How much do YOU think YOU need to retire? ...and at what age will you (and spouse) retire? (Part 1)

Parent Cafe Parent Cafe
6221

Fires are not the only reason to carry homeowners insurance. We’ve never had a fire either, but we did have a huge tree limb fall onto our roof. Since the roof was old, the insurer couldn’t get matching shingles, so they replaced the entire roof. Ask anyone who went through Sandy if they’d be willing to stop buying homeowners insurance. Or anyone with a teenager. Our neighbors’ son had a party. He’s a good kid, but a bunch of people he didn’t even know showed up and trashed his parents’ house. The kid called the police himself. The homeowners insurance paid for all the damage. Personally I think whatever you save by not buying homeowners insurance is just plain luck.

Disability insurance is different. They stop paying when you reach retirement age, so if you"re close, it may not be worth it.

LTC is spotty, from what I’ve seen. Our agent tried to sell us an expensive policy. I googled info, and it appears that most policies have a 100-day deductible (ie, the policy only starts to pay on the 101th day), but the average stay in a LTC facility is about 90 days.

6222

My neighbor had the unfortunate incident of a tree falling on the roof. But catastropic disasters are rare. For over 30 years we had homeowners, one time we could have claimed. Water pipe broke in the kitchen but we were about to tear down the kitchen to renovate and forgot to file a claim. Had we filed a claim, we may have gotten about the year’s premium. It’s still going at 30 to 1.

6223

I am sure we can forever discuss individual cases for pros and cons. I’d think actuaries did their job and came up with the price considering all individual cases. The premium that we pay calculated by actuaries would include the cost, overhead, and profit. If I self insure, I’d be paying the cost only, no overhead, no profit but no peace of mind, either. The 90 days period in LTC makes me think people need less care than that in most cases.

6224

I don’t remember how many days I need to wait for my LTC, I need to write down all these things before my brain is starting to decline.

6225

“The premium that we pay calculated by actuaries would include the cost, overhead, and profit. If I self insure, I’d be paying the cost only, no overhead, no profit but no peace of mind, either.”

Not really comparable. The insurance companies spread the risk over thousands of homes, while without insurance you’re self insuring 100% of the cost of one home. The insurance companies are using actuarial calculations. You’d be doing a crap shoot.

6226

Numbers and math people:

In evaluating the performances of various accounts and products, I’ve been trying to figure out compound annual growth rate (CAGR) for the periods we’ve held these assets, so I can compare apples to apples and identify the lesser performing assets in preparing for spending. It’s my choice to use a granular approach to spending, so that I can simplify at the same time.

$ Gross Return = $ Value today (Ending Value) - $ Basis (Beginning Value)

If I divide $ Gross Return by the number of years I’ve held the asset, I get what I’ve been calling “annual average rate of return.” This probably isn’t an “industry” standard, but if I do the same thing across all accounts and products, I am at least comparing apples to apples.

For example, in the life insurance analysis I just did for myself, I got 154% return over 22 years.

1.54 / 22 = .07
CAGR would be less.

@notrichenough suggested it’s .04 CAGR a few pages back (thank you, BTW :slight_smile: ), but he was working without underlying numbers.

If I compound 1.04 over 22 years, I get 2.36.

So in this case, CAGR is smaller than .04.

How do I get from $ Gross Return to CAGR? I found this formula:

http://www.investopedia.com/terms/c/cagr.asp

I think I can apply this formula without having my head explode. Am I using the correct analysis?

Thank you for your comments and feedback.

6227

We had our homeowners insurance pay our claim when our home was burgled and they even waived the deductible. That was the only claim we had in decades of coverage. On a different policy, I believe there was nominal payment when a tenant had some minor flooding problem.

6228

The lucky people are the majority that DON’T have major homeowners claims. Usually it makes sense to have a high deductible and not mess around with small claims.

6229

Home and auto insurance is just one of those things that is a sunk cost. That’s why I try to spend as little of it as possible. I hope never to have to file a claim for any catastrophic loss and self insure with high deductibles + an umbrella policy. Between H and me, no doubt we have kept many insurance agents well-compensated over the years.

As we get older and have better resources to draw on to self insure, the deductibles should really get larger, but most people go the opposite direction because they do not want to increase risk. Local conditions are also factors. If I were living in areas with high fire, tornado or hurricane risk, my decision would be considerably different. Flood insurance is not covered by HO insurance.

https://www.fema.gov/national-flood-insurance-program

6230

@AttorneyMother:

Your gross return function is incorrect or has a typo.

To get it as a percentage is should be

Gross return = (endvalue - beginvalue)/beginvalue * 100

If you did gross return as

grossreturn = endvalue/beginvalue and got 1.54, your return is actually 54%, not 154%.

A 154% return means you have 2.54 times what you start with. When I calculated that number I assumed you rounded off the 7%, so I only gave one significant digit of accuracy. More accurately, you have a 4.33% compounded rate of return.

That formula from investopedia is exactly how I calculated it, except I used the root function on my calculator rather than the exponent function with the reciprocal of the power. But that is mathematically equivalent.

If you’d care to put up the actual numbers, it would help.

6231

If that’s uncomfortable for you, just put up proportional numbers. For example, instead of stating publicly that your $4M account went to $7M over 10 years, just say it was $40k going to $70k over 10 years :slight_smile:

6232

Attorney Mother, here is an example.

It is a bit more complicated with an investment with periodic payments like life insurance. We have bought life insurance for 25 years for, let’s say, $1,900 for both my husband and myself. We have a cash value now of, say, $100,000.

Excel has a formula called Future Value. The syntax is =FV(Rate,Number of Periods, Payment, PV, Beginning or End of period payment).

I guess at the rate until I get an answer close to $100,000.
So since we are paying the insurance company periodic payments of $1,900, you put that in as a negative.
The PV is 0 since we start having no investment at all with the insurance company.
We pay our premium at the beginning of the period, so the last argument is 1. Note that the help function in Excel is also pretty helpful.

=FV(GUESS,25,-1900,0,1) = $99,530 if the guess is 5.3% and $101,000 if the guess is 5.4%.
So our return is between 5.3 and 5.4%.

I am an actuary, and there is a formula for this, but Excel is so much easier, if you have access to Excel.

6233

Thanks, @notrichenough , @IxnayBob , @BerneseMtnMom ,

I will take a couple Tylenol and look over your posts and responses. :slight_smile: Thank you.

@notrichenough , I subtracted out the original basis to get the 1.54 return. Otherwise, I’d get 2.54. Shouldn’t I subtract out the original basis? I’ll dig up some numbers and see what I can do.

@BerneseMtnMom , the actuary in whose email I found my prior link is one of the smartest people I know! :slight_smile: I am not looking to adjust too carefully for real IRR or CAGR, while accounting for periodic payments. It’s too complicated and it’s water under the bridge. But I understand how timing of ingoing and outgoing payments greatly affect both, especially for an individual policy. Too bad insurance companies never provide that information and it’s helpful only to the extent it’s past performance, which is of limited value going forward, don’t you agree? I will ask someone to do some Excel work for me to further clarify the information. Thank you.

6234

@hayden ,

As a further point to the LTC policy’s elimination period. It was pointedly obvious when MIL was on the border line for LTC. But, there was definitely an issue whether she “might” recover (though highly unlikely, it was a difficult psychological hurdle for FIL and H to overcome) in which case the insurer might dispute the need. So, I had to bring up the difficult subject of saying, it might be time to get out the LTC policy and look at whether it’s time to file a claim and start the clock ticking. Prior to that, it was still all hands on treatment and recovery.

6235

Yes if you are calculating percentage. No if you are calculating CAGR.

Example: you invested $100, now 22 years later is is worth $254 dollars. What is your return?

Your total return as a percentage is (254-100)/100 = 1.54 *100 (to convert it to percent) = 154%.

However your value has increased (254/100) times, or 2.54.

To figure out CAGR you use the 2.54 number - from the investopedia formula: 2.54^(1/22) - 1 = 1.04328 - 1 = 0.04328 * 100 (to convert to percent) = 4.328%.

@BerneseMtnMom’s point is well taken though, you didn’t make one large investment at the beginning, you’ve been added more every year. That’s more complicated.

6236

@notrichenough ,

Thanks, that’s very helpful. I “missed” read the ending value. All the more reason to take heed of the warnings about diminishing math and judgment skills. :slight_smile: TGIF!

6237

I apologize for being a nit picker. The value has increased to 2.54 times the original value, but the value has increased 1.54 times. I know that you know that, but you can’t be too “to” careful in writing it :slight_smile:

6238

@IxnayBob, keep picking those nits. I don’t mind. I liken it to colleagues who help hunt down typos and mistakes. All are appreciated.

6239

I’ve been away a few days and lots of posts! Successfully got DD2 moved home from college on Thursday.

To throw my 2 cents in with post 6201 regarding disability insurance, if you are close to retirement and would not miss the income if becoming disabled (and premium is highish), you may want to stop paying. If I don’t return to work by next year, I will probably drop my private disability policy - premiums are highish, and if I am not working, I have to be 100% disabled to collect - actually insurance considers 80% as totally disabled, which I had to fight for during my very serious stage III cancer treatments…my MD said 8-10 on pain, 8-10 on nausea, and 8-10 on fatigue; that sealed the deal - it was a good company but they tried to bamboozle me/wiggle out w/o paying until I challenged them with contacting an attorney; they called back the next day and approved payment.

A couple of posters on benefits from older LTC ins policies (#6197 with benefit payment of about $90/day; #6214 about LTC paying to supplement person staying at home). The newer policies have to be carefully evaluated - cost versus potential benefit and what determines payment - also want to get with a strong and reputable insurance company. It may be there is not a good enough option and self insuring is the default option.

My sister bought a LTC policy for herself years ago that she thought was affordable (her H is a lot older, so she figured she would care for him at home and with supplemental help if needed) - insurance that would pay $50/day (not sure what inflation rider, but it does hedge some costs).

Even a very good LTC insurance company may dispute the need. That is a terrible story about aunt with lung cancer and not deemed eligible for LTC insurance to kick in due to ability to still do ADL well enough. My private disability insurance tried to pull that one on me - that I could still fold a little laundry, put a few dishes in the dishwasher, wipe the counter etc as a homemaker - however my MD’s scale of pain, nausea and fatigue trumped that argument. Sorry that even a good insurance company will try to pull some tricks. Many people would not have had the comeback I had, and know that you give them indisputable arguments - claim person said ‘our doctor’ and I could say ‘my medical oncologist’ - again specialist trumps.

Back to post 6172 about what qualifies for LTC - the elimination period, the number of ADL absent (or dementia), etc. Very important to understand exactly what the policy will cover.

H and I purchased 10 year rate guarantee policies through CNA (one of the first with LTC ins and in 43 states) in 2003 when we were both 46/47. A few years later, CNA pulled out of all LTC new policies and focused on insuring MDs for medical malpractice. We purchased 90 day elimination, 2 ADL, 5% inflation rider, $150/day. You could have the options for higher elimination period, 3% or 4% inflation, and a lower amount of coverage per day. The last two years and next year we have higher premiums, and then we will be level premium for a while again. They had to have the increases justified and approved by insurance commission. Our initial premium was $1150/yr for each of us; it has climbed to $1403/yr, then $1712, and I would have to look up our final premium next Jan that would then be level premium. Shortly after we secured the 10 year rate guarantee, CNA came out with 20 year rate guarantee, but I didn’t want to change/initiate the new paperwork - and I didn’t check what the premiums would be. I think we did fine with our policies. As another person stated on this thread, the insurance helps us with having that risk ‘covered’. We have very comprehensive coverage that you cannot buy anywhere near that price.

It is true that usually once declines to qualifying for LTC based on ADL or dementia, that they avg less than 3 years of life. However there can be big outliers - BIL’s mother had dementia and was in a nursing home for 12 years (she had very little to start, so almost all her care was by Medicaid). My mother with dementia was able to stay at home with care coming in (was self-insured, but only because my brother would not allow the application for the higher cost LTC insurance policy that may have been approved; the lower cost LTC insurance policy was denied her) - so brother helped manage/coordinate her care. Mom masked her decline as much as she could, but it was ongoing for many years (even before my dad passed, which was 15 years earlier).

We all want to have better options than our image of nursing home care, running maybe at the high end $350/day $130,000/yr ouch. Aging at home or assisted living is surely one’s hope and a happy death.

A house two blocks from us was hit by lightning and totally destroyed. Most of us have smaller homeowner claims like hail on roof, fallen tree on roof, defective dishwasher, leaking water line on refrigerator ice maker, other water damage…In our 22 years we have had 3 claims here (one due to hail with roof replacement, two due to water leaking, first one due to high water pressure blowing out water heater and spilling water throughout first level of home - and need for water pressure regulator which is now required on all area homes), and once a claim in our prior house (burglary). Only would put in a claim for something major. Hope no more claims while we are in this house.

If current LTC insurance policies not cost-effective, just keep an eye out. I think the insurance market will be cautious on their products, but many people are not going to buy crappy policies either. As with anything, buyer beware.

6240

Premiums for what we wanted for inferior LTC coverage in the early 2000s when we looked at policies was over $500/month/person so $6000/year for each of us. We didn’t have that kind of money at the time, so we spent the money we had on our kids’ educations and have no regrets. The policies wouldn’t cover all that much of the cost of care in HI anyway and the ADLs they require tend to be ADLs that most patients with my condition can do up until the last month or so of their lives.

It is a weighing of cost vs. risk, as well as what other financial priorities there are at the time you decide whether to purchase LTC or whatever other insurance you are considering. H could have reitred at any point in his career, once he had 30 years of work, which was back before our kids hit HS, so we never purchased private disability insurance but only had worker’s comp mandated by our state (which pays a very small fraction of your wages if you are disabled). H was a white collar worker and relied mostly on his technical skills and knowledge. His work didn’t involve much heavy physical work, so we believed his chances of being disabled were considerably lower than folks who do heavy physical labor. I never got disability insurance as I have had a very spotty employment history (mostly underemployed and underpaid) and have worked part time for most of my life, with wages varying between $0 for the year and over $40K, so believe it would have been tough figuring out how to get an appropriate policy.