As with most people, the elderly parent issue escalates quickly. My mom has been living by herself for 15 years since my dad died. She has been doing quite well as has a great social life (I live one state over from her). In the past two months, she has had two falls. The first was kind of a fluke accident. As she was almost recovered from a broken sacrum, she was starting to feel better, she fell again and broke her hip. She spent 4 days in the hospital and now she is in a skilled nursing facility for rehab. So, with this I have convinced her to move and get into a senior facility. At this point, I’m not sure what level of care she will need going forward. If she recovers to pre-injury status, she could probably live in an “independent living” status. If she can’t, then it’s assisted living for her. I’ve set up meeting with advisors (she has an investment firm that she likes and I have a call into them), so this post is just doing due diligence to get information for these meetings. Right now, I’m wondering what level of care she can “afford” going forward and how to pay for it. She gets about $3,950 in pension/ss. She has about $550,000 in an Ira. She has about $100,000 in a CD and about 15k in checking/savings. She owns the family home outright. It will likely sell for 800,000. They bought the house for $38k, did a $20k addition. My dad died in 2009, so I am not sure the step up as the market was still down (the house was CP in CA). Let’s say it was $300,000. So, if I do the math correctly so the basis would be $358,000. Capital gains exclusion of $250,000 gets us to $608,000. So she would need to pay capital gains on 192,000. Guesstimating fed/ca taxes at 25% she will pay 48,000 in taxes. Let’s guesstimate $60,000 in closing costs. Let’s say she clears $692,000. So, she will have 1,357,000. So, conservatively, let’s put this number at 1,300,000. The average assisted living facility in Phoenix is a little under $5000/month, so let assume that I find her one that is $6000 month. So, $72,000 year. This is where my analysis breaks down. Most expenses are included in assisted living, so I will need to figure out other expenses as part of the budget. Let’s say $1000/month. So, 84,000/year is her “nut”. I’m assuming that with conservative investments she can get a 4% return. I put the investments into a calculator and I got a RMD of $75,000/yr. Given her ss/pension of $47,400, her income would be $122,400. So, she would net about 100,000 after taxes. So, she would have a 16,000 buffer that she can have to reinvest, spend or save. Of course, costs will increase and level of care will likely increase , but she does seem like she is in an OK position. According to the rmd calculator, she would still have 678,000 in her account at age 100. Is there anything I am missing? Anything specific I should ask her investment advisors? Any insight from someone going through this?
Thanks(Sorry for the long post, just trying to get my arms around this)
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You should talk to a Medicaid Planner for her home state. It seems like a long way off (if she ever needs it) but you will need to know that it only pays for LTC medical expenses (so not AL or MC). Her SS income will cover the custodial portion of her living expenses in LTC. Medicare pays for hospice.
If you are her FPoA you will need to know what may disqualify her within the 5-year look-back of her financial application (like anything that appears as "gifting") so you need to be extremely careful about how you are managing her funds.
Monthly costs increase with health decline resulting in more care needs (MC costs more than AL). Even in-home care is spendy: my friend and her sisters kept their Mom at home and it was costing $20k per month. $6000 for a good AL is a low/average cost. There's nothing to say the costs won't go up over the years she's alive. I think you need to use a "worst-case" scenario cost estimate, like $15k to $20k or a graduating cost. If she falls in AL and then has mobility issues she may then be a candidate for LTC but in order to qualify for Medicaid she will need to spend down almost all of her assets to under $3k (you will need to check what the limits are for her state since they vary).
You should not worry. My mom had a really good potfolio through her financial advisor. In those 7 years, her investments made more than what she spent down. These were in money market funds that did better than a bank or rotating CDs.I set up a monthly sell off of income through her advisor and only requested additional as needed. In my mom's case I closed out the investments that were from tax free withdrawals first. Why? Because upon death, the rest of her investments were going to be stepped up upon death. My mom's beneficieries inherited without need to pay any taxes except for annuities. Speak to a probate lawyer and a financial advisor to see how it would work for you.
But you notice I said "I don't think" and these subjects are things that you cannot guess about.
I would not bother with independent living setup but go right to a nice ALF. She will of course be self pay and with closing in one 1.5 million she can afford for a while. Hopefully home would sell for a good amount and CDs remain high to park the money in. But you really need to gather what the basics are, get options, and then have some financial advise about selling versus not doing so at this time, and etc. Renting the home would bump her income up high enough I would think to take care of that ALF monthly still keeping the home perhaps?
Anyway, these are individual decisions only you as her poa can help get advice on. And a mess of strangers on the internet is the last place I would seek advice. The bogleheads Forum would be MUCH MUCH better than a mess of caregivers here. They have a financial advice Forum.
Good luck.
You don't mention how old she is. Her future prognosis and how many more years she expects to live are big factors to take into consideration.
Take some time, if you can, to tour assisted living facilities and meet with admissions directors. There are many different levels, some more independent than others, for instance, some AL apartments may have a small kitchenette, and most have meals included, offered in a common dining room. Some AL residents still drive and come and go as they please, with a parking garage for residents. Find out what is covered and what is not. Compare all the options, then you will have a better idea what the actual costs will be.
You are calculating for a presumed budget, but having actual costs to plug into your equation will help with the financial planning.
Check with a financial advisor if you’re wondering about selling your mother’s house right away. You may be able to wait on that, since she has quite a bit of cash available to pay for her living costs.