Thursday, August 25, 2016

A New Reality: One or Two Spaces

It is 1:52, Thursday, 25 August, 2016. I have three hours before there will be a nock on the door for the evening meal. It takes four hours to do a complete search of the apartment. The place is getting too big or we must remove a lot of stuff.

Up until yesterday, my wife paid little attention to stuff on my desk or file cabinet. Yesterday that was all she wanted to "check out". The new power cord for the air ionizer, particle agglomerator, arrived. I opened the package and had it in my hands about 10 minutes; unfolding the cord and getting ready to plug in. The phone rang. I answered and hung up. The new power cord was gone. Nor did we find it last night.

As we were getting into bed, my wife threw a pillow at me in an unexpected but teasing way. My body responded in a way that I have not felt in about 75 years. I had a quick and bad temper as a little kid. I found that I felt better after such an experience (now we know: the rage relieved my allergies, I felt better for a few hours). I also learned that it could get me into troubles; say things or do things that can never be undone.

This morning she only wanted to sit at my desk and examine everything. That means pick it up, look it over, and then put it somewhere else in the apartment; sometimes with and sometimes without any sense of order. The blue fitted bed sheet I laid on the day bed, as I got ready to put the blue sheet on my bed, vanished as I turned away for a minute. I found it later, compressed to 1/4 the size I had last seen it in a small packing box.

Our oldest son set up the "Find My iPhone" as part of his complete overhaul of this computer last weekend. The iPad has been missing the last 2 days. I could not remember how to find it this morning. His response to my iPhone message was a message, and using TeamViewer to show me how to get started. The iPad's robust ringing led me to an old CPAP case.

Most people put new things on top of whatever is already in the space. My wife puts them within or underneath.

And so I have been pushed to the brink again. First it was my back that landed us here at Provision Living at Columbia. Now we must learn to live in residential care either together ($7,000/mo) or in two separate spaces.

The cost of separate spaces is obscene (over $10,000/mo), but two other couples are now doing it; they have sold their cars. The last couple split yesterday as the "caregiver" had not had a decent nights sleep in the past two weeks. We have no trouble sleeping on three beds in a studio apartment.

He and I are no longer looking at residential care as a substitute or replacement for living in our own houses as homes. Former apartment dwellers can skip this adjustment. We are looking to make the best of the situation we find ourselves with the funds we have.

I do not want to be pushed to the point that I again feel that blast of heat that starts in the chest and then sweeps out to the ends of my fingers, toes, and ears. Time stops. I float for a moment, suspended in space. It is not the rational world that I like, and am comfortable in, and I feel safe when I can get sufficient facts on which to base conclusions . It is not the emotional world that is fun and I am comfortable in when shared with friends and loved ones; but in which I feel less safe.

It is not the same, but boarders on the world I have had to share with tobacco addicts before I realized their problem was their addition rather than anything else they may say or do with tobacco. I could tolerate them (and their apologists, who work them for profit in several ways) for a period of time before my feeling became a slowly increasing boiling, rather than a sudden, unexpected bolt out of the blue. This was periodically accompanied with severe digestional track upsets. I have had one here.

One space or two spaces? There are no residential care sites in Columbia, MO, that are tobacco smoke free. (Only the University of MO, medical center no longer hires tobacco addicts.) During 6 months here at Provision Living at Columbia, I have found tolerable air quality (tobacco addicts and Air Scent powered dispensers).

Independent advisors still tell me to "stay the course". So we clear out all the stuff we can from this studio apartment that still leaves my wife with things she "needs". If I pick up something she wants, she has no difficulty letting me know. I also must clear out the lockable two drawer file cabinet for space to put what I must not lose. [My wife is the only one in the 22-person unit to exhibit this extreme pack rat behavior, in our apartment and the activity area.]

Plan two: If two spaces become necessary for any of the above reasons as well as the progressive nature of "memory gaps", then pick a memory care site near a willing relative where there is no tobacco smoke or the use of misnamed and misused air fresheners.

It is now 3:47 and I have been polled for supper. I often order one each of the two main options. My wife and I then accept or trade at the table. This gets us out of the problem several residents have of forgetting what they ordered; and when seeing the plates, want to switch, or order something entirely different (which is always available but may require a 30 minute wait for it to be cooked).

I hope this "on the spot reporting" conveys some of the feeling of life in residential care. It has helped me "cool down". I personally cannot feel that we have been here six months. I have been so busy adjusting to constantly changing conditions "one time, get it right, permanent choices" that time has just roared by.

Monday, August 15, 2016

Annuity Instant Wealth

We have a 3-year-old $25,000 delayed pay annuity with State Farm Insurance that has riders. Now that I have figured out how annuities work, is it still a good deal?

I am using the mathematical model I created that seems to produce the same results found in annuity marketing materials. It also fits the one we are betting the house money on from Guardian Life.

So first we pay $25,000 to the company. It is no longer our money. A delayed pay annuity has two parts: First savings and second monthly payments. The pot of money put into the savings remains there (green, Chart 27). The pot of money annuitized (divided into equal monthly payments) is reduced by 1/10 each year (brown siding).

The annuitized pot contains, on average, 1/2 as much as the savings pot, therefore the interest Is also half as much; the brown line rises half as much above the pot at the start of the contract as the green line rises above the pot at the end of the contract.

The instant we sign the contract the annuity calculator turns that sum of $25,000 into $29,308!!! We have made (been assigned) $4,308 (assuming 3% interest per year). The company must pay us the total of $25,000 + $4,308 in interest in uniform payments for 10 years (Chart 28). It is that simple.

The company can keep this promise if it earns 3% (plus operating expenses) on the balance in our contract (brown line, Charts 28 and 29). In return for using the money we gamble on the company, it promises to perform the useful service of uniform monthly payments. This is in contrast to cashing in CDs with 3-4 year terms; that have a 1/2-year to a full year interest penalty.

The down side is that an annuity requires making a 10-year bet instead of 1-5 year bets on CDs. The up side is that an annuity averages out (smoothes out) the bumps in financial markets.

The extended time of 10 years also produces a higher amount of money with the same rate of interest in the savings mode of the delayed payment annuity. It promises $8,598 interest over 10 years at 3% rate in the savings mode (just like a CD). During the first five years it earns $3,982 and in the second five years, $4,606; a difference of $624. Two sequential CDs would come up short $624 as well as be subject to interest penalties if the money were needed earlier than the maturity date.

CDs and the savings mode of the delayed pay annuity add interest each year to the original $25,000 increasing pot of money. The annuitized mode of the annuity adds interest money to the decreasing pot. Uniform monthly payments cut the pot in half on which to earn interest. The result is 3% savings earns $8,598 and the annuity payments contain $4,299 (which is 1/2 of $8598 = $4,299).

So, if I let the savings mode run the full 10 years I will have $33,598 to annuitize. That turns it into a promise to pay worth $49,387 payable at $3,939 per year or  $328/mo. I will get my last payment at age 102 (assuming a simple clean contract). As is, the for-life rider would actually use up the interest if we annuitized the contract. To get the full rate of return, at 3%, we must terminate the contract at 5-years (age 88). Also if one of us lands in a nursing home we can terminate the contract without penalty.

There are many ways to market CDs and annuities. My best guess at comparing them is to figure out the clean rate of return (no riders of any kind). You do not have to figure out how old you are now, your sex, drug (tobacco) addiction or when you will die. Then add (or accept) riders that seem worth the cost (or that can be avoided by taking action within the conditions in the contract).

Comparing CDs and Annuities

Calculator Passes (1 and 2)                                    3.00% Input     2.625% Input

Total Payout (monthly checks)        10 Years            $29,308            $28,750

Total Annuity Cost (one check)                                $25,000            $25.000

Total Interest Amount                     10 Years              $4,308              $3,750

Total Simple Interest Rate              10 Years               0.172                0.150

Annual Simple Interest Rate            1 Year                 0.017                0.015

Simple Interest Rate as %               1 Year                 1.72%               1.50%

Comparable to CD Rate                  1 Year                 3.45%               3.00%

In this example, the second pass through the calculator has reduced the payout by $558 ($29,308-$28,750) to yield a 1.50% return on the $25,000 contract. It takes two of these to match a 3.00% CD. A CD works on all of the initial pot rather than on just half, on average.

A clean annuity delivering half the amount of interest money as a CD is performing at the same rate of interest as the CD. Yet marketing stresses the amount of annuity money paid out rather than the rate of interest for easy comparison with CDs.

I now have a smart annuity calculator (Chart 30). On the first pass I enter a value that represents the rate that will generate the desired simple interest rate. I can copy that result to the right column. I can then tease the entry rate until I get the exact desired simple interest rate (1.50% that compares to a CD at 3.00%).

The final entry value (2.625%) is the value that when compounded 10 years yields the simple interest  rate of 1.50%. The company seems to have limited risk in doing this in a normal financial market as the interest earned creates a positive balance from the first year (purple, Chart 29). It also has the $25,000 pot that is easy to divide into 10 parts. It is only the interest that actually needs to be averaged out. 

There is still more to understand here about the interplay of compounded and simple interest and how it lowers the cost of providing the contract (using 2.625% rather than 3.000% money). It appears that the annuitant benefits on the way up (savings) and the company benefits on the way down (annuity). 

I again end with: If I am in error on any of this, please let me know. I have had one response to the Comparing CDs and Annuities table above: “In 8 years of doing this, I haven't had any client report back to me with such a thorough comparative rendering. It's so refreshing!”

Saturday, August 6, 2016

Decision Time - Six Months

Yesterday I again visited Mill Creek. I did not take any of the pricing or building information with me. Just a clipboard with a few notes. I am now an experienced observer instead of some one needing to solve a serious and poorly described set of problems.

We came to Provision Living at Columbia six month ago. It had just opened. There was no waiting list. We then moved to memory care two months ago.

My wife has adjusted to that last move. Our apartment and the activity areas are no longer separate places to her. A few days ago she blocked the apartment door open and went back and forth between these two separate spaces. She only did that on one day.  Later, I did the same thing to see her response. She did not like the door to be blocked open. [I now need to write up how she communicates when she cannot put things into words.]

My wife has now settled in. The house is sold. She is now aware of this but has not been able to say anything about it. The financing of our residential care is still unsettled but no longer a major concern (going broke gracefully). She is also unable to respond to this.

The tinsel and awe of these two sites have now worn off. Money and structure have receded behind people, and how they interact. It is the dynamics of these sites that keeps them from being just impressive and very expensive hotels. [We learned at a lecture on hearing that “normal” is what you have experienced in the past 90 days.]

I actually felt comfortable visiting Mill Creek this time; sort of like being at home again. There was a group painting in the activity area. We chatted and I shared my experience with old paint, on my pants, coloring my cloths and the cloths for another person in the laundry.

We compared programs and activities. We discussed the timing of moves. We visited similar areas within the three-building complex, and the related benefits, of having all of this in three buildings and in one three-story building of comparable length.

We discussed the problems these two sites have in getting into full operating status with the labor market in Columbia, MO. The same ads with sign up bonuses from $1,000 to $5,000 have now run for months. Both sites must be very selective in who they hire at all levels of skill and experience. Employees must protect both the lives and property of residents. Both sites have the latest in training programs to promote “resident oriented" services.

Resident oriented programs such as The Eden Alternative, Best Friends, and CARES Dementia Care for Families are the opposite to hospital “patient” oriented programs. Do what the resident wants and can do rather than what an administrative order dictates to the patient by the clock. Provide an environment for the resident to thrive ($6,000/mo) rather than a space in which to cure the patient to go home ($600/da).

[Memory care areas are now smoke free to the extent that there is no smoking on the property. This means addicts drive away, smoke in their cars and return with their hair and cloths fully saturated with old stale tobacco smoke. Employees are also provided with free counseling on breaking their addiction; with very low results. The leader in breaking addiction (and in effect producing a free bonus pay raise) is the University of Missouri medical center, which no longer even hires nicotine addicts.]

The accommodations at Mill Creek are comparably spacious to Provision Living when making a direct comparison of a separate space for each of us, and less expensive (memory care and independent living, $8,800/mo at Mill Creek). Providing these same services in one memory care studio apartment makes them the least expense ($6,800 at Provision Living at Columbia).

The severe back problem that landed us in Provision Living is now gone and what remains is responding to the ever developing daily exercise program. My wife has now settled into memory care. Our three-month respite has lasted half of a year. We both have new friends we share activities with (both residents and employees).

This presents a dilemma not of our making. If Mill Creek had opened sooner, we may well have landed there and tried assisted living with memory care daycare; the same thing we tried here, and after a few months found was not working anymore. This situation is the scary part. Any decision, however carefully it is made, can need to be reconsidered in the future. Living as a couple makes this more difficult than for a single person.

(I found there is a review process; daily, weekly, and monthly; built into the staff routine, at both sites, so everyone working with each resident knows about changes in health and behavior.)

Independent advisors repeatedly tell us to “Stay the Course”. To move now means a new beginning on another unknown path. Staying the course also ends the stress of continuous indecision.

In summary, it has taken me six months of living in residential care and many visits to Mill Creak to actually have the background with which to appreciate the similarities and differences between residential care sites. Mill Creek and Provision Living are just two different flavors of super premium ice cream.

Both depend upon what Provision Living­­­ calls radiant personnel to create the family atmosphere within their structures. It is more than that; it is having the time and patience that a watchful grandmother has to instruct, play with, correct and spoil a grandchild with no one’s feelings ­­getting hurt (called diversion and distraction on site).

My best advise for those who can plan ahead is to make a practice of a weekly outing to a residential care site. Then revisit as needed to feel a comfortable fit. We did this. On the first visit, take the tour. On later visits join the activities with the residents. We did not eat all three meals, but I would recommend that; to observe and visit with the residents and become more familiar, and as a result, learn to be more comfortable yourself.

Secondly, be a friend with employees and residents; we all live here. To really work, you must be a part of a functional “radiant” family. Things happen. I have a matching set of grey t-shirt and shorts. And in the laundry this morning my wife’s white pants have red spots all over, and on a bath towel; someone’s lipstick she picked up.

Out of the shower and late to the noon meal. The pair of grey shorts has red spots too. We now know that not until things are in the washing machine are they safe from having something inserted day or night. My wife roams freely day and night now that she has the entire unit in her domain.

Wednesday, August 3, 2016

A 5% Increased Monthly Payment Contract

This is becoming a story of a pastime I have had difficulty with most of my life (allergies and stale tobacco smoke shut down my math processor) but from which I have obtained much pleasure and happiness: gathering all the information I could, doing something else, and immediately jotting down the answer when it came. (I dug a seven-foot deep French drain around half of our house in Maryville waiting for software answers.) 

I have always been amazed how real world events can be captured in numbers and then manipulated, as they could never be in real life. And then looking between the numbers to find powerful predictive relationships I never knew existed. Here the source of questions is the annuity and related investments.

Understanding the current popularity of annuities opened a number of questions. That one can about double the interest rate by reinvesting the immediate monthly payments was proposed by a family member. Is this real or is it an illusion, like a perpetual motion engine?

I would need to know how the annuity really works to make such a comparison. Interest on money is a tricky thing. I was surprised to learn, on my second job after finishing Hamilton Commercial Collage, that the vice-president of the Nora Springs, Iowa, bank was making personal loans of $100 but only giving the person $90 with the payback at $10/week for 10 weeks. This is a 10% interest loan over 10 weeks. The average earned interest, 20% over 10 weeks, is collected before the actual use of the loan. This is marketing a 10% loan.

Up until now I too took a 5% annuity inflation rider as a 5% increase in payments each year, until the contract ended.  The [next to the] last post opened the door to a number of questions I need answers to before comparing the annuity payments to re-investing.

The relationships between the numbers for the 5% increase payment are shown in Chart 23. The payout (blue) gradually, ever so little, increases over the 20 years of the illustrated contract. The difference between the 5% increase payment and the no benefit rate (red) vary, as expected. The result is an accumulation (green) of money at the start of the annuity payout (positive difference) and a withdrawal (negative difference) toward the end of the contract period. The highest point is at the end of 12 years, not at 10 years, the halfway point. This makes sense as not all of this money is paid out.

The illustration contract purchaser put $10,000 in the pot, on a monthly basis ($100,000 total). [The full pot is $100,000 + $20,000 interest over 20 years = $120,000 or $120,000/12 = $10,000 monthly payment rate] 

The balance (purple) in the pot decreases with each monthly payment until the end of the contract when $579 is still there (Chart 24). 

I have considered the interest rate I put into my annuity calculator as the rate the company had to earn to make payments at that rate. Clearly that is not the case. The initial $10,000 provides the needed funds with a surplus of $579 ($579 x 12 = $6,945 contract total) in relation to no benefit payments (Chart 25 and enlarged in Chart 26).

The total $120,000 in the full pot minus a total payout of $113,055 = a loss of $6,945 to the owner of the contract in respect to a no benefit, fixed monthly payment, 20 year contract. The cost to the company of a no benefit contract ($20,000) is paid entirely by the company from the interest it earns from the money it invests, including from the illustrated contract.

I took a look at the results of feeding “interest” rates of 5, 6, 7, and 8% into the calculator with the first monthly payment of $250 (half of the no benefit $500 monthly payout). Why the correction for 5% increase payment was limited to 7.5% in expanding the payout rates in the illustration is not apparent.

This raised the question of how well the fixed annuity model for determining monthly payouts works for the increased payment rates from 1 to 5 percent in the illustration. The new question blanked out the above story (how I was proceeding and what significance it had). It was like the new question appearing on a move screen with all of what I was doing fading out in the background. Gone.

I needed to write up how I got to this point (again make sense of what I was doing). That was the prior post. This morning, 2 August, I seem to be over a three-week battle with stale tobacco smoke. My head seems clear again. My innards are not grinding and hurting.] [7:55 pm. Its not over yet. Supper was late.   :(]

So here is what I am left with on immediate annuities:

Guardian Life is rated in the top five companies by Barons in June 2015 for ten year certain annuities. An immediate annuity update shows the payout rates in July 2016 (Chart 27) for different length contracts. The longer the money must last, the lower the monthly payout. A 10-year contract makes sense for me at 85 years of age.

At the same time, the longer the contract, the higher the payout interest rate (Chart 28). The longer the contract, the greater the effect of a change in dollar and interest rates, and the greater there will be a change during the contract that I cannot respond to beyond the fixed monthly payments.

A change of $10 in the payout is about the same as a change of 0.1% in the rate of interest (Chart 29). A small change makes a big difference only over many years or with interest rates higher than 1%. 

A time period certain annuity is really a long term CD with a periodic return of principal and interest, if no other conditions or riders are charged, such as life insurance on for-life monthly payments. 

"You will never out live your money" is popular and is not free as it includes life insurance. You are now gambling three ways: picking a wining contract, out living your average life expectancy and working with a well positioned financial adviser who is worth what is charged in this ultra-low interest era.