On Sep 25, 12:10*pm, BreadWithS...[at]fractious.net wrote:

- quote -

Seconded.

There's an unspoken rule of thumb among LTC salesmen that only the
upper-middle class buy LTC. The rich can "self-insure", and the poor
will rely on the state. It's the "not-quite millionaire next door"
that will see everything he has worked for vanish.

In reality, some rich people also buy LTC but for non-fiscal reasons.
Namely, they have disposable income, they shun state-sponsored aid,
and the desire the additional security provided by LTC even if it
comes at a high cost.

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honda.lioness[at]gmail.com writes:
- quote -

"many or all" is kind of an overstatement. In most states,
the following things are exempt: primary home, one automobile,
household goods (ie. furnishings, etc), prepaid burial arrangements.
Everything else owned by either spouse is counted. Then at
most half of those non-exempt assets are allowed to be
preserved for the non-institutionalized ("community") spouse.

Some strategies for protecting that spouse include
funding irrevocable trusts (has to be done long before
they apply for medicaid, though) and paying off the house.

Even then, there may be "estate recovery" - anything
still in the estate of the last of the two spouses to
die may be sought out by the state to pay back some
of the costs that Medicaid covered. So if you pay
off your house, the community spouse lives in it
while the institutionalized spouse gets Medicaid -
when the second of them dies, before the estate gets
paid out to heirs, Medicaid may seek to get paid back
from the money which was protected by having had it as
equity in the house.

The purpose, of course, is to protect the spouse - but
NOT to preserve wealth for other heirs.

- quote -

For a single, wealthy person, it's not the no-brainer
that it may be for married, middle class folks.

And it may be expensive - a 72 year old will pay thousands
of dollars a year for a LTC policy. It's certainly worth
getting a free quote, but expect it to be expensive and
it's not clear that it's necessary or worthwhile for this
particular case.

One other bright point about LTC policies - in 2005,
the Deficit Reduction Act added provisions called
"Partnership Legislation" which allows all states to
have provisions (not all states have actually enacted
any, though) which state that if someone buys a
qualifying LTC policy - and uses up all the benefits
of that policy first - a much greater amount of their
other assets will be protected - they'll qualify for
Medicaid without having to spend down all those other
assets first. The idea is that if this provides
middle income people a strong incentive to buy LTC
policies, fewer will end up on Medicaid in the first
place. Here's a small write up about this from
the AARP:

<http://www.aarp.org/research/longter...24_ltc_06.html
Nobody really knows if this is ultimately going to save
us money on Medicaid - one would hope so - but it's
certainly something to keep in mind at the moment and
may be another good way to protect assets for heirs or
spouses in the meantime. The terms of the LTC policies
which qualify may make such qualifying policies more
expensive, though, than policies which don't fit with
this partnership program. Something to carefuly consider
when shopping for an LTC policy. If the insurance folks
who price and try to sell you and LTC policy are not
familiar with these details, find folks who are.


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"Dave Dodson" <dave_and_darla[at]juno.com> wrote
- quote -

I do not know if it is true for all states, but in the
several I have looked at recently for a relative, there are
Medicaid laws to protect many or all of the assets that are
jointly owned by married couples. The law tends to recognize
it is not fair to leave a spouse destitute.

My opinion remains that long term care insurance and so on should be
considered for the reasons previously noted.

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On Sep 18, 3:43*pm, honda.lion...[at]gmail.com wrote:
- quote -

Yes. That is what I am saying. It is my opinion, of course, but it
seems to me that there are two types of people who do not need long
term care insurance: single people with a lot of money, and either
single or married people with very little money. The OP's mother falls
in the former category: she can pay for nursing home care for a long,
long time with her current assets. And because she is single, if she
spends down her assets she won't force a spouse into poverty.

Of course, those with little money can get Medicaid.

That leaves the married folks in the middle, the people who have $.25
million to $1 million, say. Nursing home costs can deplete their
assets and leave their spouses destitute. They purchase long term care
insurance to protect their spouses from that.

Assisted living is a lot more likely than a nursing home, and a lot
less costly. My mother lives in a very nice assisted living facility
that costs about $40,000 per year. Her social security and pension
cover about three-fourths of that, and she covers the rest of that by
spending down her assets, which are considerably less than the OP's
mother's.

Dave

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Error:
- quote -

Gross Income $29,400 + $9,000 = $38,400
Annual Expenses = $40,000
Annual Deficit = $1,600

She should make it OK. A couple of million bucks IS still what it used
to be.

(sorry :-)

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To review:

A portfolio of about $1.3 million in various assets
$975k = 75% blue chip stocks
$260k = 20% bonds &
$6.5k = 5% cash

A recently aquired $350K mortgage she had to take out to rebuild a
vacation home

You should plug in actual numbers to these estimates:
Stock div yld $975k x 2% = $19,000
Bond yld $260k x 4% = $10,400
Gross Income = $29,400
Less: mortgage $350k x 6% = $21,000
Net Income = $8,400
Less: Expenses = $120,000
Annual deficit = ($111,600)

primary home probably has a value in excess of $750K
the rebuilt vacation home is probably worth around $500K
less: a recently aquired $350K mortgage
Net real estate = $1,000k

Total net worth $2.3m with an annual drawdown of about $110,000 is not
pretty. Your financial planning must take this into account. Until you
get things stabilized, the new car and kitchen remodel is simply
foolish.

As for the proposal you have, in addition to everything that has been
said, you did not post specific dollar amounts for income. Trying to
interpolate, I size it up this way:
CD's = $1,100,000
Var Ann = $250,000
That I know of, CD rates = 4% = $44,000
So you have a $250k variable annuity that will throw off $66,000 a
year?
Interest rates are at all-time lows now, and it is the worst time to
commit money to fixed income.

The first thing I would recommend is cutting annual expenses: Even
with the $21,000 some odd going out in mortgage, $61,000 should be
sufficient for comfortable living expenses, total outflow. If the
vacation home is turned from a $21k payment into a reverse mortgage at
6% ($9,000) that would be a $30,000 swing right there.

Net Income = $8,400 + $9,000 = $17,400
Annual expenses = $40,000
Annual deficit = $22,600

With some stock market appreciation factored in, your mother should be
able to remain at her present net worth for many years. I did mention
a retirement community in my previous post, as others have. The $750k
primary residence could be utilized to provide income several years
from now, and with careful and astute planning and asset appreciation,
she should be able to make the down payment for the community and meet
the living expenses.

Again, you need to plan for the long-term, and find a really good
financial planner. But the principal thing in the present would seem
to be raising your mother's awareness that she cannot afford to spend
$120,000 a year, buy a new car, remodel a vaction home, remodel a
kitchen, and otherwise live 300% above her means.

Hope this clarifies a bit.

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On Sep 18, 10:42 am, Dave Dodson
On long term care insurance etc. at age 72 with a net worth of approx.
$2.2 million
- quote -

Are you saying she should not even investigate long term care
insurance?

Your figures assume what the length of the typical nursing home stay
is. I do not advise planning for what is typical in this case. She
could be in a nursing home for ten years; one just cannot say. While
with a $2.2 million net worth, I think it likely she will be okay
financially, it is a little close for comfort. This seems particularly
so given the ease of investigating long term care insurance. One
should also consider that maybe she would rather leave a nice
inheritance to her grandkids, and so not bleed down her wealth.
Lastly, given the volatility of the market today, the failing housing
market, and her age, having so much in stocks and houses seems worth
re-evaluating, particularly in light of the possibility she could
have, say, a stroke and immediately have to enter long term care.

On the woman's net worth, you are right; I missed the $500k estimated
worth of the vacation home.

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On Sep 18, 11:20*am, honda.lion...[at]gmail.com wrote:
- quote -

I disagree with Elle. At her estimate of nursing home costs, Mom can
be in a nursing home for perhaps 4 to 5 years simply by selling her
vacation home. This is far longer than the typical nursing home stay,
and the time would be stretched out even longer if the MRDs were
applied to the bill. However, if the stay lasted that long, it would
be fairly certain that she would not be returning to her home, so
selling that would add another 4 years or so.

BTW, I calculate Mom's net worth as $2.2 million. Perhaps Elle forgot
the vacation home.

Dave

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<samplogan[at]gmail.com> wrote
- quote -

What leaps out at me is that there is zero talk of long term
care, also known as nursing home care. Women in their 70s or
even younger and in seeming good health can have strokes,
for one. A nursing home may be necessary sooner than you or
your mother thinks. One must not roll the dice that she will
not need a nursing home for decades.

Your mother should also begin to think about an assisted
living community where she can make friends and transition.

The cost of these facilities is very high. Your mother must
either (1) arrange for long term care insurance immediately;
or (2) anticipate the likelihood of spending down her
fortune on a nursing home and so going on nursing home
Medicaid (= nursing home care for the impoverished).

To give you an idea of the costs, a nice nursing home in the
Midwest with a private room will run about $300 a day.
Figure about $110,000 a year. This should make your eyes
pop.

Shopping around for long term care insurance would be my
next step, were I your mother's age with about $1.7M net
worth.

The better news is that Medicaid nursing homes have come a
very long way in the last few years. Elderly not on Medicaid
now frequently choose nursing homes with both Medicaid and
non-Medicaid beds, because what they offer (to both Medicaid
and non-Medicaid patients) is so good.

I agree the annuity in an IRA is a red flag. How friendly
the planner is to your mother is another red flag. I think
folks this age are easily sucked into thinking that the
friendship is genuine and means the planner will act in
their best interests. On the contrary, I think the more
friendly the planner is with the elderly client, the bigger
a shark they likely are. Next thing you know the financial
planner will be seeking power of attorney. I have seen this
twice now with acquaintances.

It is troubling to read of a financial planner proposing
such a complicated plan and, no doubt, making your mother
feel helpless through her seeming ignorance of financial
planning. I would shop around for another financial planner.
If she trusts her kids and they have time, I would see if
any of them have the ability to help her plan, using, say, a
consultant like that described at
http://skipweldon.com/info.htm . (Sorry for the plug, Skip.
I am calling a spade a spade. I like the approach you
describe at this web site, and hope it can be mentioned in
at least general terms.) Have whoever is helping your
mother, and your mother too, do their homework via, say,
asking questions here and at other fora. That way the time
you need from a professional consultant will be less.

Real wealth is having education (here, in finances) and
control of one's destiny. Right now, your mother does not
have either. Make her genuinely wealthy, sir.

Elle

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samplogan[at]gmail.com wrote:
She is divorced and retired and has a portfolio of about $1.3 million in
various assets
Her primary home probably has a value in excess of $750K (but encumbered
by above-referenced mortgage) and
the rebuilt vacation home is probably worth around $500K.

cash reserves equal to six monthly payments of regular expenses
($60,000) will be set
aside within a brokerage account and invested in CD_$B!G_(Bs and money
market funds. Monthly payments of $12,000
will be directly deposited to checking account at local bank on first of
each month.



I replied prior and focussed on the inappropriate purchase of a VA
within an IRA, as did others. Now that I see more responses, I saw that
your mom's potential advisor is suggesting she can tap a $1.3M portfolio
for $120K each year. $133K if you include the 1% fee.
This is over 10%. I saw no replies that addressed how this is close to
twice the recommended withdrawal rate. I have an 80 year old whom I
encourage to spend 5% each year, but she's so focused on the 4% rule
that I know she takes the 5% I suggest but puts some away "for a rainy
day".
10% withdrawals and a couple more bad years and your mother will have no
chance to recover.
Did you mention her age in a different post and I missed it? If so, sorry.
Joe
www.blog.joetaxpayer.com

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On 2008-09-16 14:15:16 -0700, samplogan[at]gmail.com said:

- quote -

Generally speaking a "rosy cash flow" scenario turns out to involve
financial products that are far more risky than they are made out to be
by the sellers of the products. Often a splendid cash flow for a few
years will be accompanied by loss of capital in the long run. Actually,
in your mother's case, one sure way of increasing cash flow would be to
rent the vacation home. Since she owns it free and clear, expenses
would not be too high, and it would most likely bring in more monthly
income than would readjusting her holdings in stocks and mutual funds.
Your concerns are well founded.

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Thanks so much for the wonderful feedback from everyone. In answer to
the question posed about age - my mom's 72 and in good health.
Nursing home not in the cards for several years, at least, I would
say. As for renting vacation home idea -that is something we've tried
to get her to consider, but she hasn't been willing to think of her
situation as "dire" enough to have to go that route. This is part of
the dilemma faced with this financial planner - she has painted a very
rosy cash-flow scenario that will, if it pans out, allow my mom to go
forward without having to dramatically modify her lifestyle/budget,
etc. I am concerned that it is unrealistic. Of course, the planner
stands to make a fairly sizeable amount of compensation right up front
as well - if anyone would be able to roughly ballpark what amount of
compensation we might be talking about, that would be helpful. Once
again, I have really appreciated all the feedback - hopefully it will
have a positive impact. Sam

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On Sep 16, 2:09*am, "123go" <reje...[at]rejcet.ccc> wrote:
- quote -


What I really really meant was this. It's not prudent for a retired
person to take on a 350K mortgage that constitutes 1/5 of her net
worth. By selling her vaction home she would gain liquidity and
flexibility, and reduced expenses used to fund that mortgage.
Obviously I know nothing about net worth.

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:xv2dnUpfN_9GQlPVnZ2dnUVZ_gmdnZ2d[at]comcast.com...
- quote -


her net worth drops, due to the income tax on sale of the vacation home
(depending on basis, etc.).

I think the other poster may have meant her new worth will increase over
time, without the added expense of the vacation home. But, that ignores
potential increase in its value.

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PeterL wrote:


- quote -

Her expenses may drop, and she'd be more liquid. Her income may rise
depending how the proceeds are invested, but her net worth doesn't
change. Only her asset allocation changes.

Joe
www.blog.joetaxpayer.com

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On 2008-09-15 09:52:26 -0700, PeterL <po.ning[at]gmail.com> said:

- quote -

Or another possibility would be to rent the vacation home. That way her
cash flow would increase while her net worth would stay the same (an
very likely increase in the future).

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- quote -

time to sell. A reverse mortgage is a sale, but one that might
possibly provide an income stream sufficient to compensate for giving
up the house. It would provide some diversification, and possibly less
risk than a REIT, since it's selling, not buying. Depending on the
real estate market (and the financial crisis) one consideration is to
reduce spending as much as possible for the next two years, hopefully
realizing appreciation in either sale price or reverse mortgage terms.
There will also be some point in the current stock market decline
where some very good buying opportunities present themselves. A final
consideration is age of the parent, and possibly planning for a
retirement community. Short-term investment planning is an oxymoron -
"long-term" is the key. Which is where time spent searching for one
really good asset manager out of hundreds would pay off. I wonder if
you would comment on the above for perspective?

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On Sep 14, 1:53*pm, samplo...[at]gmail.com wrote:
- quote -

Maybe she should just sell the vacation home. That way her expenses
will drop dramatically and her net worth will increase.

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- quote -


I must compliment you on the thoroughness of your post. You have some other
replies, which seem to make sense. I will add my pet peeve: why will you
need to pay 1% management fee for $200k sitting in CDs? Ditto, probably,
with short term bonds. And, where is this adviser suggesting you draw the
line with bonds of "too long" a maturity?

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Paying someone 1% to invest in mutual funds just stinks, IMO. Funds
charge a fee as well - that's two fees! An asset manager should manage
the portfolio, not hire a fund to do his job in a wholesale manner -
the fund's investments are generic, not tailored to your mother's
needs, risk dispositions, and tax sensitivities. Personally, I do not
like asset managers. I had one once, for my mother - I took over the
management the second I was legally entitled to, and that very day
sold three positions in companies that subsequently went bankrupt. I
lowered the PE of 30% of the portfolio by 50% while increasing the
dividend yield on that portion by 210%. The positions in solid
companies with earnings increases, I let sit, or added to, and reduced
the number of positions from 60 to under 30. With a $400 a year Value
line subscription I did much better than the "manager" (and for free).
It was a 'sweater' for six months, then I got it stabilized, and that
portfolio is down 1.3% YTD (compared to DJIA down 12%), outperformed
last year, and it's tossing off a bit better than 6% yield on cost
basis. Some of the weaker companies are Intel, Cisco, United
Technologies, Pfizer, while some of the stronger ones are JNJ,
McDonalds, Colgate, XOM. Hey - If I can do a "Class "A"" portfolio, so
can you! Please be aware that you are not as financially
unsophisticated as you seem to believe, or as others may wish you to
believe.

One thing not mentioned so far is that $10,000 a month living expenses
is quite high for a portfolio of approximately $1.6m especially in
these times of historically low interest rates. You are asking for a
7.5% yield. It CAN be done if the portfolio is properly invested in
consistent earnings growth companies (above 6%) with decent dividend
yields, and a history of increasing their dividends. One of my aunts
had a good man working for her, and he gifted half of her portfolio to
a solidly funded university in exchange for an 11% "lifetime" annual
yield, in addition to a large tax deduction. That guy earned his 1%
for my aunt. Someone might suggest a reverse mortgage (I know nothing
about them).

You would definitely do best to shop very, very intensively for
someone with considerable education, expertise and reputation, who is
truly in love with his work and your mother's investments, before
handing over 1%. Or go to the library and read Value Line or S&P and
stick with companies with very high financial strength and solid
earnings. You MUST educate yourself sufficiently to evaluate anyone's
plan, as well as proposed stock holdings.