’t know when you will need the funds so you don’t really have a 40 year horizon, but more like an uncertain time horizon.

    That said, inflation over the next 40 years is a huge swinger on the gap between what I’m insured for and the actual cost.

  24. Thank you Scott,
    For both posting this article with a different perspective, and for fielding all of the comments and opinions.

    Personal finance can be a tough, and while many people reach success through similar means, there is no perfect strategy. I want to thank both, Scott and Frits, for sharing your heart about LTC and hopefully making the readers think about their own situations and do their own “Deep analysis” to see which what works in each home.

    I have seen several different scenarios play out, and most of all i wish more people could look forward more than a week into the future and start making plans.

    So again, thank you both!! And have a wonderful weekend.

  25. Hey Fritz,

    We took another course of action. Working with our CFP we bought a 10 year paid up policy that began at 45 years old for me and was (of course) paid up by age 55. That coincided with my early retirement objective of 55 and we more easily could afford the premiums during our working years. One item that was unique for us was that during that ten year period my career earnings really took off and most likely I could have easily sefl insured using a conservative return scenario. One big benefit that we did receive is we locked in benefits to the policy that are not offered by any company now, like inflation adjustments, no life time cap on $ or time, etc.
    The best thing that came from the process was a very clear thought on what we were insuring (longeivty risk and inheritance for kids). I am not sure that at the end the economic benefits are exceptional but the path is clear on a go forward basis and we did it at a time when we had excess cash flows to handle the premiums.

  26. Thank you for the valuable discussion. I’ve done some fairly extensive spreadsheet comparisons similar to what you have presented. As you note, and would expect, the break-even age for LTC benefit vs. self-insured benefit is somewhere in the late 70’s to mid 80’s age depending on return assumptions and insurability. FWIW I have also looked into the life insurance policies with LTC rider and because of the large initial premiums to fund the life insurance (usually single premium or 10-pay) the hit made to your portfolio early on makes them unfavorable, unless you had a large enough portfolio to self-insure anyway. (Sure, they leave an insurance benefit to your heirs if you don’t need it).

    It’s nice to say that you will spend down to the medicaid limit and go to a medicaid facility, but that leaves your spouse with very little. The probability may be relatively low that this will happen in your 60’s or 70’s but that still leaves a finite chance of an extreme event. I had one aunt who died of Alzheimers at 64. It’s nice to think your kids might take care of you when you become infirm. Mine probably would but I don’t want to put them in that position. We took care of my mom for 3 years and she was fairly independent but it was still rough on the family.

    My decision has been to apply for LTCi that will cover approx. 70% of full nursing home care (or ~100% of home care) for 3 years with a 3% inflation protection. The policy is shared with my wife so it covers either or both of us to this level, or one of us to twice this level if the other spouse didn’t use it first. We would self insure the rest, ideally from Social Security income once we reach 66 years but we have enough invested to handle that earlier if needed (we are 60 now). This covers the greatest risk. There is still the tail risk of a long extended stay in a facility. It’s very expensive to eliminate all risk but this is our decision to mitigate the most risk we can without killing our retirement plans. If I had $3MM in the bank that would solve everything but for most people that is unrealistic.

    1. Thanks for your comment, AJ. Curious, how much did you end up having to pay for the LTCi @ 70% of cost? Not a bad way to go, but I’d suspect it’s still quite expensive to buy at Age 60? Always an area I’m interested in revisiting, definitely a major risk for our latter years.

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