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. JW, good point about having the home as an option, nice addition to the discussion.

   2. 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…..

         1. This Larry Swedroe article might make you a little less worried about future returns; I, for one, agree with his analysis that CAPE-10 is probably overstating how overvalued (if at all) the stock market is right now:

            http://www.etf.com/sections/index-investor-corner/swedroe-metric-dire-need-context?nopaging=1

            1. Thanks for the great exchange, and link. Going to go have a look, I’m always interested in CAPE ratios and impact on projected future equity returns.

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.

   1. Amazing minds think alike….thanks for stopping by. Let’s try to get a mountain biking trip lined up soon?

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!

   1. Good point on the value of “peace of mind”, be it yours or your spouses. An important consideration, for sure. Just don’t get too close to the edge of any cliffs on your next hike….

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.

    1. I really, really hope you’re right! 🙂

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.

    1. I’ll add it to your bill. (I’ve gotta look up Blue Zones, not familiar with that…)

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.

    1. Jack, I have no words. Sorry for the agony you and your parents endured. A truly horrible way to die.

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!

    1. Thanks for the kind words, Chris. I love how the “community” shares and learns from each other.

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.

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25. Great post Fritz – appreciate your case study. We have similar concerns about Long Term Care and the market of providers is also getting smaller (and thus less efficient).

    We wrote about it earlier this year https://www.newretirement.com/retirement/is-long-term-care-insurance-worth-it-explore-the-pros-and-cons/

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28. 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.

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31. 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.

32. 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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