I've $5.2 million in the stock market and I'm in my 40s. How much can I afford to spend so I can enjoy the rest of my life?

By Alessandra Malito

'I didn't intend to retire under 50, but it sort of worked out'

Dear MarketWatch,

This is my question in a nutshell: How much will I need for self-funded late-life care?

And here is my question in long form: I worked for corporate America for 20 years after earning my MBA. I saved money by continuing to live on less than I earned, and I always have cash flow so carry no debt.

I put it all into the markets, both through 401(k) plans and the like, and my own brokerage account. I never took anything out until 2008, when I used $100,000 of my $1.6 million to buy a house after the real-estate prices came down. No mortgage.

The 2010 decade saw my portfolio go up in value considerably. In that decade, I left the paid workforce to care for a family member. I wasn't able to put away any more money, but my account grew over time.

During the pandemic, I lost a parent and inherited about $1.8 million in a survivor benefit and a brokerage account. I now have about $5.2 million in the market. I do own a home without a mortgage, but I don't think of that as wealth, because I will always need to have a roof somewhere.

I didn't intend to retire under 50, it sort of worked out that way given the performance of my portfolio and my inheritance.

Based on actuarial tables, I have 45 years to plan for. I don't have any long-term-care insurance, and I have decided I'll self-fund if it comes to that.

How do I figure out how much I'll need to have later, so that I can figure out how much I can spend now?

Traveling and enjoying life

Currently, I'm traveling and enjoying experiences. They aren't cheap experiences, but I'm modest in my hotel choices, airline tickets etc. My biggest fixed expenses are healthcare, taxes and upkeep of the house, state and federal taxes and one big project a year (such as the roof, replacing the furnace, etc.). My other expenses are travel, meals, experiences, house management while I'm gone and gifting money to people now instead of the future.

When I look at numbers I see I'm well positioned to not have to work again. But I would like to get a better feel for how to map out future potential costs to understand if I'm underspending or overspending.

There are a long list of experiences I'd like to have, but I can't tell if I can afford to take them now or if I need to spread them out over the years (as I've been doing). I will be eligible for Social Security and Medicare in the future, and do not intend to take on any debt. I do have charitable plans mapped out, but I am not worried about leaving a large legacy after death.

I understand the question doesn't have a hard-and-fast answer because who knows if I'll even need long-term care or live another 45 years? How can I best enjoy today without being irresponsible for the future?

Future Self-Funder

Related: I'm 55 with no kids. I took early retirement. I've more than $2.7 million in stocks and $1.6 million in real estate. Is that enough?

Dear Self-Funder,

It goes without saying that you're in an excellent financial position, and you aren't the only one in that sort of situation to want to self-insure for long-term care costs. It's great that you're getting a head start on crunching the numbers, because you never want to be in a position where you've drained such incredible assets and are suffering to take care of your health and wellbeing.

There really is no "hard-and-fast" number for this, like you said. That's because there are so many avenues life can take. You may have no long-term care needs, or something minimal like having a health aide visit a few times a week to help with living arrangements. The flip side would be much more expensive, such as residing in a nursing home, especially if there is a serious health issue, such as dementia.

The average home-health aide costs an average of slightly more than $6,000 a month, whereas a private room in a nursing home has an average price of almost $10,000 a month, according to Genworth, which tracks the cost of long-term care across the U.S. But those are just averages, and depending on where you live, you could be spending significantly more or less. In New York state, the average nursing home private room costs nearly $15,000 a month, while in Arkansas, that same set-up would be less than $8,000 a month.

Financial services company Raymond James has a good long-term care calculator to help estimate the expenses. It lets you put in a figure for daily cost, as well as an inflation rate and your estimated years of care. There's also an input for how much money you have available to spend, so you can see if you're protected or not.

Prepare for a wide range of scenarios

At this point, your best bet is to get figures for various scenarios. Be ultra conservative, and calculate for years - maybe even in a decade - of long-term care. Do an analysis for various levels of care - everything from a private or semi-private room in a nursing home to choosing an assisted living facility or home-health aide. Play with the number of hours that aide might be helping - 24 hours a day, seven days a week, or just between business hours during the week. You want to be prepared for the worst of cases, so that you're not hurting later in life.

And don't forget to factor in inflation. Healthcare inflation rates tend to be higher than general consumer inflation. The price of care, which includes services, insurance, drugs and equipment, has grown 114% since 2000, compared to nearly 81% for consumer goods and services during that same time period, according to Peterson-KFF's Health System Tracker.

I'm not sure if you're single or not, or if you have any dependents, but if you did have life insurance, or you were interested in getting that, there are long-term care riders that allow you to tap into a death benefit while you're still alive to help pay for that type of care. In a similar vein, there are policies that offer a chronic-illness rider, which allow you to use the death benefit for that type of care if you are diagnosed with a serious health issue (look closely at the terms to see what does and does not qualify).

While you're figuring this out, also consider logistical matters. If you expect anyone to help care for you, just like you did for your loved ones, have those conversations well in advance, so you are all on the same page. Consult a trusts and estates attorney for your end-of-life wishes, as well as how you want your assets managed legally, and get important documents in order, such as a power of attorney and healthcare proxy.

Long-term care is so much more than just numbers, but you're in a really advantageous spot.

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-Alessandra Malito

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04-27-24 0912ET

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