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Inconsistent treatment of long-term care cost?

 

(@bechtler098)
New Member Customer
Joined: 1 year ago
Posts: 3
Topic starter  

I don't understand how Pralana treats long-term care costs. My analysis goal was to sell my home at age 90 to pay for nursing home care. If I look at the analysis table in today's dollars, the LTC cost 27 years from now is an inflation-adjusted value. The cost is 120,000 in today's dollars but the final expense table shows a value that starts at 223,000 and changes every year. I understand inflation -- but the table is supposed to be in today's dollars. For comparison, in the same table, the Social Security income in today's dollars is a constant value. If I switch to a future dollar view, the SS amount in the table is much larger (as expected) and changes every year (as expected). But the LCA cost now takes the incorrect value of 223,000 and applies inflation to that, for a value of 495,000! This does not seem consistent.

Am I doing something wrong? (Note: I am using version 2021.4.2.)

Laurie


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(@bechtler098)
New Member Customer
Joined: 1 year ago
Posts: 3
Topic starter  

I figured it out. There is a default extra 2 per cent inflation rate for health care costs. The "today's dollars" table includes this amount of inflation. The "future dollars" table includes this inflation rate plus the default 3 per cent overall inflation rate. The presentation confused me, but I think the numbers make sense now, more or less. (Wow, will nursing homes really cost half a million dollars a year then?!)

Laurie


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(@nc-cpl)
Estimable Member Customer
Joined: 1 year ago
Posts: 104
 

Curious as to what is your source for determining LTC costs?


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(@golich428)
Eminent Member Customer
Joined: 2 years ago
Posts: 32
 

I have been getting my estimates from Genworth. It seems to be reasonable but would be interested in how others determine the costs as well. I am currently using a 5% inflation factor for health care which I will revisit as needed. One also needs to estimate other variables such as length of stay and type of care to be able to make an educated guess on how much funds to set aside if you plan on self funding. There are other ways to fund as you well know. One option that I am starting to explore is using a Reverse Mortgage to set up a line of credit that could be used if needed. I have not yet formed an opinion but I think it could be a reasonable way to utilize home equity as part of your overall retirement plan.

https://www.genworth.com/aging-and-you/finances/cost-of-care.html

Here is a link to an article with a lot of statistics that may be of use when determining how you approach long term care.

https://www.morningstar.com/articles/1013929/100-must-know-statistics-about-long-term-care-pandemic-edition


Martin H liked
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(@nc-cpl)
Estimable Member Customer
Joined: 1 year ago
Posts: 104
 

@golich428 I've used the same Genworth calculator myself to est. costs.

Have you read anything by Jack Guttentag "The Mortgage Professor?" He is a Professor of Finance Emeritus at Wharton who has been writing a lot in recent years about the value of reverse mortgages in funding retirement needs. Might want to check it out.

https://www.mtgprofessor.com/ext/home2.aspx

This post was modified 5 months ago 3 times by NC Cpl

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(@golich428)
Eminent Member Customer
Joined: 2 years ago
Posts: 32
 

@bc-cpl No, I have not but I will check it out. I have just started my research by listening to a number of interviews with reverse mortgage experts. Wade Pfau also has an updated version of his reverse mortgage book that is probably worth a read also. Like most things in retirement planning, there are preferences that play a huge role in determining if this is something to consider but I also don't think they should be ignored either. Thanks for info!


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(@bechtler098)
New Member Customer
Joined: 1 year ago
Posts: 3
Topic starter  

Thanks for the references. I am in California so I was trying to use a decently large cost for today's dollars. My value of 120,000 annually is fairly similar to the Genworth estimate. However, creating the model to pay for 10 years in a nursing home at this level might be unrealistic, because statistically most people aren't in a nursing home that long (according to the Morningstar article). Darn, it's so hard to predict the future...


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