Can I Self-Insure My Future Long-Term Care Needs with My Current Financial Assets? – Part 1 of My Singapore LTC Notes

After my dad passed away almost two years ago, I took some time to reflect upon where I was financially. This reflection is to think hard about what I need, the degree of flexibility I need, how much is enough and what are the configuration.

I think I should have more than enough assets and I think some of you might also be in that position. Is it important to really know if you have enough? Well, I am not sure about you, but it doesn’t bug me that much but I think it prevents me from diverting excess resources to other causes like charity or giving.

I covered

1. my essential spending and how much to fund it,
2. the realistic basic ongoing spending to give a certain decent lifestyle and how to fund it,
3. getting ready a sinking fund for all my future insurance premiums (before this article),
4. a sinking fund for my future health insurance premiums,
5. a sinking fund to fund potential major end stage critical crisis,
6. estimating how much potentially to set aside for my nephew’s future education (from now till university) if I wish to.

There is an unsettling area that I have not covered, which is what happens if I have some long term disability issue later in life, with the prospect that I may need to stay in a nursing home.

I think singles may need to think about this more because we don’t have a lot of caregivers, and we also don’t want to be such a burden to them, when they have other family needs and responsibility. I think I don’t want to think about it partly because thinking about it kind of makes it more likely to happen to me.

Secondly, out of all the goals, I felt that this is the hardest financial goal to get funded, aside from fulfilling your other financial goals. Lastly, I would usually get some thread of inspiration to explore certain topics and that has not occurred yet.

This year one project that our solutions team needs to deal with is to review how we guide our advisers to plan or have a conversation about their long term care needs. So I was forced to confront this difficult topic. The by-product of this job is sometimes it is applicable to my personal life.

I am pretty happy I completed this project this year personally because doing the work help clarify my current situation. It might not mean I am doing okay. Sometimes knowing you have a problem is actually a good thing.

In this post, I am going to talk around long term care needs from my own perspective. The route I eventually take applies to my own situation and is not a guidance how we plan for our clients because I may be willing to accept some trade-offs while generally they might not.

This is likely Part 1 out of a few parts. The first part is about whether we can self-insure our way out if we have adequate assets for not just our financial independence, other important goals but also for our long-term care needs.

Okay, this article is going to be long.

For those of you who don’t want to read about the research behind why we need to consider long-term care and want to zoom into my personal solution, start reading from the “Personal Reflections about Long Term Care After Looking at the Research”.

What are More Challenging Disabilities?

From time to time, we might suffer from discomfort that prevent us from doing something. When I hurt my back or piriformis recently, I could not wear my pants or socks properly, cannot bend down.

These are temporary disability but reminds me the consequences if it gets worst. Being single and alone, I realize that I have to be extra careful with my injury and really have to find weird ways to wear the socks without hurting.

The official definition of disability is if you cannot do any of these six things: bathing, dressing, toileting, transferring (getting in and out of bed),eating and continence. These are Activities of Daily Living or ADL for short.

You can argue that I have develop an ADL related to dressing but not to the extend I need another person to help me.

Usually if you are injured, you can consult with an occupational therapist to assess how many ADLs you checked off. You could get a doctor but the doctor may not be as specialized to assess as an occupational therapist.

There will come a time when I need help. During both my parents last stages, they cannot get out of bed, cannot shit, cannot bath, cannot dress.

According to most definition that is eligible for insurance claims, you need to satisfy 3 out of the 6 ADLs. There are private plans that allow you to claim if you meet 1-2 ADLs.

I bring this up to let you see the degree of severity. According to my occupational therapist friend, the difference between two and three ADLs is less clear and so the difference in gap is not as big.

Yet there are people with only two ADLs, which may mean they might or might not be able to claim the disability insurance.

Understanding More About Disabilities in Singapore

Not all cases of disability is so dramatic that lands you in a vegetative state or need to check you in to nursing care.

The following shows the ranking lf different group of disability and how the ranking changes over time.

This is done in the Burden of Disease study by NUS, together with University of Washington. This study looks at how longevity and disability have evolved from 1990 to 2017.

We observed that the disability that ranks the highest does not change much, but I want to show this table not to show how the ranking changes but what kind of disability that are out there.

A better illustration will be this one, which shows the proportion of disability that dominates different age group.

I have labelled a few larger proportion ones.

Let me list down what makes up some of the larger categories.

Cancers:

• Male: Lung, colorectal, liver and prostate.
• Female: Breast and reproductive system cancers.

Neurological disorders:

• Alzheimer’s disease and other dementias

Mental disorders:

• Autism spectrum disorders
• Anxiety disorders
• Depressive disorders
• Eating disorders

Unintentional injuries:

• 50% Falling
• 50% other causes

Sense organ diseases

• Vision impairment such as glaucoma, cataracts and macular degeneration.

This chart shows us that disability may not be an end stage thing. You may have acquaintance or friends of acquaintances who cannot work due to mental problems such as depression. In this study, this is a disability but it might not satisfy any of these ADL. It is not long term enough as well.

The ones we are more concerned with are the ones in later stage which is cancer, neural, muscular skeletal.

These are the disability that may be long term and need help. It is also possible to suffer from this earlier in the example of an unfortunate accident.

I take note of both and this is how I frame the health problem:

This will help us break down which risk we are protecting against into two phases:

1. Phase 1: The low probable but high monetary and effort impact disability.
2. Phase 2: The high probably and relatively high monetary impact and high effort impact disability.

The cut off between each phase is subjective.

Both phases are high impact because in the worse case, we need assisted help, therapy which would cost quite a sum of money over time. Whenever the event occurs or recurs, we might not be able to tap our income meant for other essential purposes.

The difference between the two is that there comes a time when we are older that this is much probable.

My mom suffered for 1.5-2 years of some sort of disability before passing away. My dad was basically in bed for the last half year. If you have a parent suffering from dementia, you will realize they are functional aside from the neurological issues and they survive for some years.

The care cost for both parents are taken care by my brother and me, the caregivers. And that can be an option but I think if you love your potential caregivers enough, you might want to consider if you have taken care of your long term care needs before it happens.

Bryan (my team member) and myself considered three things:

1. How probable are we disabled when young?
2. and for how long?
3. If we suffer from disability younger, does that shorten our life expectancy?

We didn’t get good answers in this area after our research.

Info From Ministry of Health in 2023

According to the Eldershield Review Committee report, 1 in 2 healthy Singaporeans above the age of 65 could be severely disabled in their lifetime. About 3 in 10 severely disabled Singapore residents could remain in severe disability for 10 years or more.

This sounds pretty depressing but it is likely that if we split the Singaporeans age 65 and above into cohorts we will have more being disabled when they are above 75-80 years old than below. I won’t know what age that this would befall me and neither do you.

MOH updated that more than half of those getting payouts from CareShield Life are under 40 years old. Their age ranges from 30 to 88 with the median age being 39 years old. [Straits Times | Aug 2023]. MOH would like to shed light about severe disability through this article.

I picked out some key points:

1. Since the launch of Careshield Life, 46 people who had received payouts have died.
2. In 2022, the approval rate is 73%.
3. > 50% of claims not approved did not complete their application, including those who died while assessments could be completed.
4. 25% of claims rejected was due to person not meeting the disability criteria.

They also provided some data regarding the payouts:

Unlike disability income, we might be rest assured that it might not challenging to secure a CareShield insurance payout. I just wonder why MOH couldn’t release the age of people who start claiming year by year. That will really shed light.

I have this feeling that they just want to get more people who have the option not to be on CareShield Life, which are the older cohorts, to be on it.

We know from this sharing that:

1. Quite probable to be disabled with 3 ADLs at a relatively young age.
2. Those who are disabled, would average 4 years.
3. There are some that would last longer than 10 years.

Learning from Long-Term Services and Support (LTSS) for Older Americans (2022)

In my research, I came across a recent US study that moderated my view regarding the rather dire high probable Long-Term Care situation. This paper was done pretty recently. The LTSS paper is to provide information to policymakers who are thinking about how long-term services and supports should be paid for. The paper goes into how long disabilities could last, how many, and which entity will fund which proportion of the cost.

The research creates a computer model that acts like a simplified version of the real world.

1. Starting with a group of people and families which are design to be similar to the actual population of the United States.
2. The computer model then age the people over time. When they age, they can simulate things like people getting married, divorce, having health problems, becoming disabled, and eventually passing away.
3. The model requires real world information to make the simulations as realistic as possible.
4. The model doesn’t just predict but gives a range of possible outcomes, including how likely it is that someone will need long-term care for a short time or long time and how much it would cost them.

We are not exactly the target audience (we are not policymakers) but I thought some of these data is vital for us to make decisions. Based on the paper, I summarized the probability of needing care and how long in the following slide:

We break down the data to both male and female but if my purpose is to gain accuracy but not precision, then breaking the data down by sexes is not too different. The data is not too different from the Eldershield Review conclusion that around 40-50% do not need long term care. I suppose they passed away through means that bypass the need for help (I am not sure if this is a good thing).

About 20-25% of those age 65 and above would need long-term care of 5 years or longer but that range can be damn wide. This seem to triangulate pretty well with a few other data sources. The other 25% is less than 5 years.

Personal Reflections about Long Term Care After Looking at the Research

Out of the three questions we ponder about LTC, we probably get some ideas about how long long term care would last but not about the effect of severe disability to lifespan and are there any difference between severe disability at a young age versus older age.

I do think that looking at severe disability in two phases makes sense:

1. Phase 1: The low probable but high monetary and effort impact disability.
2. Phase 2: The high probably and relatively high monetary impact and high effort impact disability.

If we suffer, it might be short and manageable (less than 5 years) or can be more financially draining (10 years or more).

We would also know roughly the cost of care in today’s dollars, just that we are less sure about the inflation rate. The cost can be between $3,000 monthly for basic provision to $11,000 monthly for the higher grade nursing care. These cost are before any subsidies applied.

We also know the average life expectancy have slowly increase in the past 30 years to about 85 years old.

The most rolled-eyes solution to my long-term care needs is to have a passive income from an investment portfolio today that covers an inflation-adjusted $3,000-$11,000 monthly for the next 60-70 years. Since you need to buffer for some higher than expected inflation rate, we can determine the capital needed with a conservative safe withdrawal rate (read this article to know what is the Safe Withdrawal Rate) such as 2.5%.

The capital needed will be about $1.4 mil to $4.8 mil today.

This is the rolled-eyes solution because not many of us have this sum of money today and it would be utterly deflating that we can only self-assure our LTC needs (aside from insurance) only if we have this much capital, aside from your other financial goals.

I would rather frame my situation in a different way:

1. If I know my wealth doesn’t fully take care of phase 1 and 2 above, how much does it cost today to protect against phase 2?
2. With my wealth today, if I consider my other financial & life goals, how much of my LTC needs can be taken care of?

I see a benefit in knowing the percentage of coverage, rather than I failed to cover 100% of the LTC needs. Percentage of coverage is beneficial for something like LTC because even if you don’t have $3,000 monthly, knowing you have income to cover $1,500 monthly to pay for an ActiveGlobal nursing care and something more is assuring in some ways.

What I dislike about the story around insurance protection is the binary nature of the public conversation. E.g. You need 4-years of annual expense in critical illness. That is sound as a rule of thumb but some might look at that as a real concern if their critical illness coverage only covers about 1.5 years. You should be glad firstly that you might have enough to take one year off if you need to. That is not the most ideal but the first year of a major crisis fight might be the most important.

I felt that figuring out these two questions I posted is important for me because it may set my mind at ease that if I happen to move into a phase where I need help, I know

1. How much I need in money (based on today’s wealth),
2. that I have a sound and reasonable plan for my caregiver,
3. and to what degree does my current wealth assure that, after considering other financial goals.

I will go through my thought process how I size up the amount of money needed to self-insure my long-term care needs (in today’s wealth), the variations around it.

I will also discuss about how LTC insurance comes into the picture but the article may be too long and I will leave that to another article.

Calculating the Capital Today Needed to Self-Insure the High Probability and Relatively Expensive Long Term Care Needs

I could calculate an estimate of the capital that I need today to assure my LTC needs during old age, in Phase 2 of what I describe before with some reasonable assumptions.

I think it is reasonable that

1. We will try our best to stay at home if we can, with the help of a home-based caregiver.
2. If things progressed until we have to check in to a nursing home, then that will be the cost of the nursing home.

The research shows that it is reasonable that our LTC needs may be less than 5 years but also longer 10 years in some cases. Therefore, we can start by sizing up the cost by planning for a 2 phase of care that last for 10 years till our median life expectancy of 85 years old.

I plot the milestones, how old am I and the assume duration in the diagram below:

We assume that we will start needing help at 75 years old which will last till 85 years old. The cost of home care, in today’s terms is $3,000 to $4,500 monthly depending on how you research. I decide to take the figures done by my colleagues at Havend. These are not my own figures. Some may question how come it comes up to such a large figure? If you read my post about my Caregiver from ActiveGlobal, it won’t come up to half of this cost but we are also catering for other potential therapy cost.

In contrast, the cost for nursing care will look more reasonable since some readers would have experienced this. My friend Alison (Heartland Boy) works in Orange Valley and I check in with him how much a bed cost. My grandma currently resides in a nursing home and I know the unsubsidized rates.

If you felt that you would like a higher grade of care, perhaps staying in Allium Healthcare, you can adjust the assumptions accordingly.

The capital we need today depends on a reasonable funding and income system. This is not dissimilar from income planning. In this case, we are planning for a 10-year “retirement income needs”, which kind of means that the safe withdrawal rate is about 7% or that we are spending 10 equal portions till zero. We don’t need a capital to provide an income that last perpetually.

I have added the following visualization about the income plan:

The idea is some part of our wealth will grow at a certain rate of return and by 75 years old we can withdraw an inflation-adjusted amount to pay for the LTC needs.

There are more assumptions then what is illustrated so here is what will go into the model:

1. Inflation of 3% p.a. from Today to Start of Needing Care. The cost of home and nursing are won’t stay stagnant and I project that to grow at 3% p.a. You might be more pessimistic with the inflation and you could change the rate accordingly.
2. Inflation/Growth of 3% p.a. for income payment after our care needs start. The home and nursing care cost do not stay stagnant within that 10 years. I build in the requirement for the income to grow during our time of need.
3. An assume a portfolio growth rate of 6% p.a. from Today to Start of Needing Care. I assume that I will be using a portfolio allocation similar to my Daedalus Income portfolio (you can refer to the Daedalus Income portfolio here) because I think eventually part of Daedalus Income portfolio will provide the income for this nursing care needs. This is a 85% equity 15% fixed income portfolio with an ongoing cost of 0.28% p.a.
4. An assume a portfolio growth rate of 2.5% p.a. after our care needs start. Why do I assume a lower growth rate for the portfolio start instead of 6% p.a.? There are different ways of being conservative, with using a Safe Withdrawal Rate (SWR) being one. The other way is to assume that the rate of return to be pessimistic, closer to a -2 standard deviation. Usually, the returns end up half of the median return. Using 2.5% p.a. will be below the -2 standard deviation. This means the eventual capital will be larger.

With these assumptions, we can calculate how much capital we need today, so that we can provide an income for our long term care needs from 75 years old to 85 years old.

How Much Capital We Need Today Based on Different Inflation and Growth Rates.

I decided that instead of just using 3% p.a. inflation and 6% portfolio growth from today till when care starts, I calculate based on different inflation rate and portfolio growth rate to give you some ideas:

The box that is highlighted in yellow is the capital we need today based on 3% p.a. inflation and 6% p.a. portfolio growth.

If I have $248,311 today and currently deploy the money in a portfolio that can reasonable give a return of 6% p.a., I should stand a good chance to have a 10 year income to cover future home and nursing care.

I feel quite assured that I have this sum of money and allocated this way.

I was quite surprised when I came up with the figure because it looks much more manageable than my initial fears.

We can frame the orientation from the perspective of how much capital you have:

• $200,000: Covered if portfolio growth 7% p.a. and inflation rate is 3%.
• $250,000:
  • Covered if portfolio growth 6% p.a. and inflation rate 3%.
  • Covered if portfolio growth 7% p.a. and inflation rate 4%.
• $350,000:
  • Covered if portfolio growth 5% p.a. and inflation rate 3%.
  • Covered if portfolio growth 6% p.a. and inflation rate 4%.
  • Covered if portfolio growth 7% p.a. and inflation rate 5%.
• $480,000:
  • Covered if portfolio growth 4% p.a. and inflation rate 3%.
  • Covered if portfolio growth 5% p.a. and inflation rate 4%.
  • Covered if portfolio growth 6% p.a. and inflation rate 5%.
• $650,000:
  • Covered if portfolio growth 4% p.a. and inflation rate 4%.
  • Covered if portfolio growth 5% p.a. and inflation rate 5%.
• $900,000: covered if portfolio growth 4% p.a. and inflation rate is 5%.

The more capital you can identify, the more you can buffer for potentially higher future inflation and potentially poorer returns.

I think I have the figures $350,000 and $480,000 in mind for the next phase of my review. All these sums are currently lower than my net wealth or the current value of the Daedalus Income portfolio (You can view the latest portfolio value at the time of writing here).

Like I said, these figures looked quite manageable considering that the first payment, if we use a portfolio return of 6% and 3% inflation, is $11,000 monthly and $17,000 monthly for the first payment at the start of home care and nursing care respectively. How did this worked out?

The rate of return of 6% p.a. requires for you to invest in a high equity portfolio and it compounded for 30 years. This is not something that an insurer can afford to allocate the money into. You got to trust the long term returns to happen enough for this plan to work.

“Kyith, covering for 10 years is not safe enough!”

Okay, I can hear some of you pondering about this question and I have placed the research into how long we might need the money before the plan. However, if you felt that you need more margin of safety in your plan, then you will need more capital.

That is all there is to it.

Instead of 10 years, we can extend the home care needs to 10 years and assume that our life expectancy is closer to 90 years old. With such assumptions we can form a new table:

If you wish to plan for a 5% p.a. inflation scenario with lower returns, you will need a capital of $1.36 million.

We can frame the orientation from the perspective of how much capital you have:

• $250,000: Covered if portfolio growth 7% p.a. and inflation rate is 3%.
• $350,000:
  • Covered if portfolio growth 6% p.a. and inflation rate 3%.
  • Covered if portfolio growth 7% p.a. and inflation rate 4%.
• $500,000:
  • Covered if portfolio growth 5% p.a. and inflation rate 3%.
  • Covered if portfolio growth 6% p.a. and inflation rate 4%.
  • Covered if portfolio growth 7% p.a. and inflation rate 5%.
• $700,000:
  • Covered if portfolio growth 4% p.a. and inflation rate 3%.
  • Covered if portfolio growth 5% p.a. and inflation rate 4%.
  • Covered if portfolio growth 6% p.a. and inflation rate 5%.
• $1,000,000:
  • Covered if portfolio growth 4% p.a. and inflation rate 4%.
  • Covered if portfolio growth 5% p.a. and inflation rate 5%.
• $1,400,000: covered if portfolio growth 4% p.a. and inflation rate is 5%.

The initial $350,000 and $480,000 range will still cover a 15-year disability, just not optimistically all the scenarios.

If you read my content enough, you may realize that sometimes I will zoom in to very granular stuff, but I can be pretty general and wonder how do I think around it. In this case I am granular in wondering about the cost difference for 10-year and 15-years and rather broad in returns and inflation.

This is because our lives will be rather uncertain. I can setup the portfolio to try and harvest a good return but there is so much I cannot control. I have no control over the inflation of healthcare costs.

Reviewing based on a range of returns, inflation and based on range of capital allows me to roughly know how I will do given the uncertainty.

If the capital is $500,000, this covers:

• 10-Year LTC
  • Covered if portfolio growth 4% p.a. and inflation rate 3%.
  • Covered if portfolio growth 5% p.a. and inflation rate 4%.
  • Covered if portfolio growth 6% p.a. and inflation rate 5%.
• 15-Year LTC
  • Covered if portfolio growth 5% p.a. and inflation rate 3%.
  • Covered if portfolio growth 6% p.a. and inflation rate 4%.
  • Covered if portfolio growth 7% p.a. and inflation rate 5%.

It would be better if the portfolio allocation is able to hit a 6-7% p.a. return to cover both a 10 and 15-year LTC need and I think Daedalus Income portfolio allocation covers this.

How Would I Fund the $500,000 Today for my Long-Term Care Needs?

It will come as no surprise that eventually if needed, the money from my long-term care will come from Daedalus Income portfolio, which is currently 2.8 times more than this amount.

I would like to share a few handles to help you consider about your own self-insuring plans.

We all would need to understand a few concepts or framing, if not you would not trust the plan:

1. Not all your net wealth (assets minus liabilities) today can be considered as suitable to address your long-term care needs.
2. You should have different views/allocations of your net wealth depending on the stage of life/ state of life you are in. This means we can re-prioritize and re-allocate money depending on the stage of life.
3. Recognize that there are money that you cannot re-prioritize because they fund financial goals that are more important to you. This will be less ideal to consider as money to cover your long-term care needs.
4. Money that is set aside to self-insure should realistically have the same asset allocations as what the money is used for today.
5. If a spouse is severely disabled, the family will still need income in other areas.

That is a list of considerations that might look too confusing but let me try to explain except for number 1.

If you have so much wealth, you could set aside this sum of money today, allocate the money into an asset allocation, to take care of this. However, I don’t think everyone has that.

It is important for us to recognize that while money is fungible (which means $1 allocated for X is the same as $1 allocated for Y), you can’t touch a lot of money for long term care needs because

1. The money currently funds some obligations that eventually your family is still obligated to fund.
2. Some money is realistically spend down or gifted away by the time the trigger even happens.

Simplest example is that you can’t possibly liquidate part of your residential home if you need money for long term care right? Actually you could technically if you live in a landed property and the spouse is okay to move into a two-room HDB. But I think you get what I mean.

Some of your portfolio may be used to generate income for your vacation or discretionary spending. You may wonder by the time you need it, will the money be there. Probably not.

We should look at this LTC needs as taking stock how we are doing with what we set aside for LTC needs instead of setting and forgetting it. More on this later.

2. You should have different views/allocations of your net wealth depending on the stage of life/ state of life you are in.

We like to look at how our money support our lives as a continuous line where we add financial goals, hit the target, then add more financial goals, hit the target. But it is likely, that the set of financial goals changes over time depending on the state of life that we are in.

When our state of life changes, we should fall less to sunk-cost fallacy and consider how we can reallocate our resources to support the next phase of our lives.

I have list out how we would possibly allocate our net assets based on the stage and state of life we are in:

I list out almost 5 states and 4 of them are common with one that is relevant to the topic we are discussing today. Our priorities where we divert our savings change over time. We cannot allocate so much to FI because we got wedding and renovation to think about when we are younger (first box). As we are married with children we want to save up for our FI and children’s education so most of our resources are diverted there (second and third box).

Some may be confused how to think about their legacy needs. I think that is basically thinking about their wealth today… and what you wish to do when both your spouse and yourself is not around (the last box).

Through these life changes, you are trying your best to make the best financial decisions with the resources that you have.

What we failed to really plan is the state where one of us is disabled while the other person is alive and well. This can be while we are accumulating or decumulating. The forth box best illustrates this. When one spouse is disabled, the most sensible thing is you want to see how to reallocate your family resources to help:

1. Some of the FI income should be diverted over.
2. Family should get some income from Careshield Life.
3. Adult children should help out.
4. Choose to rent out a room or downgrade.

These are all capital reallocation decisions.

Would reallocation give us a successful outcome? I would like to think we are all flexible and resilient but you can also consider and try your best to plan for this phase of life as much as you can so that the family can do okay.

3. Recognize that there are money that you cannot re-prioritize because they fund financial goals that are more important to you.

If you are able to re-frame and have different planning snapshot based on the state and stage of life you are at, you be moving to consider what are the assets that you may re-prioritize if one of you eventually be disabled and what would not.

Firstly, there are some assets that you would not sell and are just meant for some evergreen goals. Your residential home may be one. As a single, my family member can always consider renting out two of my rooms, or to sell off the home if the appointed donee has power of attorney to make decisions on the residential property. So the home is more subjective here.

A better example will be CPF Medisave funds. Medisave is meant for your medical needs and even if you wish to divert, you cannot do it.

Another example is how much of your income in financial independence that you spend on discretionary stuff like vacation that is around today, will be around 30 years from now?

This can be challenging for many of you because you consider your income in one bunch… say $10,000 monthly. This includes your inflexible essential spending, more flexible basic spending and your discretionary spending and even your buffers to smooth out the income.

Is it safe to say I have $10,000 monthly income today, therefore my LTC needs is taken care of?

Not always the case.

1. Some plan for income that steps down over time.
2. Some spend a greater proportion on essential spending while others have a greater proportion on discretionary.

You would need to see if you can separate out each $1 today to figure out realistically you can reallocate the resources if one spouse is disabled.

I have less problem here because I always consider my essential, basic spending and discretionary spending to come from different portfolios so I have a clearer view how much is the portfolio a few years from now compare to someone who look at things simplistically.

4. Money that is set aside to self-insure should realistically have the same asset allocations as what the money is used for today.

I felt this one is quite self explanatory.

If your plan is for $200,000 to grow to $X in 30 years time, the money today, allocated perhaps to other stuff, have to be deployed to equivalent assets that has the potential to earn that same amount. If you currently have it in cash, it can’t possibly grow at the same rate. So how can the plan be realistic?

5. If a spouse is severely disabled, the family will still need income in other areas.

While I am single, this is a consideration for the folks who are married but it kind of applies to me in a certain way.

We cannot assume that if a person is disabled their other spending goes away:

1. Some of your discretionary spending should be reduced,
2. but your spouse may have to spend normally on his or her essentials,
3. the family needs to pay the usually utilities, conservancy or MSCT, and maintenance & upkeep cost.

The challenge for us is that all of these take place years from now but currently, the money may exist as your financial independence fund in one lump sum. So how do you split them out?

At some point, you might not be able to. If you are currently 32 years old and the money that you set aside for your financial independence is $105,000, you might not have enough for your eventual financial independence at this point. Technically, you could say 30% of your income needs today is something that you cannot reduce even if you are severely disabled in the future, but it is tough to envision it right now.

This exercise will make more sense if the money that you have, aside from your more important goals that cannot be reclassified for long-term care is $700,000-$800,000. Technically, if we use a 3% safe withdrawal rate (SWR) as a rule of thumb, the current income is estimated at $1,750-$2,000 monthly, you can ponder how much realistically, are income for maintenance upkeep, and how much capital is left for potential long term care needs.

If you look at how the capital needs triangulate around $250,000, $350,000, realistically your portfolio for FI should alleviate your LTC needs, together with Careshield Life, CPF LIFE.

Should you review your current expenses in detail? I think if you do, you can split them better. Generally, I think aside from what is consider essential, discretionary spending, and buffers to smooth out the income, you can frame your spending for LTC planning this way:

When both of you are alive, whether in decumulation or accumulation mode, there will be some part of spending that is family spending that is rather essential and recurring. This may be utilities, broadband, recuring fund for maintenance, conservancy and MCST, property tax. There can be some other stuff that you find it to be recurring such as helping out a family member. These are things that cannot cut down.

Beyond that, much of the basic, essential and discretionary spending is consume as a couple.

When one spouse has to care of his or her disable needs, his or her portion can be diverted for his needs leaving enough income for the family and spouse spending. Would there be a situation where both spouse consecutively need long term care needs? I find that challenging to believe and in that case there will still be some family spending that needs to pay for.

Is there a percentage rule of thumb to estimate the ratio between the family spending and our own spending?

We set a rough rule of 70% own spending and 30% family spending. It is a rough rule and your own personal mileage would be different. For example, Kyith cannot apply this rule at all considering how I structure my spending.

Why I Think it is Sensible that a Portion of Daedalus Income Portfolio Today Can be the Capital for Future Long Term Care Needs

Daedalus is roughly valued at $1.45 million at this point and it is suppose to provide income if I retire for my essential spending ($854 monthly) and basic spending ($430 monthly) mainly. If we take the combine annual amount divide by the current portfolio value, the current withdrawal rate is 1%.

Having a safe withdrawal rate of lower than 2% is already very conservative and in truth this means I could possibly divert 50% of Daedalus for my other goals (such as LTC needs) but I think I don’t want to make big movements aside from spending from the portfolio in the future. This is so that readers can have a good reference point.

If you have a safe withdrawal rate lower than 2.4% when you start drawing the income, chances are 30 years later, the real value (means inflation-adjusted value) of your portfolio should still be the same.

This means if I just spend but within a reasonable spending decision tree by the time 30 years later, the capital should be intact. I do expect Daedalus portfolio to provide income perpetually.

The portfolio is currently allocated in an asset allocation similar to my assumption that should provide 6-7% p.a. return.

If you take out $500,000, the residual portfolio can still provide my most essential spending, which includes all the maintenance spending such as property tax, utilities, conservancy fees, maintenance.

What then about Phase 1: The Low Probable but High Monetary Disability?

What I mentioned thus far address more of Phase 2.

Phase 1 is tougher because:

1. You don’t know if a disability is temporary or permanent.
2. If it is permanent for a young person, the cost would be quite difficult to deal with. You may need to prepare to deal with a 30-year need.

Some of my insurance will cover this:

1. Total Permanent Disability [Probably $450,000 payout | Ends at 65]
2. Disability Income [Cannot work: $2,000 monthly till 65 | Ends at 65 or no work]
3. Critical illness [Probability $350,000 payout (will overlap with some of the TPD]
4. Careshield Life income [Currently at S$664 monthly]

If I apply a initial withdrawal rate of 3% on Daedalus, this would bring in an income of $3,625 monthly.

I think I should be covered to a certain extent.

My current plan is when i am working I might procure a Singlife Careshield supplement to be more well covered.

I would leave the insurance to part 2 of my personal long-term care coverage notes.

Meantime, let me spend some time addressing some potential questions that you may have.

Why Did you Use S$4,500 monthly and S$6,000 monthly when Future Care Cost Would be Higher?

If you look at the assumptions built into the table of initial capital required, it embeds an inflation rate of 3% p.a. before the spending is potentially needed and also 3% p.a. growth of the income when the spending starts. This means that I have factored inflation into the plan.

I provided different capital if you prefer to assume a higher inflation cost as well.

Wouldn’t Assuming a Rate of Return of 6% be Too Optimistic?

The rate of return is not extremely optimistic for a predominately equity portfolio. If I am unlucky for 30 years, the rate of return might be lower at 4% p.a. after 30 years but I also cannot do anything about the plan that can improve the odds. Maybe you could.

Would the income then be lower? Yes that would be.

This is why I have an eye on $500,000 in initial capital to cover the LTC needs instead of $350,000 or $280,000 just to be a little conservative. If you look at the amount assume for home care, you might also realize it is a tad high. I think there are some margin of safety in that.

Returns in the future are uncertain but we can plan around that uncertainty systematically.

Why Do You Plan with Initial Capital Today Instead of Passive Income?

Well you could if you wish to express it that way.

I present value the income stream needed for home care and nursing care from 75 to 85 years old because I plan for a rather short period of 10 years. Whether I use a safe withdrawal rate to estimate the income, it works out to be roughly 5 x the initial income stream for home care + 5 x the initial income stream for nursing care. Basically no difference.

If you wish to, you could estimate how much of your residual income from your portfolio, CPF LIFE, and other means can be use to pay for your home care or nursing care needs when the time comes.

But I suspect when you plan for these income for your financial independence, you have build in some margin of safety in your income to smooth out the income volatility. You also want the money to last for a long time (most likely outlast you and you can pass down the money).

But your long term care needs might be a finite number of years.

I am looking for an answer exploring the floor of the capital that I need minimally so as to figure out if I am adequately self-insured. I am looking for a more optimized answer.

If your income stream is so wide, you can use that 70%:30% ratio, and then divide by 2 to see if your family is adequately covered for long term care individually.

You might also have to jump a few mental hoops if your income stream is pretty staggered.

Don’t You Find the $4,500 Monthly Income Need for Home Care A Tad Bit Too High?

I took the $4,500 monthly from home-based care guide provided internally. If you ask about my personal experience (I hired a caregiver for my late-dad before, and tend to my late-mom. I paid partially for the nursing home care for my grandmother), I cannot connect with that figure.

If you tell me a sum of $2,200 monthly that does a lot of things. I suppose the $4,500 monthly bake in a lot of therapy and rehab.

The alternate question is: Kyith, does it make sense for me to plan for 50% less?

The challenge is I don’t know by having less income and less therapy would that prevent you from improving your disability.

But if you wish to use $2,200 monthly so as to figure out what is a lower floor that you might be able to live with, you could do that. Suppose we use the same 3% inflation, and 6% p.a. portfolio return, and keep the nursing care to $6,000 monthly, instead of $248,311 in initial capital, the amount becomes $189,419 in initial capital, $59k or 24% lesser.

I think that is significant to some but less significant to me.

Would You Consider Renting Out a Room or Your Home to Offset Nursing Care Costs?

I could potentially do that.

That would not be out of question. A home around my area rents for $3,000 monthly. This would potentially offset the cost of nursing care. This works for me as a single currently, but that might not work for you.

However, my caregiver would have to carefully consider which is more worth it. If there is no income coming in, and if properly means-tested, my nursing care cost could potentially fall from $5,000 monthly (in todays’ dollars) to $500-$1,000 monthly.

Which brings us to the next point.

Wouldn’t There Be Some Subsidies That Could Reduce The Cost of Care In the Future?

There are.

If my monthly per capita household income (PCHI) is zero (as a single), I am a Singapore Citizen and the annual value of my home is less than $21,000, the subsidy for Residential LTC services is 75%. [Subsidies for Residential Long-Term Care Services]

I have seen this number be reduced to $500 monthly or $1,000 monthly

Aside from that there is also Home Caregiving Grant that recognizes caregivers’ contributions and reduces caregiving costs, with monthly payouts of up to $400 per month. This is more for home-care. We can consider $250 monthly instead of $400 monthly if we were to factor in inflation, which may reduce that $2,200 lower floor monthly to $1,950 monthly.

If we consider nursing care of $1,000 monthly and home care of $1,950 monthly, this can reduce the initial capital from $248,311 to $72,111.

Now that is a much more affordable sum.

However, I don’t think I am the sort who would plan based as if the government subsidy structure will be similar in 30 years time. This is kind of similar to the idea that inflation in the past is 2% p.a. for 20 years so next 50 years, Singapore inflation would average that.

I think I would rather review if we don’t depend so much on subsidy, how much would that cost me.

Conclusion

What? Nothing on our favorite Careshield Life, Eldershield and its supplements?

I think part 1 will explore if we have some net wealth currently, how much would it cost us to self-insure against the high probable and high monetary impact phase of severe disability. We will explore the insurance part in part 2 (if I ever recover from writing this).

Personally, I am glad I get to participate in this solutioning as it forces me to explore how to make sense of my future long term care needs. If we didn’t take care of our long-term care needs, we can always depend on our caregivers to help finance that.

This is not new. In the past and currently, I have financed to different degree family members long term care. But wouldn’t it be better if we can do our part?

I think this is the first article out in public about long term care that is not about insurance, Careshield or Eldershield but on self-insuring. Insurance may be the more efficient method but more and more, I think the more fundamental sound framework to wealth is one where you insure before you build up your wealth but build medical sinking fund so as you be in control about how you can use the money for your healthcare needs.

Leverage on insurance when you haven’t build up the wealth and the consequences are larger because many people depend on you or time is more important.

My main worry is whether I have enough for the high probably and high monetary impact severe disability in later years. Based on my model, I should be pretty well covered with some margin of safety.

I felt relieved the numbers look more manageable and I have a way to self-fund with my current resources. And I hope that by sharing some of my thought process, it may help you to size up how much you need for your family as well.

If you find this sharing useful, consider sharing it with somebody.

You can read my other notes about my own personal planning under Managing Kyith – My Personal Notes.

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