Making FIRE Possible With The High Cost Of Elder Care

Continuing our posts on your FIRE questions, such as when you are late to saving, when you and your spouse disagree or when you don’t want to pinch pennies, we come to another savings obstacle – the high cost of elder care.

• How do you insure for long-term care?
• How do you budget for the unknown costs of elder care – your parents and your own?
• How can you use geo-arbitrage when your parents, spouse’s parents, or both are located in a high cost of living area?

Elder care requires time, energy and attention, not just money

I had a colleague whose mom had dementia for several years before passing away. Even though the mom had enough assets to cover the cost of a nursing home that offered memory care she still had to coordinate the care, check up on the facility and deal with her own emotions around her mom’s failing health. It was still exhausting even with the resources.

However, the money hurdle is high and can exceed six-figures annually

The average cost of nursing home care in New York is $100,000. An AARP-generated map of nursing home costs shows the range from just under $55,000 in Texas to $150,000 in Connecticut. We actually looked into investing in assisted living facilities as part of our real estate portfolio because it’s a growth market with high revenue potential. (We did make a private loan to a developer whose portfolio includes high-end assisted living facilities, but that’s as far as we have ventured into this area of real estate.)

Using an assumed 4% withdrawal rate, you would need to have $2.5 million in assets to cover a $100,000 annual expense — $5 million for you and your spouse. This doesn’t include any other expenses – e.g., household expenses for other family members, legacy for your children, or maintaining the family home to return to.

That $2.5-$5 million figure you would need to amass to self-insure for long-term care assumes you never touch your principal. That’s a conservative assumption, and you might decide that you’re comfortable aiming for less.

You might also consider long-term care insurance. The average annual cost currently is $2,700 per year, and policies can cover nursing home care, assisted living facilities and in-home care. This insurance can help absorb some of the risks of trying to self-insure. It alleviates some of the financial burden on your family members. In the case of policies that offer an in-home benefit, it gives you more flexibility on the care you get.

On the downside, you are only covered when you have the insurance, so you have to know that you can afford the insurance premium each year AND that your insurance carrier will be around when you need to collect. Premiums have been rapidly increasing, and carriers have been exiting the long-term care insurance market, so accessibility to long-term care insurance when you need it is a concern. Being able to qualify for the insurance is yet another hurdle.

We are cobbling together a solution with self-insurance and geo-arbitrage

We are in the sandwich generation with kids and parents. Our elder care plan includes a mix of insurance, pursuing FIRE to build up assets early and geo-arbitrage.

For our own care as we age, we are looking at a mix of self-insurance (one of the reasons that pursuing FIRE is so helpful) and geo-arbitrage. I don’t trust the long-term care insurance market will be sustainable two to three decades from now when we may finally need care. No sense in paying into it now, when it might not be around long term.

I looked into a whole life insurance policy where the cash value could be tapped to pay for long-term care. But the plans I saw had expensive upfront costs, and using your insurance policy as an investment vehicle has less flexibility. Instead, we opted to buy term life insurance (it doesn’t solve the long-term care issue, but we needed an income source for our kids) and then invest separately.

Geo-arbitrage is a contingency plan should we need long-term hands-on care that would deplete our assets. For the equivalent of paying $100,000 in nursing care costs in New York, we could hire full-time care for years in Costa Rica, the Philippines or other countries we already like that have a long tradition of good healthcare.

What works for you may be different for your parents

I did opt for long-term care insurance for my mom. Long-term care insurance makes sense for my mom because the industry will likely hold on for at least the amount of time she needs it. She was most interested in the in-home care benefits, since you could hire a family member – and we have a large extended family, many of whom are experienced caregivers.

I encouraged her to get the insurance while she was in her 50’s (which she did). While she can afford the annual premium herself, I was prepared to cover that cost as needed. Covering several thousand dollars in premium costs is far cheaper than having to set aside millions of extra dollars to self-insure!

On Scott’s side, I did mention long-term care insurance to his parents at the same time I discussed it with my mom, and I’m not sure what they decided. Our families are very different in how inter-generational the families are. Scott’s side of the family is very self-sufficient. His widowed grandmother lived on her own into her nineties and coordinated and paid for her own care. There isn’t the expectation for family members to be in each other’s business.

Not so on my side! There is a strong tradition of inter-generational households among Filipinos, and my family is no exception. My aunt, with some help from my mom and other siblings, was the primary caregiver to my grandparents as they aged. While my mom recognizes I have a family of my own, and my sister lives out West with her own family, we at least need to make sure there is a plan in place.

Even if none of your parents currently need your help, you should have a candid discussion with your parents to understand what they already have in place and what their expectations are. You can get an idea of familial expectations by looking at how your parents dealt with their parents (your grandparents) as they aged. But ideally you talk about long-term care planning openly and in advance. Find a recent article that talks about long-term care planning, and then share with your parents to spark a discussion. You can plant the seed with an article from Dave Ramsey or Forbes or The Motley Fool.

Geo-arbitrage can help with parents in high cost of living areas – and not how you might think

I mentioned that we are considering geo-arbitrage to help financially with our cost of care. It is less obvious how geo-arbitrage can help when your parents live in an expensive city. It’s harder to move at an old age. They may not want to move. You can’t assume you can lower your costs by moving your parents.

Furthermore, you may feel tethered to a high cost of living area to stay close to them, like my colleague did with her aging mom and like the reader who has two sets of parents in New York City. This increases your living costs, making it harder to save for your own elder care, pursue FIRE or any of your other financial priorities.

I felt that same tug – how can you leave just as your parents are getting older? However, unless you’re providing the primary physical care, living close doesn’t get you much more for how much more it costs. To support your family plus one or two sets of parents in a place like New York City, you would need a big salary or business income, and this likely comes with a busy, hectic job. New York City, and many other expensive areas, also have a faster pace and 24/7 grind. Neither of these things are conducive to providing quality care.

Instead, consider moving to a cheaper place still within traveling distance. Costa Rica sounds far, but it is just a 5-hour plane ride away, and there are multiple airlines serving the country. A less radical move would be moving to a cheaper US area within driving distance. This saves you money, but more importantly, the slower pace of life gives you increased time, energy and attention to absorb elder care responsibilities.

I used to live in the same neighborhood as my mom, but a few years ago moved to another borough of New York City, 90 minutes away. We see each other less, but since I have to make a concerted effort to get together, I actually plan it out, and I think it gives us better quality time. I know that I feel like I have more bandwidth with some distance. Geo-arbitrage – not just for money, but for mental space – is something to consider.

There is no one-size-fits-all solution to the questions posed by readers

How do you insure for long-term care?

There is long-term care insurance but it’s not for everyone, and you may be better off self-insuring. There are alternative products, and this Nerdwallet piece does an excellent overview of alternatives to long-term care insurance. We did consider the life insurance route, but there are different pros and cons for each of these alternatives.

How do you budget for the unknown costs of elder care – your parents and your own?

Long-term care costs are increasing. Insurance carriers are decreasing. You can probably only rely on more volatility. We are doing a lot of contingency planning using a patchwork of insurance, including self-insurance, and geo-arbitrage. As our health and circumstances change, we may revisit other insurance options.

How can you use geo-arbitrage when your parents, spouse’s parents, or both are located in a high cost of living area?

You may not be able to move them but you can still move yourself. Look at both options. Don’t assume that being physically close outweighs the benefits that a little distance can give you financially — and mentally.

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Check out more of our Making FIRE Possible series:

• Making FIRE Possible When You And Your Spouse Disagree
• Making FIRE Possible When You Don’t Want To Pinch Pennies
• Making FIRE Possible When You Haven’t Saved Enough For Retirement
• Making FIRE Possible With The High Cost Of Elder Care (current post)

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