"Thus, to even to keep up with the 5% inflation for LTC (which I think is very reasonable), you need to take some risk."iim7V7IM7, Thank you for crunching these numbers, my situation is very similar to yours with variations in the numbers.
One critical factor your calculation reveals is the need to keep up with the 5% inflation while providing some asset protection to have the funds available when needed. This year's 5- and 10-year TIPS get you only to about 1.2% real growth relative to your 1.75% value for real growth. Thus, to even to keep up with the 5% inflation for LTC (which I think is very reasonable), you need to take some risk.
In the new version of this book, Wade Pfau points out that expenses of the household, excluding LTC, will decrease a little when the first spouse goes into LTC. The cash flow generated from guaranteed income by this reduction of household expenses could be used to support LTC and thus reduce the amount being taken out of the LTC buffer. This availability of cash flow could extend the length of LTC covered by the LTC buffer.
When the surviving spouse goes into LTC and the household is disbanded (the house is sold), the expenses excluding LTC (medical care mainly) decrease dramatically, and thus more cash flow from guaranteed income can be use to support LTC and extend the life of the LTC buffer. In addition, the proceeds from the house likely add to the LTC.
It was always hard for us to visualize taking any risk when it comes to things like LTC - you do not know when you will need it.
For things like a college fund and LTC we always made the risk minimal and took risk elsewhere.
Statistics: Posted by smitcat — Wed Feb 21, 2024 1:11 pm — Replies 26 — Views 2435