how to retire early

[alwaysondbigscreen]

I just read  an article on it. According to the author IF say you make 100k a year and want to retire by 50 ALL you need to do is save up 3.5 million.  anyone care to explain how that would be possible. I mean if say your lucky and start making 100k at 20, in 30 years you would have brought in 3 mill total, no taxes or living expenses. You better be a dang good investor.  how do they come up with this stuff?

[alwaysondbigscreen]

I would be happy getting a 12% return but it aint been happening lately.  I know you are right, I am just being critical of these retirement calculators. answer me this, if you make 100k per year why would you need 3.5mill to retire at 50? I mean if you "make" 100k you sure as heck aint spending 100k per year, taxes etc. the gist of the article was 100k x 35y life expectancy = 3.5mill. If i got 3.5mil im gonna buy some stocks that pay dividends, I would assume I could make 5% thats $175000. they got me making almost twice as much retired as working, and I would assume im gonna have less expenses. Sorry about the rant but ive been checking into the stuff and havnt found a retirement calc that makes sense yet

[HawgWild]

I read an article titled "Ignore Long-Term Care Planning at Your Peril" yesterday in the New York Times. The author cites a 45% chance that you'll need long term care in your lifetime.  MetLife now estimates that the average rate for a private room in a nursing home was now at $229 per night or $83,000+ per year. Add in a couple of hospital stays and you could eat up everything you've saved for the golden years. How do you plan for these costs? I'm not trying to sell anyone long term care insurance and I don't have a policy myself. What I'm asking here is "Do any of you have an "Exit Strategy" should you be cursed with poor health in your old age? Me, I'm not going to no nursing home. I saw enough of that with one of my parents. No sir, no way.

Here's a link to the article - http://www.nytimes.com/2010/11/05/business/businessspecial5/05CARE.html?_r=1&src=me&ref=business

[alwaysondbigscreen]

I read an article titled "Ignore Long-Term Care Planning at Your Peril" yesterday in the New York Times. The author cites a 45% chance that you'll need long term care in your lifetime.  MetLife now estimates that the average rate for a private room in a nursing home was now at $229 per night or $83,000+ per year. Add in a couple of hospital stays and you could eat up everything you've saved for the golden years. How do you plan for these costs? I'm not trying to sell anyone long term care insurance and I don't have a policy myself. What I'm asking here is "Do any of you have an "Exit Strategy" should you be cursed with poor health in your old age? Me, I'm not going to no nursing home. I saw enough of that with one of my parents. No sir, no way.

Here's a link to the article - http://www.nytimes.com/2010/11/05/business/businessspecial5/05CARE.html?_r=1&src=me&ref=business

im gonna move in with my kids, its called payback.

[Silver Hog]

haha good one!  Moving back in with the rugrats :-)

[DeltaBoy]

Live below you means as much as possible and down size once you have a empty nest.

[HognotinMemphis]

That advice is about as far from real world as it gets. And maybe the author intends it that way.

But after-taxes, $100K isn't that much. And that is assuming you don't have any student loans after college. And there would be college, otherwise you wouldn't be making $100K.

So if you start at age 22 or 23 and put the maximum allowed into various retirement plans for the next 27 years, you would probably never own a car worth more than a couple thousand dollars. You'd never take any decent vacation, you would never send your kids to private schools, you would not pay for your children's college education, you would probably not be a homeowner for the entire 27 or 28 years, you would not be a member of a tennis, golf or country club, and on and on. Quality of life would suck until you're 50. And after 27 years of depriviing yourself and your family (if you could afford to have one) of any pleasure at all, you'd probably be unabomber-writing-a-manifesto crazy and/or take-a-cop's-gun crazy and would not be able to enjoy retirement at age 50.

[1CavHog]

Or do 20 in the military.

[1CavHog]

And invest in land so when we default on our national debt or go into runaway inflation at least you are standing on something you own and not a lifetime of savings that will now purchase you a loaf of bread.

[1CavHog]

I took IronHog's advice.  I have enough ocra seeds for several billion plants and I purchase a carton of .22's with every paycheck.

If we default on our debt we will be forced to balance our budget, I think everythnig will just stop overnight.

[Silver Hog]

how to retire early in the US of A - sue somebody for something ridiculous. 

[Fletch]

It's hard to make those numbers work using a realistic rate of return. Retiring at 65 is much more doable. Then you are looking at investing around $1000 per month, give or take.

[DeltaBoy]

I just Read an article on it. According to the author IF say you make 100k a year and want to retire by 50 ALL you need to do is save up 3.5 million.  anyone care to explain how that would be possible. I mean if say your lucky and start making 100k at 20, in 30 years you would have brought in 3 mill total, no taxes or living expenses. You better be a dang good investor.  how do they come up with this stuff?

Live in a small apartment, drive a sub compact, live cheap, and sock it away in a diversified portfolio.   Live below your means.

[IronHog]

I took IronHog's advice.  I have enough ocra seeds for several billion plants and I purchase a carton of .22's with every paycheck.

Smart man.

Now mary an ugly woman and you'll survive no problems.

[IronHog]

But after-taxes, $100K isn't that much.

I'll take that job.

[IronHog]

I just read  an article on it. According to the author IF say you make 100k a year and want to retire by 50 ALL you need to do is save up 3.5 million.  anyone care to explain how that would be possible. I mean if say your lucky and start making 100k at 20, in 30 years you would have brought in 3 mill total, no taxes or living expenses. You better be a dang good investor.  how do they come up with this stuff?

By 50 if you had paid off your home, two cars, had no consumer debt, no kids at home, and lived a modest lifestyle you should be able to live with greatly reduced income.

What you need is something that will give you income without full time work to supplement your retirement savings. 

[HognotinMemphis]

There is a way to be fairly well off in 25 years. It will get you at least $1 million in around 25 years, give or take a few years.

Sock away $10,000 per year in high quality stocks that collectively yield between 4 and 5% in dividends. Not difficult to find right now. I can give you about a dozen names literally off the top of my head. Some years, it will be tough to find that dividend yield in quality equities but it will work out on average.

Over the long term, 25 years, you'll average at least 10% a year: 4 to 5% from initial yield, further return from growing dividend payouts as companies raise their dividends over time, and capital appreciation. Of course, you have to have faith in the U.S. economy.

At $10K per year for 25 years at 10% per year on average, you will be right at $1MM at the end of the 25 yr period. A way to pretty much insure this happening and happening even sooner is to take whatever savings you have right now and get a jump start while dividend yields are high. Put $50,000 in those kinds of stocks right now and add the $10K every year for next 25 years and at 10% average total return, you'll have somewhere around $5 million. All it takes is the discipline to do it. And picking a good basket of equities that have good payouts. Try MRK, GPC, ADP, SNY, PCL, LLY, KMB, KFT, MURGY, XOM, CINF, and COP. That's a dozen good equities to choose from right off top of my head.

When you get older, around 60 to 65, don't throw it into bonds or other assets that do not keep up with inflation. If you live to 85 or 90, would you rather risk running out of money or risk it on the American economy and be able to keep up with inflation?

[IronHog]

Sock away $10,000 per year in high quality stocks that collectively yield between 4 and 5% in dividends. Not difficult to find right now. I can give you about a dozen names literally off the top of my head. Some years, it will be tough to find that dividend yield in quality equities but it will work out on average.

Over the long term, 25 years, you'll average at least 10% a year: 4 to 5% from initial yield, further return from growing dividend payouts as companies raise their dividends over time, and capital appreciation. Of course, you have to have faith in the U.S. economy.

At $10K per year for 25 years at 10% per year on average, you will be right at $1MM at the end of the 25 yr period. A way to pretty much insure this happening and happening even sooner is to take whatever savings you have right now and get a jump start while dividend yields are high. Put $50,000 in those kinds of stocks right now and add the $10K every year for next 25 years and at 10% average total return, you'll have somewhere around $5 million. All it takes is the discipline to do it. And picking a good basket of equities that have good payouts. Try MRK, GPC, ADP, SNY, PCL, LLY, KMB, KFT, MURGY, XOM, CINF, and COP. That's a dozen good equities to choose from right off top of my head.

When you get older, around 60 to 65, don't throw it into bonds or other assets that do not keep up with inflation. If you live to 85 or 90, would you rather risk running out of money or risk it on the American economy and be able to keep up with inflation?

I don't think the average investor can get 10% out of the stock market on average over 25 years.


Agri and timber land didn't get you that over the past 25 years and they beat the socks off the market at large.

[john c]

When visiting with young folks (20-40) about retirement and budget planning I suggest they use a very simplistic measure for how much they will need for retirement.  I suggest that they simply multiply any future regular expense by 20 to see how much investment they will need to support that expense.  So, if your utility bill is $3k/yr, you will need about $60k to support that.  Very simple, I know, but it usually makes them stop and think.  Assumes a 5% after tax return, which seems fair enough.  If they are going to get around $1500/month in SS then the SS is worth about $360K.  Again, I know it is simple but it is a good starting point.

[HognotinMemphis]

I don't think the average investor can get 10% out of the stock market on average over 25 years.


Agri and timber land didn't get you that over the past 25 years and they beat the socks off the market at large.

Did you read my post thorough or just scan it? Did you fully understand it? I ask because your reply sounds like you think I said you'll get 10% principal appreciation on average every year for the next quarter century. That's not what I said. Right now, dividend yields are higher than they've been in a long time. You don't get these opportunities very often...less than once a decade.

As for long term average return on equities, it's a lot higher than that of farm land and/or timber land. And that's a fact, not just me saying it.

[IronHog]

Did you read my post thorough or just scan it? Did you fully understand it? I ask because your reply sounds like you think I said you'll get 10% principal appreciation on average every year for the next quarter century. That's not what I said. Right now, dividend yields are higher than they've been in a long time. You don't get these opportunities very often...less than once a decade.

Then how is that going to hold up for the next 20-30 years for someone trying to invest for the long term.


I agree that it MIGHT be a good time to go long on equities, but to say you'll get a 10% return because things are good right now is over simplistic.

As for long term average return on equities, it's a lot higher than that of farm land and/or timber land. And that's a fact, not just me saying it.

I guess that depends on how good a land man you are vs. stock picker.  I know way more wealthy farmers and timber men than I do stock brokers.

[HognotinMemphis]

Then how is that going to hold up for the next 20-30 years for someone trying to invest for the long term.


I agree that it MIGHT be a good time to go long on equities, but to say you'll get a 10% return because things are good right now is over simplistic.



I guess that depends on how good a land man you are vs. stock picker.  I know way more wealthy farmers and timber men than I do stock brokers.

By its very nature, you'll wait a lot longer on returns from timber land and land bought to farm on than you will with investments in the stock market. And, farm R/E cycles can be and have been a lot longer than stock market cycles, not to mention a THOUSAND times less liquid. So hope you don't get caught with farm land when the gov't stops/reduces subsidizing farmers and/or someone somewhere figures out how to grow corn in the desert or an area of the country where your farm land is suffers through a multi-year drought.  And while it's good for farm land right now, you know better than me what farm land investments were like all of the 80's and 90's and most of the past decade. Meanwhile, the DJIA went from under a 1,000 to over 10,000 from 1980 to 1999. The last decade for equities has been the lost decade but at least it's not been cut in half like has happen to farm land investments many times.

And no, it doesn't depend on how good a stockpicker you are. You can be brainless and buy a basket of 12 to 15 large cap stocks yielding at least 3.5% right now and if you follow what I said above, in 25 years, you'll have a 7 figure portfolio. Bascially, it's dollar cost averaging into stocks over 25 yrs at a rate of $10K per year. And all the better if you can put more in in times like right now when the yields are very high. Like my sig says, "when it's raining gold, don't reach for a cup, grab a bucket."

And, not sure what you mean by not knowing wealthy stockbrokers. I wasn't discussing the fortunes/investment returns of stockbrokers/financial advisers. I am talking about you and me and others who could invest personal funds in the equities markets in order to have $ to live on when you retire. You raised the comparison of investing in farm land. I assume you meant buying it for investment purposes, not to farm it yourself since that is not an accurate comparison to investing in stocks with savings for retirement purposes.

I don't understand your thought behind your statement:

"...but to say you'll get a 10% return because things are good right now is over simplistic."

My tentative response to that would be, I can tell you have very little understanding of equities and their relationship to the current economic environment. No problem tho. I have very little understanding of how to buy and hold onto farm land for investment purposes. And that's what we are talking about here. Not talking about being a farmer and buying farm land to farm on. Just as we are not talking about buying stock in Merck and going to work for Merck. And unless you are ultra-wealthy, I would tell you buying farm land as a long term investment is never a prudent thing to do. If you are a farmer and are going to farm the land yourself then by all means, take your best shot at it if you are good at buying it and good at farming it.

Most importantly, I didn't say things are good right. You said that. I don't think it is good times right now. Unemployment is sky high. People are not spending $. Incomes are way down from where they were a few years ago, etc. That's exactly why you should put $ into equities now. Yields are high. That means equities are cheap. As the economy improves, corporations will hire, make more profits and increase their dividends. Dividends will be increased for sure in next few years with record amount of cash on their books. Many companies have records of increasing dividends every single year for decades. That's not going to change.

To summarize, farm R/E is not a diversified investment and it's certainly not liquid, nor is it something the average well-to-do individual buys for retirement purposes. It would literally be crazy to do so. Equities are the opposite of all of that which is why the comparison is insane.

[HognotinMemphis]

One more thing. You asked how are equities, and my plan, going to hold up over the next 20 to 30 years. Check any website you can find that has that kind of info and you'll see that the longer period you use, the better the return of equities over ANY other form of asset - commodities, R/E of any kind, bonds, whatever you can think of. There is no 30 yr running period where equities have ever had a negative return. Can't say that about anything else.

[HognotinMemphis]

Here you go Ironhog:

There are 651 stocks traded in the US that have persistently paid dividends in each of the past 7 fiscal years, and the past 12 months, and the last regular payment period, AND which consistently paid a dividend amount that was equal to or greater than the prior periods (including 12-months >= last fiscal year, and indicated annual dividend >= last 12-months).

If we further restrict the list to those stock with a 3-month average trading volume of $25,000 per minute or more, there are only 360 stocks that pass all the criteria. At $100,000 per minute or more, the list shortens to 221 companies.

If we then restrict those 221 companies to those with a yield greater than 2% as of Friday November 12, 2010, the list reduces to 116 companies. If we use a greater than 3% yield test, the number of qualifying companies is 63. There are only 30 companies that pass the test if greater than 4% is the required yield. Their symbols are: BMY, CNP, CTL, D, DTE, ED, EPD, ETR, FE, HCBK, HCP, HRB, KMB, KMP, LLY, LMT, MCHP, MRK, NYB, PAYX, PBCT, PBI, PCL, PEG, PGN, POM, PPL, SO, VZ, and XEL.

This list of 30 does not include REITS and/or MLP's which have been and can be excellent sources of dividend income and capital appreciation.

More:

The S&P 500 Dividend Aristocrats index (tracked by SPDR Dividend ETF (SDY)) consists of 50 companies in the S&P 500 that have paid and increased dividends for 25 yeas or more, plus some other criteria, such as $5 million per day dollar trading volume (a little less than $13,000 per minute). Of those 50 companies only 4 pass this last test involving $100,000 per minute trading volume and greater than 4% yield: CTL, ED, KMB, LLY and PBI.

If we back off to only a $25,000 per minute trading volume, while maintaining the greater than 4% yield requirement, there are 10 qualifying companies in the Dividend Aristocrats: BKH, CINF, CTL, ED, KMB, LEG, LLY, PBI, TEG and VVC.

If we back off further to a greater than 3% yield criterion, then 21 companies pass: ABT, ADP, BKH, CINF, CLX, CTL, DBD, ED, JNJ, KMB, LEG, LLY, MCD, PBI, PNY, RPM, SON, TEG, VFC, VVC and WGL.

_________________________________

These are good lists but do not include marketable securities such as REIT's and MLP's that can be excellent sources of dividend income and capital appreciation. Good example of a REIT is MAA. I bought MAA in late March, 2009 at $28, yield of 8.8% at that cost. It closed yesterday at a hair under $61 and still has dividend yield of over 4%. Great apartment REIT that is headquartered here in Memphis. Example of a good MLP(Master Limited Partnership) is KMP. I bought KMP in Jan, 2009 @ $47.75, yield of 9.3%. It closed yesterday @ $70, yielding 6.35%. KMP is a natural gas transportation and storage company - owns and manages pipelines mostly. Collects fees for using their pipeline.

More than you probably want to know.

[Road_Hog]

I read an article titled "Ignore Long-Term Care Planning at Your Peril" yesterday in the New York Times. The author cites a 45% chance that you'll need long term care in your lifetime.  MetLife now estimates that the average rate for a private room in a nursing home was now at $229 per night or $83,000+ per year. Add in a couple of hospital stays and you could eat up everything you've saved for the golden years. How do you plan for these costs? I'm not trying to sell anyone long term care insurance and I don't have a policy myself. What I'm asking here is "Do any of you have an "Exit Strategy" should you be cursed with poor health in your old age? Me, I'm not going to no nursing home. I saw enough of that with one of my parents. No sir, no way.

Here's a link to the article - http://www.nytimes.com/2010/11/05/business/businessspecial5/05CARE.html?_r=1&src=me&ref=business

Well it's a good thing you're not trying to sell a MetLife LTC policy, because it is being pulled off the market. 

[HognotinMemphis]

Well it's a good thing you're not trying to sell a MetLife LTC policy, because it is being pulled off the market.

Define long term care in the context of having a 45% chance of needing it. LTC the author is referring to is likely anywhere from 3 months to years. If you need care for a few months, it might be as high as 45% but I doubt it. If you need care longer than that, I call BS on 45% of us eventually needing it.

[john c]

No, HIM, probably not more than we want to know - good info, takes a little time to absorb.

[HawgWild]

Define long term care in the context of having a 45% chance of needing it. LTC the author is referring to is likely anywhere from 3 months to years. If you need care for a few months, it might be as high as 45% but I doubt it. If you need care longer than that, I call BS on 45% of us eventually needing it.

Here's the figures from the article:
"THE ODDS OF NEEDING CARE Why invest in insurance if there's a chance you'll never need it? It's a reasonable question, so consider your odds.

The consulting firm Milliman, which does a lot of work for the long-term care insurance industry, thinks your odds aren't so great. For people age 65 and older who have long-term care insurance, there is a 45 percent chance of making a claim, though it ranges from 30 to 56 percent depending on gender and marital status.

Using data from long-term care insurance policies that have no spending limits, Milliman also estimates that once you've made a claim, the chances that you will continue needing care for more than three years is at least 13.9 percent. There is a 4.3 percent chance of it exceeding five years. "

[IronHog]

My tentative response to that would be, I can tell you have very little understanding of equities and their relationship to the current economic environment. No problem tho. I have very little understanding of how to buy and hold onto farm land for investment purposes. And that's what we are talking about here. Not talking about being a farmer and buying farm land to farm on. Just as we are not talking about buying stock in Merck and going to work for Merck. And unless you are ultra-wealthy, I would tell you buying farm land as a long term investment is never a prudent thing to do. If you are a farmer and are going to farm the land yourself then by all means, take your best shot at it if you are good at buying it and good at farming it.

I understand equities and their position in the current market.  I also understand that short term history is not a guarantee of future performance....(but long term history does tend to repeat itself in a slightly different form)


You are making the assumption that stocks are cheap, and that the economy will improve even as the fed takes the third world country/economic approach of turning on the printing press (under the guise of quantitative easing) and flooding the market with cheap money in an effort to fuel a bubble wherever they can.


In short, the economy is possibly fatally flawed.  Many signs point toward investment in warmth, comfort, and shelter (energy, basic housing, agriculture, tangible assets) over the continued funny money, bubble driven economy of the past 35 years.  This may or may not be the buying opportunity of a lifetime.  You certainly have more faith in the rotting US economy than I do as the fundamentals stink.

[IronHog]

Here's the figures from the article:
"THE ODDS OF NEEDING CARE Why invest in insurance if there's a chance you'll never need it? It's a reasonable question, so consider your odds.

The consulting firm Milliman, which does a lot of work for the long-term care insurance industry, thinks your odds aren't so great. For people age 65 and older who have long-term care insurance, there is a 45 percent chance of making a claim, though it ranges from 30 to 56 percent depending on gender and marital status.

Using data from long-term care insurance policies that have no spending limits, Milliman also estimates that once you've made a claim, the chances that you will continue needing care for more than three years is at least 13.9 percent. There is a 4.3 percent chance of it exceeding five years. "

Look around.


The baby boomers parents are still alive.  The boomers may all live to be 100.

[HognotinMemphis]

I understand equities and their position in the current market.  I also understand that short term history is not a guarantee of future performance....(but long term history does tend to repeat itself in a slightly different form)


You are making the assumption that stocks are cheap, and that the economy will improve even as the fed takes the third world country/economic approach of turning on the printing press (under the guise of quantitative easing) and flooding the market with cheap money in an effort to fuel a bubble wherever they can.


In short, the economy is possibly fatally flawed.  Many signs point toward investment in warmth, comfort, and shelter (energy, basic housing, agriculture, tangible assets) over the continued funny money, bubble driven economy of the past 35 years.  This may or may not be the buying opportunity of a lifetime.  You certainly have more faith in the rotting US economy than I do as the fundamentals stink.

You sound like one of those economists who have predicted 10 of the last 2 recessions. Either you have faith in the U.S. and its economy and its 75% capitalist system or you don't. If you don't have faith, better move to the mountains and live by a stream. Neither farm land nor anything else will save you.

[IronHog]

You sound like one of those economists who have predicted 10 of the last 2 recessions. Either you have faith in the U.S. and its economy and its 75% capitalist system or you don't. If you don't have faith, better move to the mountains and live by a stream. Neither farm land nor anything else will save you.

I believe in the freer markets and prudent capitalism.


What I see is massive debt, entitlements, and the republic rotting around us.


Look at Memphis.  All those Medicares and Welfares want you to produce more.

[HognotinMemphis]

I believe in the freer markets and prudent capitalism.


What I see is massive debt, entitlements, and the republic rotting around us.


Look at Memphis.  All those Medicares and Welfares want you to produce more.

I'm not investing in Memphis. I'm investing in companies that have products and/or services that are in demand, that have quality balance sheets and management, whose mgmt owns a lot of stock in their company, companies that have a dominate market share and companies in industries that have some degree of barrier to entry.

Again, if you are doom and gloom, and your words say you are, nothing will be a good investment for the long term, certainly not farm land.

[alwaysondbigscreen]

I think its great youall can see several ways to get to 3.5mill while making 100k and retire by 50, but the major thing that caused the head scratching in the "article" was why would you need so much? If you are making 100k & saving & paying off a house when you retire I assume you wont be saving and paying off a house, so you wont be needing as much $. besides the 3.5 mill is gonna be making $ unless you got it in a mattress. I wouldnt want them to live frugally but it seems to me with the articles "math" you are gonna have a LOT more disposable $ retired than what you were living on to begin with

[HawgWild]

If you are making 100k & saving & paying off a house when you retire I assume you wont be saving and paying off a house, so you wont be needing as much $. besides the 3.5 mill is gonna be making $ unless you got it in a mattress. I wouldnt want them to live frugally but it seems to me with the articles "math" you are gonna have a LOT more disposable $ retired than what you were living on to begin with

I read an article last night in Money magazine that stated that 50% of retirees reported that their spending did not decrease in the first 5 years of their retirement. And, for 26%, it actually went up. Now, it didn't state why and I really don't read Money mag for investment advice, it's fluff but for many, medical costs and insurance can be a huge expense in their golden years.

[IronHog]

I'm not investing in Memphis. I'm investing in companies that have products and/or services that are in demand, that have quality balance sheets and management, whose mgmt owns a lot of stock in their company, companies that have a dominate market share and companies in industries that have some degree of barrier to entry.

Again, if you are doom and gloom, and your words say you are, nothing will be a good investment for the long term, certainly not farm land.

The problem with your line of thinking is the harder things get the more the basics matter.  Memphis is an example of how failed policy is crushing the republic with welfare and entitlements.

---------------
IPhone?  In demand, good company, etc.  Want, not a need.

100 acres of rice ground outside Stuttgart?  Every baby born into this world puts more stress on an overburdened agriculture system.  That dirt is not going to zero unless the water runs out.


You have been conditioned to believe paper money, stocks, bonds, etc. makes one wealthy.  When the economy resets those that are holding the land that creates food will once again be masters of all.

[HognotinMemphis]

The problem with your line of thinking is the harder things get the more the basics matter.  Memphis is an example of how failed policy is crushing the republic with welfare and entitlements.

---------------
IPhone?  In demand, good company, etc.  Want, not a need.

100 acres of rice ground outside Stuttgart?  Every baby born into this world puts more stress on an overburdened agriculture system.  That dirt is not going to zero unless the water runs out.


You have been conditioned to believe paper money, stocks, bonds, etc. makes one wealthy.  When the economy resets those that are holding the land that creates food will once again be masters of all.

Ok. You get your farm land and I'll continue what I've been doing for the last 25 years and let's get together in a decade and see what's happened.

[IronHog]

Ok. You get your farm land and I'll continue what I've been doing for the last 25 years and let's get together in a decade and see what's happened.

You'll be so old by then I'll be paying for YOUR Medicare.

[Road_Hog]

Define long term care in the context of having a 45% chance of needing it. LTC the author is referring to is likely anywhere from 3 months to years. If you need care for a few months, it might be as high as 45% but I doubt it. If you need care longer than that, I call BS on 45% of us eventually needing it.

I wasn't the one who posted the article, but there is no context to define.  The author said "making a claim" in that article.  Most LTC policies are triggered when a person can no longer perform two activities of daily living (ADL).  A common list of ADLs might be:

-Bathing
-Continence
-Eating
-Toileting
-Dressing
-Transferring

Only two out of those six things longer than 90 days to make the 45% number.  Not to mention, an extremely common waiting period on a LTC policy is 90 days. 

I'm with you in that I have no idea what that percentage might be who need care for more than a year.  I'm primarily in the property and casualty business, but I believe the average length of care is around 2.5 years, give or take.  I'm certain there are folks around here who have written several of these policies who could give you more statistics.

[HognotinMemphis]

You'll be so old by then I'll be paying for YOUR Medicare.

In 10 years? I'll be 58 and still kicking, hard.

[HognotinMemphis]

I wasn't the one who posted the article, but there is no context to define.  The author said "making a claim" in that article.  Most LTC policies are triggered when a person can no longer perform two activities of daily living (ADL).  A common list of ADLs might be:

-Bathing
-Continence
-Eating
-Toileting
-Dressing
-Transferring

Only two out of those six things longer than 90 days to make the 45% number.  Not to mention, an extremely common waiting period on a LTC policy is 90 days. 

I'm with you in that I have no idea what that percentage might be who need care for more than a year.  I'm primarily in the property and casualty business, but I believe the average length of care is around 2.5 years, give or take.  I'm certain there are folks around here who have written several of these policies who could give you more statistics.

I am pretty sure the avg length of care is well less than 2 1/2 years. I am generally aware of this just from having been solicited to purchase it so many times. I could look it up but it's not worth the time for anyone in this thread. Doesn't really matter since I'm never going to buy it. I'll take my chances since I live pretty healthy and safe life so hope I won't have an accident that makes me a veggie.

[Road_Hog]

I am pretty sure the avg length of care is well less than 2 1/2 years. I am generally aware of this just from having been solicited to purchase it so many times. I could look it up but it's not worth the time for anyone in this thread. Doesn't really matter since I'm never going to buy it. I'll take my chances since I live pretty healthy and safe life so hope I won't have an accident that makes me a veggie.

Insurance is about transferring risk.  This is not intended as advice for anyone who might be reading, but it's like any other policy in that if you don't perceive any risk, there isn't any for you to transfer.

I'm not trying to sell you one, but the conversations I recently had with a client who purchased the product had little to nothing to with how healthy they have or haven't been, or how safe of a life they live.  Cognitive impairment seems to be the primary thing they worry about or simply living to such a long age they can no longer take care of themselves.  They don't want to burden their spouse or family emotionally.  And they sure don't want to burn through their assets. 

You really don't seem to be at the age of the common purchase age anyway, unless you're a bit older than I think you are.

Regarding the statistics, the US Department of Health & Human Services says that by 2030, over 70% of individuals above the age of 65 will require some type of long term care.  Over 40% of that same group will need nursing home care.  Even if they are half wrong, that is a huge number of people.

Finally, regarding 2 1/2 years, that is the statistic being used by an approved provider of LTC education in the most recent course that is used to certify individuals to sell LTC in Arkansas.  I think other producers would back up a number very similar based on the data being provided. 

[HawgWild]

I'm not trying to sell you one, but the conversations I recently had with a client who purchased the product had little to nothing to with how healthy they have or haven't been, or how safe of a life they live.  Cognitive impairment seems to be the primary thing they worry about or simply living to such a long age they can no longer take care of themselves.  They don't want to burden their spouse or family emotionally.  And they sure don't want to burn through their assets. 

This is along the line of what I was trying to allude to in an earlier post when I asked about an "exit strategy". Not wanting to continue to live if there was no quality in the life. My mother spent 4 years in a nursing facility. Her physical health was good but she suffered cognitive impairment. We gradually liquidated everything to make the monthly bills. She had too many assests to qualify for Medicare. To add insult to injury, the Arkansas legislature passed a nursing home bed tax on those private payers, an extra $8 per day to susidize those on Medicare.

I'll never forget standing at the nurses station looking at all the patients' binders lined up with "DNR" on the spine. Each one represented an individual awaiting a medical event that would trigger this request.

Definitely not my idea of the "Golden Years".

[Road_Hog]

We gradually liquidated everything to make the monthly bills. She had too many assests to qualify for Medicare. To add insult to injury, the Arkansas legislature passed a nursing home bed tax on those private payers, an extra $8 per day to susidize those on Medicare.

Speaking of too many assets, most folks are required to "spend down" their assets.  I call it a "spin down" as in spinning them down the toilet, because that's exactly what happens.

You take a couple with $500K in assets.  As an example, they could pay $3K a year in LTC premiums.  Let's say they do that for 33 years.  Well call that $100K.  Let's say their policy plus social security would cover all of their LTC expenses.   

This couple still has $400K to pass on to their family, regardless of whether or not they need the care.

If they don't have the policy, the $500K in assets is at risk.  The idea that some of those assets may not be liquid also factors into the equation.

[HawgWild]

Doing the math like this makes it seem like a no brainer but the article pointed out that there's no cap on premium increases for the policy holders and the insurance industry is still trying to figure out their actuarial tables on this. One woman, in her 70's, was being hit with a 39% increase on a policy she's held for 20 years. Increases like this, at this point in your life, might be more than one can take on.

Still, your point is taken. It's amazing how much money is spent on health care during the last few years of an individual's life.

[Road_Hog]

Doing the math like this makes it seem like a no brainer but the article pointed out that there's no cap on premium increases for the policy holders and the insurance industry is still trying to figure out their actuarial tables on this. One woman, in her 70's, was being hit with a 39% increase on a policy she's held for 20 years. Increases like this, at this point in your life, might be more than one can take on.

Still, your point is taken. It's amazing how much money is spent on health care during the last few years of an individual's life.

I know there is a question in the application process that asks a client to consider the affordability of the policy in the event of a 20% increase.  I'm not defending a rate increase of 40%, and I don't know how many companies have that in the application. I do know that topic should be brought up.

Also, you've got to remember that people are not beating the doors down for LTC policies.  These policies aren't being sold to individuals on a $1,000 a month Social Security income with a $250 per month supplemental income, or at least I hope not.  These folks require a decent income to afford the premiums.  Sure, there are people caught in the crossfire whom it will affect and it doesn't seem right to consumers.  But one also needs to consider the fact that investment returns are down considerably with the present market conditions.  That seems to be stressing insurance companies with all of their products.

Last, but not least, there should be the option to add a nonforfeiture provision (most likely added through endorsement) in long-term care policies which allow the policyholder to receive reduced benefits should the policy lapse due to non payment of premium, i.e. can't afford the premiums.

[HognotinMemphis]

The way our guy sold the LTC to us is that the company, Genworth, had never had a premium increase in our state. And he told us the process they had to go thru to get a premium increase authorized should they ever want to do so. It was convincing. Then I read about how often all the insurance co's are asking for and getting rate increases on LTC policies. So, it's always a possibility. Just when you think you are home free on a LTC and you have paid a ton of premium over a long period, you get hit with a huge rate increase. Not good.

[Road_Hog]

The way our guy sold the LTC to us is that the company, Genworth, had never had a premium increase in our state. And he told us the process they had to go thru to get a premium increase authorized should they ever want to do so. It was convincing. Then I read about how often all the insurance co's are asking for and getting rate increases on LTC policies. So, it's always a possibility. Just when you think you are home free on a LTC and you have paid a ton of premium over a long period, you get hit with a huge rate increase. Not good.

It seems to me that rate increases generally get approved.  I've never been involved in the process, but when do you ever see a headline stating a rate increase was denied?  I've heard rumors of companies not getting to increase as much as they wanted. 

No, it's not good for the consumer.  And it's hard on a lot of producers as well, if you genuinely care for your client.

[HawgWild]

To your knowledge, do any of the LTC policies have a requirement that the holder have a DNR on record with the facility? With the quality of care these days folks can linger for years in a bed ridden state. Seems to me that the company would want to have some advantage in keeping their costs at a minimum.

If they don't, maybe they will. Some people warned about "Death Panels" when discussing health care reform. There weren't any but it's not out of the realm of possibility that there won't be at some point down the line.

[Road_Hog]

To your knowledge, do any of the LTC policies have a requirement that the holder have a DNR on record with the facility? With the quality of care these days folks can linger for years in a bed ridden state. Seems to me that the company would want to have some advantage in keeping their costs at a minimum.

If they don't, maybe they will. Some people warned about "Death Panels" when discussing health care reform. There weren't any but it's not out of the realm of possibility that there won't be at some point down the line.

That seems pretty far fetched.  I haven't seen one thing about that in any of the material I had to become familiar with from a state perspective to solicit and sell LTC.  I haven't seen it in any of our material. 

Keep in mind, LTC is not my specialty.  Recently, I've thought it was a product that was really going to take off.  At this point, I have no idea what to think.  With the healthcare legislation that was passed, combined with pulling the product off the market and/or rate increases, it's really up in the air.  For companies right now, there are several options:

-Decide they don't want that risk of an extremely long-term liability
-Restrict policy benefits
-Policy/Underwriting Modifications
-Wait out the interest rate environment

Regarding keeping costs at a minimum, a typical policy is written with a maximum monthly amount.  On top of that, the policy itself has a pool of money that limits the total payout of the policy.

Think about why Warren Buffett has loved the concept of insurance for decades.  The company receive premiums and invest them.  Down the road, you pay back a portion of those premiums in claims, operating expenses, etc.  Do not for one second underestimate the current interest rate environment.  A LTC policy with a 5% annual compound inflation rider doesn't sit too well with insurance companies right now.