Background

Like most issues about which I post, the topic of “Finding A Good Death” arose from a personal connection. In this case when a neighbor consulted me about his sister who was being referred to hospice care after battling cancer.  While not an expert in hospice care, I have long studied seniors housing and care and, for a time, I followed the publicly traded hospice companies as a stock analyst.  I also have some personal experience with hospice care.  My older brother (only four years my senior) utilized hospice care before his death in late 2014 from a degenerative neurological condition. To supplement my own knowledge for this blog post, I interviewed a friend and neighbor who is a long-time bereavement counselor volunteer at a large not-for-profit hospice in Baltimore and researched the topic on line.

John McCain’s death, which appeared to come quickly surrounded by friends and family after the Senator elected hospice care, also makes the subject of Finding A Good Death very relevant.

Even though we all die eventually, talking about death and planning for death, beyond making funeral arrangements, are taboo subjects for most Americans. We are culturally geared to want to live as long as possible and most physicians and patients have a strong bias toward utilizing the most expensive, invasive and technologically advanced medical procedures to prolong life, viewing death as failure rather than an inevitable part of the life cycle.

According to data from the Social Security Administration:

  • A man age 65 today can expect to live, on average, until age 84.3.
  • A woman age 65 today can expect to live, on average, until age 86.7.

About one out of every four 65-year-olds today will live past age 90, one out of 10 will live past age 95; and longevity estimates for 65 year olds continue to rise.   Also, these statistics are averages for the entire population, so healthy non-smokers and those with better health plans and medical care should expect to live longer. Once you reach 65, I would argue you already have a very good chance of living a long life and you and your family should be more concerned with the quality rather than quantity of the remaining life you lead, and with the quality of your death, the focus of this post.

A good death is generally understood to be one that comes quickly and peacefully and with minimal pain and suffering, ideally at home and with an opportunity for loved ones to say their goodbyes.

Understanding Hospice

English physician Dame Cicely Saunders first applied the term “hospice” to specialized care for dying patients in the UK in 1948. Hospice care was introduced to the U.S, in the mid-60s and did not become a Medicare eligible benefit until 1982. History of hospice care

As defined by Medicare, hospice is a program of care and support for people who are terminally ill (with a life expectancy of 6 months or less if the illness runs its normal course) and their families. Hospice helps people who are terminally ill live comfortably.

  • The focus is on comfort (palliative care), not on curing an illness.
  • A specially trained team of professionals and caregivers provide care for the “whole person,” including physical, emotional, social, and spiritual needs.
  • Services typically include physical care, counseling, medications for relief of pain and suffering, medical equipment, and supplies for the terminal illness and related conditions. Things like diapers are not covered by Medicare although catheters are.  Patients and their families should not expect 24/7 physical care from hospice unless the patient is receiving inpatient care.  Home health aides can be provided for bathing, etc. but cannot provide total care.
  • Care is generally given in the home.
  • Family caregivers can get support.

In order to qualify for Medicare’s hospice benefit, you must participate in Medicare Part A and

  • Your hospice doctor and your regular doctor (if you have one) certify that you’re terminally ill (you’re expected to live 6 months or less).
  • You accept palliative care (for comfort) instead of care to cure your illness.
  • You sign a statement choosing hospice care instead of other Medicare-covered treatments for your terminal illness and related conditions.

Medicare will cover the cost of a one-time hospice consultation even if you decide not to elect hospice care.   Once you elect hospice care, the first step in the process is development of an individualized care plan. Original Medicare will cover everything you need related to your terminal illness, but the care you get must be from a Medicare-approved hospice provider.

Hospice care is usually given in your home, but it also may be covered in a senior housing community, a nursing home or a specialized hospice inpatient facility. Depending on your terminal illness and related conditions, the plan of care your hospice team creates can include any or all of these services:

  • Doctor services
  • Nursing care
  • Medical equipment (like wheelchairs or walkers)
  • Medical supplies (like bandages and catheters)
  • Prescription drugs
  • Hospice aide and limited homemaker services. At Gilchrist, a large not-for-profit Baltimore area hospice, a volunteer may do light housekeeping but that is all
  • Physical and occupational therapy
  • Speech-language pathology services
  • Social worker services
  • Dietary counseling
  • Grief and loss counseling for you and your family
  • Short-term inpatient care (for pain and symptom management)
  • Short-term respite care
  • Any other Medicare-covered services needed to manage your terminal illness and related conditions, as recommended by your hospice team.

Note that the above list does not include the cost of room and board in a seniors housing or skilled nursing facility, so the patient or their family may have to cover this cost if routine hospice care cannot be provided at home.

If your usual caregiver (a family member or other caregiver) needs rest, a hospice patient can get inpatient respite care in a Medicare-approved facility (such as a hospice inpatient facility, hospital, or nursing home). Your hospice provider will arrange this for you. You can stay up to 5 days each time you get respite care. You can get respite care more than once, but only on an occasional basis.

Medicare pays the hospice provider for your hospice care.  There’s no deductible. You’ll pay:

  • Your monthly Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) premiums.
  • A copayment of up to $5 per prescription for outpatient prescription drugs for pain and symptom management.
  • 5% of the Medicare-approved amount for inpatient respite care if used.

Medicare won’t cover any of these once your hospice benefit starts:

  • Treatment intended to cure your terminal illness and/or related conditions. Talk with your doctor if you’re thinking about getting treatment to cure your illness. You always have the right to stop hospice care at any time.
  • Prescription drugs (except for symptom control or pain relief).
  • Care from any provider that wasn’t set up by the hospice medical team. You must get hospice care from the hospice provider you chose. All care that you get for your terminal illness and related conditions must be given by or arranged by the hospice team. You can’t get the same type of hospice care from a different hospice, unless you change your hospice provider. However, you can still see your regular doctor or nurse practitioner if you’ve chosen him or her to be the attending medical professional who helps supervise your hospice care.
  • Room and board. Medicare doesn’t cover room and board. However, if the hospice team determines that you need short-term inpatient or respite care services that they arrange, Medicare will cover your stay in the facility. You may have to pay a small copayment for the respite stay.
  • Care you get as a hospital outpatient (such as in an emergency room), care you get as a hospital inpatient, or ambulance transportation, unless it’s either arranged by your hospice team or is unrelated to your terminal illness and related condition.

The Medicare hospice benefit is paid by original fee-for-service Medicare.   To understand how the hospice benefit relates to Medicare Advantage plan, Part B or D coverage speak with Medicare or your hospice provider and you might consult the publication Medicare Hospice Benefits – Medicare Hospice Benefits

A Popular Benefit

Hospice care enjoys wide support from patients and patient advocates who are supportive of patients dying with dignity and having control over the final chapter of their lives.  It is supported by policy makers who believe hospice can save Medicare funds by having terminally ill patients avoid expensive procedures at the end of life that often provide little lasting benefit.  Mean medical spending during the last 12 months of life is reaching $80,000 in the U.S., with 44.2% spending for hospital care (57.6% is hospital spending during the final three months of life).   To the extent hospice care can reduce expensive end of life hospital care it has the potential to reduce growth in Medicare spending. Hospice Impact On Medical Spending

Hospice care is also viewed favorably by investors and for-profit healthcare companies who see it offering stable reimbursement, attractive margins and very attractive growth prospects as Baby Boomers age.   Because hospice reimbursement is designed to adequately fund small not-for-profit hospice providers, not-for-profit and for-profit operators with scale can generate an excess revenue/profits from spreading their overhead costs over a large number of patients, thereby generating reasonable margins from hospice reimbursement.

Electing Hospice Care

The key issue for patients and their families in electing hospice care is that doing so requires you to forgo additional curative treatment for the condition that is expected to lead to your death in order to receive funding for palliative care designed to give you a dignified death with minimal pain and suffering. As noted above, In order to qualify for hospice care a physician, typically your primary care doctor or a hospice doctor, certifies that you are expected to live no more than six months if your disease follows its typical progression.  With this physician’s certification and your election to shift from curative to hospice/palliative care you will qualify for Medicare hospice benefits or hospice benefits from a private insurer.  If you live more than six months in hospice care, the hospice benefit can be extended but Medicare manages this by penalizing operators that have average length of stays in hospice care.

Selecting A Hospice Provider

According to the National Hospice and Palliative Care Organization (NHPCO) Medicare paid about 4,200 different hospice providers for services in 2015. About 60% of these hospice providers were profit-making companies and 40% are not-for-profit (Long-Term Care Providers and Services Users in the United States: Data From the National Study of Long-Term Care Providers, 2013–2014 Department of Health and Human Services, Centers for Disease Control, Center for Health Statistics, February 2016 – CDC Report On Hospice Services

Hospice providers served approximately 1.3 million patients in 2013 with an average length of stay of 23 days – indicating an average daily census of about 14 patients per hospice.

The statistics above suggest two criteria for selecting a hospice provider 1) for-profit vs. not-for-profit and size.  Many hospice providers are small not- for-profit operations.   For-profit companies tend to be larger in size, as are some well established not-for-profit organizations, such as Gilchrist Hospice in Baltimore.    Smaller operations may offer more personalized care options but larger operations may have their own specially designed dedicated inpatient hospice units and greater resources to Invest in family grief counseling, for example.

Your physician or a social worker/discharge planner at a hospital should be able to recommend or refer you to one or more hospice providers.  A simple online search on “finding a hospice provider” results in links to larger for-profit and not-for-profit providers in your area (Heartland, Amedysis and Gilchrist in Baltimore) and links to referral services, such as A Place for Mom, an Internet focused senior housing and care referral company, and the National Hospice and Palliative Care Organization (NHPCO). Keep in mind that referral services will only refer you to organizations that are members of that organization or agree to pay a referral fee.

The Medicare.gov/hospice compare website provides ratings for hospice providers with percentage scores for a number of objective and subjective measures including results from user surveys.  The site allows you to search for specific providers and provides near particular zip codes. See Medicare Hospice Compare.   Some of this data is likely self-reported but still appears useful for comparing providers.

Before committing to a particular hospice provider a prospective patient and their family should ideally meet with the provider to assess the staff who will oversee and deliver care to your loved one, share information about your family’s situation and discuss options for delivering hospice care in a way that best meets your families needs.   Care will most likely be delivered at home with family members engaged in the hospice care delivery process.  It can also be provided in a seniors housing or skilled nursing facility but this may require the family to pay for the coast of board. If required, typically right at the end of life when 24/7 oversight is needed, the location of care may be shifted to an inpatient hospice care facility and you should understand when and how such a facility might be used.   You may wish to check on the location and quality of the inpatient option.

I welcome comments and questions on this blog and hope it aids you finding a good death for you and your loved ones.

 

 

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Posted in Alzheimer's, Dementia, Finance, Hospice, Medicare & Social Security, Paying For Care, Post-Acute Care, Senior Housing & Care | 1 Comment »

Reusing Suburban Corporate Headquarters As CCRCs

I had lunch yesterday with Robert Kramer, Founder and Strategic Advisor of the National Investment Center for the Seniors Housing and Care Industry (NIC).    In the course of our conversation, Bob mentioned that National Development and Epoch Senior Living were proposing to develop 130 units of upscale senior housing on the former headquarters of GE Capital Corporation in Stamford, Connecticut.  http://www.courant.com/business/hc-br-plans-former-ge-building-developed-into-senior-living-home-20180815-story.html.     This led me to re-post my blog from February 2016 on the opportunity to reuse suburban office locations for seniors housing – see below.

The Wall Street Journal on Tuesday, February 9, 2016 featured an article entitled “Office Glut Strains Suburbs – Landlords, officials at odds over revamping vacant campuses as firms leave for cities”.    The article highlights a growing trend of major corporations abandoning leafy suburban headquarter’s campuses for urban locations where transportation options are better and it is easier to attract tech-savvy Millennials.    The article focuses on the relocation of Pearson Education from its Upper Saddle River, N.J. site to locations in Manhattan and Hoboken, N.J.

The site Pearson is leaving is a 47 acre site in a wealthy town of about 8,000 people located about 30 miles northwest of Manhattan.   It features a “bunkerlike” structure of grey concrete built in 1973 for Western Union with 470,000 sq. ft. of space and few prospects.   The suburban couplex is owned by publicly traded Mack-Cali Realty Corp. (CLI).   The building previously generated annual revenue of $8.6M but after testing the market, Mack-Cali found no office takers.    The company is proposing to replace the former Pearson Education headquarters with 240 apartments, which some in the town oppose because it would change the character of the community and generate expenses for public services while bringing in less taxes than a corporate office property.   Other locations noted in the WSJ article with similar former headquarters locations include:   the former Bell Labs headquarters in Holmdel, NJ; BASF’s former North American headquarters in Mount Olive, NJ and the former home of Merck & Co. in Readington, NJ.

None of the real estate owners or developers cited by the WSJ were mentioned to be considering a continuing care retirement community (CCRC) as a primary reuse for these corporate office sites or as a principal use in a larger mixed-use complex that might combine office and retail and non-age restricted housing together with a CCRC.   Yet, a CCRC would appear to offer a number of benefits.    Principally, a CCRC would:

  • Target the existing older, affluent residents of the wealthy suburbs where these former headquarters are located.
  • Likely generate more in tax revenue than would be required to service the CCRC because CCRC residents would not have children in public schools.
  • Generate less in the way of traffic congestion than conventional apartment or condominium development and less than a former corporate headquarters.
  • Generate spending in the community for existing or to-be-built retail space.
  • Generate demand for additional healthcare and other services that might be found in the community or incorporated on the site.
  • Generate greater demand for employment on the site and potentially taxes than would a conventional housing development.

CCRCs typical range in size from about 250 units including a mix of independent living, assisted living, memory care and skilled nursing or healthcare units/beds to as many as 2,000 units/beds in large complexes that have principally been developed by Erickson Living.    While there is an emerging trend among seniors housing developers, like office developers, to consider higher density, mixed use urban locations, I believe there is still significant demand for suburban CCRCs, particularly in wealthy, aging, hard to develop locations, like northern New Jersey, where the corporate headquarters sites noted above are located.

CCRC’s are typically developed in either an entrance-fee or rental format.   In an entrance-fee format, residents pay an upfront fee that may be partially or fully refundable.   This fee is used to repay construction debt and the non-refundable portion is amortized over time to reduce the monthly cost of housing and care.   In a rental format, there is no entrance fee, more long-term financing is used and monthly rent must cover the full cost of housing and services.    The largest CCRC campuses typically incorporate multiple casual and formal dining venues, pools, gyms, lecture halls, entertainment and recreational amenities and may include full physician practices and their own health plans as well as health centers that provide therapy space.

In 2014, while I was still working in investment banking, I pitched seniors housing as a reuse for some undeveloped or partially developed suburban office locations to a publicly traded suburban office REIT.   However, the sites this company had available at the time were not as large or as well located as the corporate headquarters’ sites noted above and were not well suited to CCRC developments of scale.    While CCRCs are well outside the comfort zone of most office owners/developers, outright sale of large suburban headquarters sites for this purpose or joint venture development with existing owners of suburban headquarters sites and CCRC developers or healthcare REITs would appear to be a very viable option for such locations, particularly in cases where a CCRC would be an element in a larger mixed use campus that might include some conventional apartments (potentially for staff), retail and office/healthcare uses.

 

 

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History, Nature, Art & Good Food In The Hudson River Valley

In the second week of July my wife and I spent 5 days on vacation in the Hudson River Valley.   It is a place several friends and family members have visited and recommended and it is reachable from our home in Baltimore in a 4 – 5 hour drive.   Our primary interest was in visiting Franklin Roosevelt’s home, museum and library in Hyde Park, NY near Poughkeepsie but there are a broad range of attractions and accommodations on both sides of the River between Westchester County north of New York City and Albany.

We found very attractive accommodations on the west side of the river in Milton, NY at the Buttermilk Falls Inn and Spa.  The Inn is located on a 75 acre site overlooking the Hudson bisected by a stream with a small waterfall and several ponds with ducks, geese and swans.    Accommodations include a main house dating to 1764 with 10 rooms and a number of houses and cottages.   Breakfast is included and there is a very nice farm-to-table restaurant on (Henry’s), as well as event space, including a great outdoor wedding venue overlooking the Hudson.  A farm and animals provide food for the restaurant and another diversion for guests.   There is an exercise room, indoor pool and spa.   We stayed in the Sage Right room in the main house, which comes with a queen bed, gas fireplace, refrigerator, patio with views of the Hudson and bath with combination whirlpool tube and shower.    The room was attractively furnished with antiques but a bit cluttered with limited closet and drawer space.    There was no way to control the air-conditioning temperature in the room and we ended up having to run the gas fireplace to maintain the room temperature as a reasonable level – nothing environmentally conscious in that.

Buttermilk Falls Inn From Our Patio

We ate at Henry’s, the on-site farm to table restaurant, our first night and liked it so well that we ended up having light suppers two additional nights during our stay.   Both the food and the wait staff at the restaurant were excellent and the menu offers lots of appetizer/small plate options as well as substantial entrees and different white, red and rose sangria nightly.  The owners of Buttermilk Falls also own a bakery and cafe, called Frieda’s, a few miles from the Inn on Milton’s main street.   It provides the baked goods for the Inn and Henry’s and also offers good breakfast, lunch and take away/picnic options.

We maintained an active but measured pace during our trip, blending visits to historic, natural, and art attractions and the Culinary Institute of America with time at the Inn for afternoon tea, reading and relaxation.   We spent more than half a day on our first full day visiting Franklin Roosevelt’s home, Springwood https://www.nps.gov/hofr/index.htm, and the adjoining Presidential Library and Museum https://fdrlibrary.org.    The house is large but surprisingly modest and comfortable compared to other Gilded Age mansions.   The library and museum, the first Presidential library, were designed by Roosevelt himself and have excellent exhibits chronicling Roosevelt’s life as well as housing his personal study and being a repository for Presidential archives.   The museum exhibits are very well designed and many are interactive.

Springwood

Day two we parked on the western approach to Walkway Over The Hudson and crossed the world’s longest elevated pedestrian bridge spanning 1.28 miles over the Hudson River http://walkway.org/visit/.    The bridge is a converted rail span built in the nineteenth century. The walkway is free of charge and provides great views up and down river with the east end landing in Poughkeepsie, which offers some restaurant options.    You can enter and exit the walkway at-grade on both sides of the  River and there are also elevator and stair options on the Poughkeepsie side but the elevator to the Poughkeepsie waterfront wasn’t working the day we visited.   Information panels along the walkway acquaint visitors with the River and the history of the bridge and the area.

Mid Hudson Bridge From Walkway Over The Hudson

Day three we drove south to Storm King Art Center, a 500 acre sculpture park located in Cornwall, NY https://stormking.org/about/.   Storm King offers a vast array of monumental and smaller sculpture on an attractive rolling site.   We very much enjoyed and were impressed by the art but believe Storm King should offer more tram service options to help visitors get around.   A tram circulates through the site but only about once an hour. We walked more than two miles and by no means saw all of the sculpture.   More frequent tram circulation and shuttles between parking, dining, and shop/museum locations so you can concentrate your walking to see the art would make Storm King much more accessible to visitors.    There is a bike rental option that you may want to try but we did not discover it until we were on our way back to our car.   If you visit, be prepared to walk and bring water and sun protections with you.

Zhang Huan – Three Legged Budda

Ronald Bladen – Untitled

Alexander Lieberman – Adonai

Alexander Calder – The Arch

Day four we returned to Hyde Park to tour Val-Kill https://www.nps.gov/elro/index.htm, Eleanor Roosevelt’s cottage home and we also visited Top Cottage, Franklin’s personal retreat https://www.nps.gov/hofr/planyourvisit/top-cottage.htm.  The Roosevelt home, Springwood, Val-Kill and Top Cottage are all administered by the National Park Service.   A visitor’s center and the Roosevelt Library and Museum adjoin Springwood but Val-Kill and Top Cottage are located on separate nearby sites.   You can drive yourself or take a shuttle bus to Val-KIll from the visitors center but Top Cottage is only reachable by a strenuous 1.5 mile hike from Val-KIll or by shuttle.  Val-KIll was acquired by the National Park Service at the time of the bicentennial and is dedicated to Eleanor Roosevelt personal accomplishments, not her role as First Lady.   Val-KIll offers attractive grounds, a small gift shop and welcome center, an orientation film about Eleanor’s life and a tour of several rooms in Val-Kill and the adjoining Stone Cottage, which also houses some exhibits.   We very much enjoyed our visit to Val-Kill but it’s offerings are much more modest than those of Springwood and the Roosevelt Library and Museum.

Val-Kill Stream and Pond

Top Cottage was designed by Franklin Roosevelt to be his retreat after completion of his second term and only saw limited use as he went on to serve a third and a portion of a fourth term as President.    It has almost no original furnishings and the volunteer docent who we toured with had only limited information to offer on the property.    Top Cottage is only open limited hours and should not be a high priority for a visit.    We got there by hiking a somewhat steep and rocky trail from Val-Kill but arrived in time to catch a tour and were able to return to Val-KIll on the shuttle.

Top Cottage – Rear Porch

Two nights during our visit to the Hudson River Valley we dined at restaurants operated on campus by the Culinary Institute  of America (CIA).   Advanced reservation, best made exactly 30 days in advance, are a must and can be done on OpenTable.com.   The CIA operates five restaurants, four of which are open for dinner – American Bounty with a focus on the seasons and products of the Hudson Valley, Bocuse a French restaurant named for the most famous chef in France, Paul Bocuse, Ristorante Caterina de’ Medici and Al Forno Trattoria offering authentic regional Italian cuisine and Post Road Brew House http://www.ciarestaurantgroup.com/new-york-restaurants/.    We tried both American Bounty and Bocuse but preferred Bocuse, which is a bit more upscale and where we had a table next to the glass enclosed kitchen.   A signature item at Bocuse is lavender ice cream made fresh at your table using liquid nitrogen to deliver hand-churned ice cream in only about five minutes.

Desserts Accompanying Ice Cream At Bocuse

Making Lavender Ice Cream at Bocuse

Pike At American Bounty

Duck at American Bounty

Dessert At American Bounty

There is a lot more to see and do in the Hudson River Valley including wineries, local farms, cute small towns, cruising the river and West Point but we intentionally did not try and squeeze too much in so we had time to relax and enjoy the picturesque setting as well as tour some sites.

 

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Cited In Senior Care Investor Podcast

I am republishing this blog post, originally issued in December, 2015, because it was recently cited in a podcast by Steve Monroe, Editor of Senior Care Investor, a well regarded industry newsletter, as being prescient about predicting issues being faced by senior housing and care facilities today.

Background

I have been pessimistic about maintaining occupancy and pricing and the risk of overbuilding in private-pay seniors housing.   I shared these concerns, along with lessons learned from the last industry downturn, with the NIC Future Leaders Council at the annual conference of the National Investment Center for Seniors Housing and Care (NIC) in early October and will express similar views when I speak at the Senior Living 100 Conference in March.

Since I am more pessimistic about the risk of overbuilding than NIC MAP® Data Service and many industry professionals, I recently reviewed my assessment by examining the most recent census population projections to estimate demand and updated 3Q15 NIC-MAP information on supply. This blog summarizes the results of that review.

NIC MAP Assessment

NIC MAP data indicates a total supply of U.S. institutional quality private-pay seniors housing units (independent living, assisted living and memory care) as 1,404,000 units as of 4Q14.   It shows construction as a share of inventory for the top 99 markets as of the 3Q15 of 3.3% of existing majority IL supply and 7.9% of majority AL including memory care. If I apply these same shares to the inventory of seniors housing for the nation (1.404 million units), then I estimate that there may be 72,838 units under construction as of 3Q15.

NIC staff estimates that these 72,838 units will be delivered over a two-year period for average annual construction of approximately 36,400 units. This compares to peak construction levels of approximately 45,000 units in the late 1990s when the last significant overbuilding occurred.

NIC MAP’s statistics on demand and supply focus on two key items, % growth in the supply of private-pay seniors housing and the percent of the 75+ household population, or penetration rate, required to fill anticipated construction.  Comparing NIC MAP 4Q14 supply in the top 99 markets to the most recent U.S. Census 2015 population forecast for the entire U.S. 75 + population, NIC-MAP data shows a penetration rate for occupied private-pay seniors housing of 6.25% of the 75+ population in 2015 at a 90.05% occupancy level.  The 75+ population is projected to grow at a compound annual rate of 2.9% between 2016 and 2020 while the seniors housing supply is projected to increase by about 2.6% in 2016 if we assume that half of the units NIC MAP estimates are under construction as of 3Q15 are completed in each of the next two years.

The absolute growth in the entire U.S. 75+ population at a 2.9% annual rate is expected be nearly 626,000 annually.   At a 6.25% occupied penetration rate, this equates to demand for 39,125 new seniors housing units annually between 2016 and 2020 compared to annual unit growth from new construction according to NIC staff of 36,419 (72,838/2).   The market’s ability to absorb projected levels of new construction would appear even better on a net basis if obsolete units being removed from the market were to be deducted from the estimated growth in supply based solely on units under construction.   Using NIC MAP estimated supply growth rate (without any assumed demolition) the 75+ occupied penetration rate could actually decrease to 6.1% in 2020 while still keeping private-pay senior housing occupancy at the 90.1% level as of 3Q15 and filling projected development at its current rate to this same level of occupancy.

The key takeaways from this analysis of Census and NIC MAP data are:

  • Private-pay seniors housing construction levels in the US are elevated compared to recent years but below late 1990s peaks.
  • Demand is sufficient to accommodate current levels of construction because the 75+ population is growing at 2.9% annually between 2016 and 2020 vs. supply growth of about 2.6%.
  • Growth in the 75+ population between 2016 and 2020 will produce sufficient absolute growth in demand at a 6.25% penetration rate (39,125 units annually) to absorb projected seniors housing supply growth (36,125 units annually).
  • With the exception of some select markets, NIC MAP data indicates occupancy can be maintained without an increase, and even with a small decrease, in the 75+ occupied penetration rate of private-pay seniors housing.
  • Some older obsolete units will be removed from the market, further brightening the prospects for private pay seniors housing compared with estimates of supply growth based solely on units under construction.
  • Many industry leaders report little evidence of overbuilding in their markets.

Why I Am Concerned

I don’t dispute the NIC-MAP data factually or the view of many industry leaders but I believe they overlook three key items: (1) the increasing age of entry of new residents into private-pay seniors housing, (2) near-term growth in the senior population is concentrated in the “younger” 75 – 79 age group and (3) high turnover means newly constructed seniors housing is very competitive with the existing supply. These are the items that make me pessimistic about the near-term performance of private-pay seniors housing.

Increasing Age Of Entry – Different studies report different numbers for average age of senior housing residents and average entry age, but it is fair to say that in 2008/09 studies the average age of residents ranged from 82 in majority IL properties to 84 in majority AL properties and has moved higher.   Estimated entry ages for IL and AL are now closer to the mid-80s according to many operators.   This is important because much of the growth in the supply of private-pay seniors housing is in AL and Memory Care units that appeal to seniors over age 85, while much of the growth in the 75+ population will occur in the younger end of this age cohort.

Growth75+

Near-Term Growth Concentrated in Seniors Less Than 80 – The chart above shows projected population growth from the most recent projections of the US Census Bureau for the 75-79, 80-84 and 85+ age groups for the periods 2016–2020, 2021–2025 and 2026-2030.   Focusing on the 2016–2020 period you can see that growth is highest for the 75-79 age group, while much lower for seniors 80 and above.   As a result, when NIC MAP and others use a 75+ penetration rate it may overstate demand for private-pay seniors housing because residents are not moving in on average until 82 – 84 and perhaps 85 or higher for AL.

The chart below further refines population growth for seniors between age 80 and 87 to illustrate how dramatically growth is skewed toward seniors less that 85 between 2016 and 2020.

Growth 80 - 87

Near-Term Outlook Looks Worse On 80+ Penetration Rate – If we look at private-pay seniors housing penetration rates for the 80+ rather than 75+, the 4Q14 penetration rate for occupied units is 10.1% at the national level.   Annual projected demand between 2016 and 2020 for the entire 80+ population at this penetration rate is only 23,123 units, compared to current construction levels of 36,400 units per year and the 80+ penetration rate would have to rise to 10.8% in order to maintain senior housing occupancy and accommodate unit growth at current levels to 2020. (This analysis assumes that the rate of construction as a share of inventory exhibited currently for the 99 markets is the same for the non-99 markets as well.)   Slow growth in the 80 – 87 age group most likely to move into private-pay seniors housing (particularly in the 85+ age group) and the need for a significant increase in the 80+ penetration rate in order to maintain current occupancy levels raise concern about the industry’s ability to maintain private-pay seniors housing occupancy and rate and accommodate new unit growth near term, even if we assume some reduction in the supply as obsolete units are removed from the market.

Turnover – Data for YE2014 as reported in ASHA’s The State of Seniors Housing 2015 shows turnover rates of 26.2% for majority IL properties and 51.6% for majority AL properties for a weighted average of 36.5%.   With a total private-pay seniors housing supply of 1.404 million units and a 90.05% occupancy level, this means that 462,000 units need to be filled annually just to maintain current occupancy.    These relatively high rates of turnover, particularly for AL properties, mean that the existing stock of private-pay seniors housing is constantly competing with any newly constructed units and any degree of overbuilding is likely to quickly put pressure on occupancy and pricing in the existing stock, in my view.

When Will Supply Demand Improve – In order to assess when demand/supply conditions for private-pay seniors housing will improve, in the chart below I project growth in the supply of seniors housing into the future assuming the same rate of annual growth in supply seen in 3Q15.   This rate of growth (5.24% weighted average) is applied to the supply at the beginning of each five year period and held constant over each five-year period.  Once we pass 2020, as the chart indicates, the future of private-pay seniors housing is increasingly bright, with higher demand driven by increased longevity and, after 2026, the long-touted and final arrival of the baby boomers to an age when they might actually consider seniors housing.

Supply Demand

However, when you look closely at the above numbers, you see that 80+ demand begins to exceed the growth in supply only slightly in the 2021-2025 and really strong demand from 80+ seniors relative to the level of supply growth does not begin to appear until after 2026, when the Baby Boomers (1946 to 1964) begin turning 80.

Reasons For Near-Term Pessimism – While not every seniors housing market will get overbuilt and many high-barrier-to-entry markets may avoid the adverse impact of additional private-pay seniors housing development, I believe the data above supports my pessimistic view on private-pay seniors housing occupancy, rate and the risk of overbuilding over the next 3 – 5 years. If we keep building at current levels as a percent of supply and we focus on demand from 80+ seniors, it appears that the seniors housing industry will substantially overbuild the market over the next five years. In the period from 2021-2025, the amount by which projected 80+ demand will exceed projected supply growth should be sufficient to help absorb some of the excess supply created in 2016-2020 but may not be high enough to support a significant increase in occupancy or rate or a true senior housing boom.   The golden age in terms of demand is really a post-2026 event assuming supply growth continues at today’s rate, the health of baby boomers at 80 is about the same as today’s 80 year olds and boomers will find seniors housing as it is currently being designed and built attractive.

Keys To Success In A More Competitive Environment And Future Arrival Of The Boomers

In order to outperform in the more competitive environment for private-pay seniors housing that I see over the next 3-5 years, I believe operators should:

  • Limit new development near term
  • Focus on high barrier to entry markets
  • Try to reduce turnover
  • Design/Redesign/Market properties to attract under-80 or early 80s seniors by focusing on IL rather than AL and rethinking locations and amenities to appeal to “younger” seniors
  • Increase their equity cushion and line up capital in order to be able to bid for more attractively priced acquisitions if occupancy and rates fall and some new product cannot be filled as anticipated

In future blogs, I will discuss some of the cutting edge product that I believe will appeal to Under-80 seniors and look at the housing alternatives to private-pay seniors housing for this age group such as staying in their homes or choosing mixed age condos and apartments, using support services where necessary.

Technical Notes

I want to acknowledge the help of my friends at NIC in preparing this blog, even though it takes a more negative view on the near-term outlook for the industry.   I particularly want to acknowledge the help of Robert Kramer, Beth Burnham Mace and Chris McGraw.   Dave Schless at ASHA also reviewed an early draft and gave me his feedback.

I do not intend to malign NIC MAP data in this blog post. The advent and growth of NIC MAP data is a great tool for the industry and one that should help us avoid the rampant overbuilding seen in private-pay seniors housing in the late 1990s.   NIC MAP makes no statement about the appropriateness of the 75 plus penetration rate and demand, per se. NIC MAP adopted the 75 plus household cohort a number of years ago because it has been traditionally been used in the sector by feasibility analysts and others.

I also want to acknowledge two industry reports that cover some of the same material noted here but reach somewhat different conclusions. These are: Beth Mace’s Demographic Update Commentary, circulated by NIC in July, 2015 and Phil Downey’s and Larry Rouvelas’ A Projection of Demand for Market Rate U.S. Seniors Housing 2010 – 2030 published by American Seniors Housing Association Winter 2013.

NIC defines institutional quality private-pay seniors housing as properties with 20 or more units. NIC normally calculates penetration based by comparing the total supply of private-pay seniors housing in the top 99 markets to the total U.S. 75+ household cohort (not the entire household and institutional 75+ population).

In this analysis, I compare the total number of estimated occupied private-pay senior housing units in the U.S. to the total U.S. population of 75 and over and 80 and over seniors.   I believe use of a penetration rate based on actual occupancy rather than including vacant units is more accurate but use of either an occupied or total supply penetration rate would produce essentially the same result as indicated above.

While households are the standard unit of demand for housing of all types, NIC, other researchers and I also use population to measure future demand because the Census Bureau does detailed population projections by age but not projections of households.   Various commercial data services do project households by age.   One other cautionary note when thinking about demand projections for seniors housing is that male longevity has been improving, meaning more very old two person households and potentially less unit demand for private-pay seniors housing than population projections alone may indicate.

There are also some limitations in how I project supply growth.   I use NIC MAP construction estimates as of 3Q15 for the top 99 markets, make the assumption that these units will be delivered evenly over two years and that this same rate of growth is occurring in the rest of the country outside the top 99 markets and will continue in the future.

While I believe the assumptions used in this assessment are reasonable and have reviewed them with NIC staff, I believe it would be very helpful for the industry for NIC, ASHA or an independent academic researcher to undertake a demand / supply analysis using household projections by age, seniors housing supply and construction data for just the top 99 markets and include in this an updated survey of the actual entry ages for seniors housing today.   Such a study would allow us to better select an aged-based penetration rate at 75, 80 or 85 and would eliminate some of the uncertainty created by mixing population and supply data for the entire U.S. with occupancy and construction stats for the top 99 markets.

I welcome your comments on this blog post.

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My wife and I visited Costa Rica from January 6 – 15, 2018.   It is a remarkable country both politically and naturally.   A stable democracy surrounded by countries that have gone through political upheaval, dictatorship and civil war, Costa Rica abolished its army in 1948 and put the money into education and healthcare.   Only slightly above the equator, with long shorelines along the Caribbean and the Pacific and  with diverse typography, Costa has a remarkable diversity of climates, habitats, flora and fauna, with more species of birds in this tiny country than in all of North America.    After clearing much of its rainforests for grazing land and agriculture, Costa Rica began to restore it natural environment decades ago and is now a prime location for eco tourism, with much of the country designated as nature preserves.

Costa Rica also offers a very nice lifestyle and very friendly people, almost all of whom speak English.   The universal phrase is “Pura Vida”, which means pure life in Spanish but is the way Ticos live. Costa Rica has been named one of the happiest countries in the world, mostly because its inhabitants don’t stress about things the way most foreigners do. Ticos have a very relaxed, simple way of life.  The phrase “Pura Vida can be used as a response to “How are you?” but also as hello, goodbye and great.

Our goals for the trip were to experience Costa Rica’s diverse ecology and have time for rest and relaxation.   We planned the trip through our travel agent, Louise Kemper of Travel Experts, who worked with local tour company, Rico Tours.   Based on our travel agent’s advice, we split our roughly 10 day trip between two locations, one near the Arenal Volcano, in the north central part of Costa Rica in the rainforest, and Guanacaste on the Pacific Coast.   Average temperatures in January are in mid-70s in the rainforests near Arenal, with almost daily chances for a little rain, and in the mid-80s on the Pacific coast with little chance of rain.

Logistics – We were able to fly from Baltimore-Washington International (BWI) airport directly to San Jose, Costa Rica’s capital, via Southwest and returned from Liberia in the northwest of the country to BWI via Houston, TX on Southwest.    Our tour company arranged private drivers and vans to get us from the San Jose airport to our resort new Arenal, Nayara Springs, from Nayara Springs to our second resort on the Pacific Coast, the J.W. Marriott Guanacaste, and from the J.W. to the airport in Liberia.  The drive from San Jose to Arenal takes you over the continental divide and through cloud forests and rain forests and is quite a scenic trip.

We considered some in-country air options for the trip from Arenal to the Pacific coast but were glad we elected to use vans because a charter flight crashed in Costa Rica the week before we arrived.   Costa Rican roads are a mixed bag but probably better than remembered by visitors who have been there a number of years ago.  Most roads are well-paved, well maintained two lane highways and not very crowded outside population centers.   We traveled on one stretch of new four-lane divided limited access highway near Liberia and hopefully there is more of this to come.    Side roads, however, can be heavily pot holed and partially washed out, making for a slow and very bumpy ride.   We were warned about bad roads and the need for motion sickness medicine for the car from others who had visited but only encountered relatively short stretches of really bad roads, and we survived without motion sickness medication.    It might be a bit worse if you were traveling on a big bus instead of a private van that is able to maneuver around some of the pot holes.

Nayara Springs Resort – The Nayara Springs Resort is an exclusive boutique hotel with only about 60 individual villas, each featuring a large bedroom, living room, two dressing areas, a large indoor and an outdoor shower and a patio with queen size lounge, hammock and 6 ft x 10 ft private soaking pool fed from a natural hot spring.   Daily laundry, twice daily maid service, a private concierge and option of breakfast in room are all included.    There are three restaurants, a coffee bar, fitness center with yoga sessions daily and a spa on site, as well as additional restaurants and a wine bar on an adjoining property operated by the same company.   The resort offers once daily shuttle service into La Fortuna and now offers its own private tours to nearby attractions.  We found the private tours offered by the hotel to be only modestly more expensive than group tours offered by others and Nayara Springs’ tours included a wonderful picnic lunch with wine and beer.   Nayara Springs is one of the nicest resorts in which we have ever stayed and the lush grounds and on-site nature trails give you the opportunity to experience Costa Rica’s beauty without even leaving the hotel.

Nayara Springs Villas

Bedroom Nayara Springs

Soaking Pool Nayara Springs Fed By Hot Spring

Arenal Volcano – We did two excursions near the Arenal Volcano, one was to the Mistico Hanging Bridges Park and the other to the lava flow from the 1969 eruption.   Mistico Hanging Bridges Park offers a hike along well tended mostly-paved trails over a series of fixed and hanging bridges through the rain forest.   With an attentive eye and the help of a good guide you can see an amazing diversity of plants and animals in a wonderful environment in the canopy of the rain forest.   There are some steep patches on the Hanging Bridges Park trail and you have to be comfortable crossing  hanging bridges, some at pretty good heights above the ground, but on the whole the hike is not too rigorous.   Much better seeing animals and birds with a private guide, hopefully carrying a spotting scope, than with a group.  The lava walk is interesting but with much younger (post 1969 eruption) vegetation, a less scenic natural setting and more strenuous hiking conditions.

Hanging Bridges Park

Arenal Volcano

Mukmuk in Hanging Bridges

Coatimundi

Sloth In Hanging Bridges

There are a number of other areas for touring from hotels in the Arenal volcano area but we choose to avoid those with multi-hour van rides and full day itineraries so we could enjoy some R&R at our hotel.  Both our hotel and our tour company, Rico Tours, offered lots of touring options that you can review before you go.

J.W. Marriott Guanacaste – The J.W. Marriott is a much larger property than Nayara Springs with good-size but traditional hotel rooms, five restaurants, an oceanfront bar and a large pool complex and beach.  It is located within a large private golf and beach community know as Hacienda Pinillia on the Guanacaste peninsula south of Tamarindo.   Both the community and the J.W. Marriott Resort were very nice, but not as nice as the Nayara Springs Resort in terms of accommodations, amenities or service.   The large pool complex, with plentiful lounge chairs and pool side drink and food service, is the best feature of the J.W. Marriott.  The biggest negative to the J.W. Marriott is that it is somewhat isolated and the road between the highway and Hacienda Pinillia is a couple of miles of potholes.  We ate all our meals at the J.W. Marriott.  The food was good and there was enough variety among the restaurants for our four night stay.  Our room came with a buffet breakfast and our favorite restaurants were the pool and beachside Azul Grill for lunch and the Sabanero Steak House for dinner.   Portions were very large and we shared entrees, salads and sandwiches for most meals.

J.W. Marriott Pool From Room

J.W. Marriott Pool

J.W. Marriott Beach

Howler Monkey at Hacienda Pinillia

Coast Near Tamarindo – We did two outings to coastal areas near Tamarindo and the J.W. Marriott.  One was a boat tour of a mangrove forest along Estero de Playa Grande where it meets Tamarindo Bay and the other on the beach near Parque Nacional Marino Las Baulas.    On the mangrove forest tour we saw a crocodile and many different birds and on the beach we saw sea turtles laying their eggs.   According to guides the crocodiles do occasionally pick off surfers who chose to swim across the relatively narrow Estero de Playa Grande that separates two beaches on Tamarindo Bay despite warning signs and numerous shuttle boats.   Our tours to the coast near Tamarindo were group tours with multiple-hotel pickups in small vans but featured good guides and attentive staff.  We arranged these tours through Swiss Travel, which has an office at the J.W. Marriott.   The walk to and from the beach at night to see the sea turtles was fairly rigorous and requires you to traverse the beach in total darkness.

Crocodile Near Tamarindo Bay

Heron On Mangrove Tour

Blackback Turtle Laying Eggs

Costa Rica As A Retirement Option – On many lists, Costa Rica is ranked among the top overseas locations for Americas looking for an affordable retirement location.   While we did not inspect retirement housing options during our vacation in Costa Rica, I can see its appeal, particularly for those living in the West and Southwest for whom it is a relatively short trip.   What makes Costa Rica stand out is its stable democracy, good healthcare system and diverse and pleasant climate.  Everyone readily accepts dollars and almost everyone speaks English, making it a particularly easy place for Americans to live.  Our sense is that U.S. retirees favor the Pacific coast where communities appealing to such people abound.

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Immigration and Senior Caregiving Linked

It has been several months since I updated my blog because I have gotten busy serving on the Board of Quality Care Properties (QCP) and with some consulting work.   I am also just back from a vacation in Costa Rica about which I hope to soon  do a post.

An article in today’s (January 23, 2018) Wall Street Journal prompted me to do this post.  The WSJ article is entitled  “How Immigration Could Affect Grandma’s Care”  and is in the “Capital Journal” commentary by Gerald F. Seib.  Key points include:

  • American is getting older.  A fifth of the population will be over 65 by 2050 and 4% will be over 85, both records in terms of absolute numbers and as a percentage of the population.
  • A study by PHI, an organization that works with the long term care and home care industry, estimates there are 860,000 immigrants holding “direct care” giving jobs in senior care and perhaps as many as one million when workers providing care independently for families are included.
  • The largest share of these workers come from Mexico, the Philippines, Jamaica, Haiti and the Dominican Republic; the very countries in the crosshairs of the immigration debate.
  • Restrictions on immigration may drive up wages for what are often low paying jobs providing direct care to seniors and this may draw more people into the industry.
  • But forcing dedicated, qualified people from other countries to leave, many of who have lived in the U.S. for years, will be a blow to many including seniors who rely on these immigrants for care.

As you consider you position on immigration policy, you should also consider who will care for your parents and eventually yourself and your peers as you age.

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Wall Street Journal Recommends Financial Advisor For Retirees

I continue to find the Wall Street Journal one of the best sources of financial advice for seniors.  In the “Ask Encore” column on Monday, October 31, 1017, Glenn Ruffenach recommends that retirees retain a financial advisor, despite fees that can run to 1% of assets.  While some retirees have the skills and time to manage their finances late in life, Mr. Ruffenach recommends an advisor to:

  • Keep you from doing something stupid, like investing in a business opportunity offered by a relative or selling aggressively in a market pullback.
  • Establish and maintain a good allocation among asset classes.
  • Efficiently manage your tax liabilities including required distributions from retirement accounts.
  • Assist the surviving spouse, who may be less familiar with financial matters, with the support needed to maintain the nest egg you have built together.

If fees are a sticking point for you, Mr. Ruffenach notes major funds families, such as Vanguard Group (and I would add T. Rowe Price and Fidelity) and some financial service companies like Charles Schwab, Betterment and Wealthfront are now competing to be your advisor with fees considerably lower than 1%.    I still see an experienced financial advisor offering more personalized advice than that available from the less seasoned staffers or automated advisory services available at some of the firms noted above.   But, the key advice for retirees is that there is value in having an outside advisor and you should shop for one that offers a combination of services and fees with which you are comfortable.

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Portugal – Europe’s California With Castles

My wife and I spent two weeks in Portugal on a self-guided road trip for which we had https://www.toursforyou.pt/ arrange our hotels and rental car, suggest sites we might visit and arrange select guided tours, wine tastings and a boat ride along the way.

I call Portugal, Europe’s California because it is west coat, has fine beaches, great wine and food, a diversity of landscapes north to south and very mellow people, most of whom speak English.   Portugal is a good deal smaller than California, only about the size of Indiana, and you can see a lot of it in a two week visit.

What, of course, differentiates Portugal from California is a rich history that goes back thousands of years with a native Celtic people who were in turn overrun by Phoenicians, Greeks, Carthaginians, Romans and Moors.  Portugal fought with Spain for many years to win and keep its independence and was, for a time, a major maritime power with colonies in South America, Africa, India and Asia.   It seems as if each major city and almost every small hill town has a castle or castle ruin.

We were able to fly direct from Philadelphia to Lisbon on American.  The flight is a bit shorter than most to Europe because, at Europe’s western edge, Portugal is closer to the U.S. than much of the continent.  In two weeks we saw a good deal of Portugal, with the notable exception of the southern coast and resort area of the Algarve.

Our itinerary began in Lisbon(3 nights), where we picked up a car and drove southeast through Evora to an excellent hotel near Monsaraz called Sao Lourenco do Barrocal located on a large wine estate and farm that has been in the same family for over 200 years (3 nights).   From Monsaraz we turned north traveling to Belmonte where we stayed at a posada hotel created from a former convent – Convento de Belmonte (2 nights).   We then continued north to the Douro Valley where we stayed at the Wine House Hotel on a high-quality, small-production wine estate – Quinta da Pacheca (2 nights).    From Quinta da Pacheca we drove west along the Douro River and over the mountains to Porto, where we stayed at Flores Village Hotel & Spa (2 nights) before driving south, stopping at Coimbra, and heading back to the Lisbon airport where we stayed one night at Hotel Tryp Aeroporto before catching our flight home.   All of our hotels were quite good, with Sao Lourenco do Barrocal and the Wine House Hotel standing out above the rest (See Trip Advisor reviews for more details).

Portugal’s two main cities, Lisbon and Porto are both located on major rivers (the Tejo or Tagus in Lisbon and the Douro in Porto) at the point were they enter the Atlantic Ocean.   Lisbon, the capital is a city of about 500,000 people in a metro area with about three million.

Lisbon from overlook

Lisbon is a city of hills with enough elevation changes that there are elevators and funiculars to get you from one neighborhood to another.

Barrio Alto

The center of Lisbon was destroyed by an earthquake and tidal wave in 1755 and was quickly rebuilt with new housing, shops and offices and wider boulevards.  While the City center (Baixa) is attractive, the older hillside neighborhoods of Alfama and Barrio Alto retain their smaller scale buildings with whitewashed walls, orange tile roofs and narrow winding streets.

Lisbon has a cathedral, numerous churches, some good museums (notably the Calouste Gulbenkian Museum) and a wide main boulevard with upscale shopping (Avenue Liberidade) but much of its charm is found in the neighborhoods, small shops, some very good restaurants and the surrounding communities of Sintra, Estoril and Cascais, the latter both fronting the Atlantic.

Among the things we most enjoyed in Lisbon were the fanciful Pena Palace in Sintra, the coastal cities and outstanding sea bass we ate near Cabo da Rosa, Europe’s westernmost point, our evening listening to Fado (Portuguese blues) and the Gulbenkian museum.    We had a car and driver to take us to Sintra and the coast and for a half day tour of Lisbon but could have used one more day in the city for sight seeing and shopping.

Pena Palace

We had our rental car, a Vovo V40 diesel hatchback delivered to our hotel to save us having to come back to pick up our luggage after getting the car.   Portugal drives on the right, using standard international road signs and Google Maps on our phone worked well.   I order a GPS with the rental car because I read cell phone coverage might not be good in rural Portugal but the Garmin GPS that came with the car was useless outside major cities and cell coverage was fine everywhere.  Stick with Google Maps and order enough on your international data plan to cover using your phone as a mapping tool.

Heading southwest from Lisbon we visited Evora, the largest city in the dry and hot Alentejo.   We found Evora to be a bit over-hyped and the large free parking lots that reportedly ring the old city to be very poorly marked.    We ended up driving into and parking in the old part of the City – just remember to pay the meter.    Evora does contain some well preserved Roman features include a temple, a bath being excavated under town hall and an ancient aqueduct.  The cathedral and its museum are also worth seeing.

Roman Temple, Evora

From Evora we continued southwest past the walled town of Monsaraz to Sao Lourenco do Barrocal, an outstanding resort on a large wine estate and farm.   Monsaraz is a well preserved walled town and castle with some nice shops, including a very good pottery and painting gallery called Galerie Monsaraz operated by a husband/wife team of local artists.  We enjoyed our dinner at Restaurante Sabores de Monsaraz, which is a quirky locally owned restaurant where we had black pork with pearl onions and cod Bacalhau à “Sabores de Monsaraz” (see Trip Advisor for review).    While the staff struggles with English and it is a small, authentic Portuguese restaurant, Sabores de Monsaraz does have a slick website on which you can make reservations.

Ducal Palace, Vila Vicosa

We enjoyed the pool, cafe and restaurant at Sao Lourenco do Barrocal and took day trips to nearby sites such as Monsaraz, Villa Vicosa, where we highly recommend the Ducal Palace, and Sao Pedro do Corval where the locally made pottery is plentiful but pretty mundane.

From Sao Lourenco do Barrocal we traveled north to Belmonte, stopping along the way at Castelo de Vide.   Both Castelo de Vide and Belmonte were interesting to us because of their once significant Jewish populations and the history of these communities documented in museums.   The Portuguese Inquisition began in 1497, five years later than in Spain. No meaningful Jewish population remains in Castelo de Vide but it features a large former Jewish quarter and what is reported to be the oldest synagogue in Portugal, now housing a small but well done museum.   Belmonte also had a large Jewish population.  Its Jewish museum was being renovated when we visited in July, 2017 but had some exhibits set up in a nearby storefront.   What’s remarkable about Belmonte is its community of Marrano, or secret Jews, that survived from the Inquisition to today, only emerging from secrecy in 1989 and building a modern operating synagogue.   We liked our hotel in Belmonte (Convento de Belmonte) which is a wonderful renovation of an historic convent but the hotel seemed a bit understaffed (See Trip Advisor).

Heading north from Belmonte to the Douro Valley we stopped at the now abandoned walled town of Marialva, which we enjoyed but is only worth a visit if you are passing by.  As you head north toward to Douro, the land becomes more mountainous and greener and the Douro Valley itself is one of the most attractive landscapes you will see anywhere.

Douro River Valley

The Douro Valley is all about wine, is the only place you can make port wine according to the EU and is the oldest officially recognized wine region, predating those in France.   In the Douro we stayed at the Wine House Hotel on the Quinta de Pacheca wine estate and we highly recommend the hotel, its restaurant and the wine at Quinta de Pacheca.  We also enjoyed a boat ride on the Douro by FeelDouro Yaatch Charters and a tour and tasting at Quinta do Seixo, a large commercial wine estate operated by Sandeman.   We enjoyed the tour and the wine much more at Quinta da Pacheca.

We traveled from the Douro Valley to Porto by taking small winding roads along the river and over the mountains, a beautiful but somewhat harrowing ride, and the only place I thought Google Maps let us down since there were major highways options.    Porto is a wonderful old city of about 215,000 (less than half the population of Lisbon) but with a metro area population of 2.4 million, which is closer to Lisbon’s size.  Navigating Porto’s warren of narrow streets is a chore, so you want to get out of your car as quickly as you can.    We liked our hotel in Porto, Flores Village Hotel & Spa, in part because it was on a delightful pedestrian only street very near City center.   However, that meant after 10 am we had to leave our car in a nearby parking garage and transport our luggage to the hotel.

Porto from Vila Novo de Gaia

In Porto, we had a half day guided tour and also time on our own to explore the city and enjoy its character, shops and restaurants.   We had two excellent meals in Porto at DPO Porto by chef Rui Paula and Cantinho do Avillez by Michelin star chef Jose Avillez.    Porto, like Lisbon, is a very hilly city with some magnificent churches and vistas, particularly the view of Porto from Vila Novo de Gaia, across the Douro.

Before leaving Porto, we took a full day tour to the Minho or Costa Verde, which is the portion of the country north of Porto.   This is beautiful country and we particularly enjoyed the ancient city of Guimarães, where Portugal was founded, the magnificent shrine at Bom Jesus do Monte and the city of Braga.    If you get to Porto, take at least a day and explore theses areas (See photos).

Guimaraes

Bom Jesus de Monte

 

 

 

 

 

 

 

 

 

 

 

 

We return to Lisbon via Coimbra with its university dating from 1290 and a library that looks like it belongs in a Harry Potter novel.  The Hotel Tryp Aeroporto is just an airport hotel but did its job with quite good service and surprisingly good food, so I would use it if I needed a stay at the Lisbon airport.

University of Coimbra

We found Portugal to be an interesting, charming and thoroughly enjoyable vacation spot and would highly recommend it.

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Financial Planning For Retirement

As with most articles on my blog, this one started with a conversation with a friend.   The friend recently turned 60 and is starting to seriously think about retiring from a professional position.   He is thinking about a range of options: fully retiring at age 62, shifting to part-time with his firm and delaying retirement until 65 or 66, or continuing to work full-time until 65 or 66.   From a lifestyle perspective, my friend would like to retire sooner, rather than later, but wants to feel confident about having enough financial resources for he and his wife to live comfortably throughout their retirement.

Health Insurance

It may seem odd to start a discussion of financial planning for retirement with health insurance but Presidential executive actions to not enforce the requirement for mandatory insurance coverage and leave uncertain the fate of some insurance subsidies under the Affordable Care Act (ACA/ObamaCare) have already disrupted the individual insurance market.   Republican proposals to repeal and replace ObamaCare are creating further uncertainty in the insurance market for individuals and, if enacted, are expected to significantly increase the cost of coverage for older, pre-Medicare age, individuals.     One CNN report on the Senate bill as of June 27, 2017 shows the cost of ACA Silver Plan coverage increasing from $1,800 to $8,300 because the proposed Republican legislation allows insurers to adjust rates by age and reduces insurance coverage.   Until things are settled in Washington, it will be very difficult for any individual contemplating retirement before age 65 (when Medicare kicks in) to determine if individual health care insurance will be available and at what cost.

The best advice for now for someone considering retirement is to work full or part time until age 65 in order to retain employer-based health insurance coverage or confirm that you can purchase coverage through your employer using COBRA benefits and retire up to 18 months before turning age 65.   The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, with the individual paying the full cost of insurance.

Savings/Investments

When considering how much savings/investments you will need for retirement there are two issues to consider.

  1. Will your savings/investments generate enough income to allow you to live comfortably and
  2. Will the income from your savings/investment last long enough if you have a very long life?

Generating Enough Income

Popular guidelines for retirement income suggest that you should have sufficient income to replace about 70% to 85% of your pre-retirement annual after tax income to live comfortably in retirement but some more recent thinking suggests your income needs will not decrease that much in retirement as travel and entertainment, recreation expenses will offset reduced income use for business clothing, commuting costs, etc. (See Kiplinger Article).

Rather than focusing on your pre-retirement income, I believe most of those contemplating retirement prefer to focus on pre-retirement expenses to determine if they will be able to afford the lifestyle to which they are accustomed when they retire.   If you plan a major lifestyle change in conjunction with your retirement, like moving to a different community or buying a vacation home, you will need to adjust your expenses, and potentially your taxes, to account for these major lifestyle changes. Looking at actual spending, perhaps over a couple of years, with adjustments for any major lifestyle changes, should provide a solid basis for estimating your expenses in retirement.

The most widely used tool for determining the income that your savings/investments will generate is the 4% rule.   As explained in a CNN Money article (CNN Money Article), “The basic mechanics of the 4% rule are pretty simple. You start with an initial withdrawal of 4% of savings and then increase the dollar amount of that first withdrawal by inflation each year to maintain purchasing power.

So, for example, if you have a nest egg of $500,000 and inflation is running at 2% a year, you would withdraw $20,000 the first year of retirement, $20,400 the second year, $20,800 the third and so on. This regimen results from research done in the early 1990s by now retired financial planner William Bengen. After testing different withdrawal rates using historical rates of return for stocks and bonds, Bengen concluded that 4% was the highest withdrawal rate you could use if you want your savings to last 30 or more years.

Some experts have suggested, however, that a 4% withdrawal rate might be too ambitious given today’s low bond yields and lower projected returns for stocks.  For example, Wade Pfau, a professor of retirement income at The American College, says that retirees should probably limit themselves to an initial withdrawal rate of 3% or so if they want a high level of assurance (although not a guarantee) that their savings will support them for at least 30 years. For more on how much lifetime income one can expect to get through inflation-adjusted withdrawals, income annuities and other methods of creating income based on current market conditions, check out Pfau’s Retirement Income Dashboard (Pfau’s Retirement Dashboard).”

Many financial firms also offer retirement planning services, some of which use a range of alternative models to estimate retirement income needs. One I have used personally in the past is from TRowePrice at TRowePrice Retirement Planner.

I continue to find the 4% rule works well provided you maintain a portfolio that includes stocks as well as presently low yielding bonds and have adequate cash reserves to stay invested through market downturns.   But one common mistake many pre-retirees make is failing to adjust pre-tax retirement income when comparing it to post-tax retirement expenses.   While some retirement income is tax sheltered and some state’s do not tax certain retirement income, be sure to remember that most of your retirement income will be subject to Federal, state and local income tax, even Social Security, and typically taxes are a big enough expense that it will be worth consulting a financial planner or your tax accountant to make sure you get your post-retirement tax calculation right.

Assuring Enough Income For A Long Retirement

A 65-year-old woman has a 68% chance of living to 80 and a 28% chance of living to 90. And a 65-year-old man has a 58% chance of living to 80 and a 17% chance of living to 90.2  (BLS Spending Patterns Of Older Americans).  And these are averages for the entire population. A physically fit, more affluent senior who enjoys better medical care and diet than average and is less likely than average to smoke can expect to live longer than the above statistics suggest.   As a result, a healthy, affluent baby boomers retiring today should assume 30 – 40 years of life in retirement – living to age 95 or 105 if retiring at age 65.

Assuming you are not spending beyond your means and have sufficient savings under the 4% rule to pay for your post-retirement expenses, there are two primary risk areas that might cause a retiree to outlive their savings:

  1. A large unexpected expense, most likely the cost of institutional care for yourself or your spouse for a prolonged period, or
  2. A significant market downturn from which your savings are unable to recover.

Long-term care insurance can protect you against much of the risk of prolonged institutional care but the ideal time to purchase such a policy was when you were in your 50s. It may be cost prohibitive to purchase such a policy at or near retirement age.   My wife and I have policies through Lincoln National Life Insurance Company that we purchased when I was 53 and my wife 52.   These used a lump-sum up-front payment to purchase as annuity that pays the premiums for a long-term care insurance policy while also offering a death benefit if the LTC insurance is not used. The mechanics of this are complicated but I like the idea that the payment amount was locked in at the beginning. If you do not have long term care insurance, you may want to build an additional cushion into your retirement savings to “self-insure” against this risk.   Setting aside $150,000 to $200,000 when you retire that will grow with inflation, which is enough to cover up to 24 months in an assisted living facility, should provide reasonable protection against you or a spouse requiring institutional care in the future (See The Cost of Care and other posts on this blog for more information on the cost of care, what Medicare, Medicaid and the VA will pay for and the cost of institutional vs. at-home care).

My preferred method for guarding against the adverse impact of a market downturn is to have a larger than recommended cash component to my savings/investments that will allow me to draw cash in lieu of stock principal for more that a year in the case of a significant market downturn and to use Social Security in lieu of a commercial annuity product to assure long-term income. Many financial planning websites will recommend an annuity to assure continuity of income into very old age.   While an annuity purchased from a financially sound and reputable company can assure long-term retirement income, the combination of high up-front fees and current low interest rates make commercial annuities less attractive to me, although I am using one in conjunction with my LTC insurance policy.

For a senior with a sufficient savings / investment portfolio to be able to afford retirement, I believe Social Security offers the most attractive option to create the type of guaranteed income that an annuity offers. Social Security pays an inflation-adjusted retirement benefit for as long as you live. A Social Security benefit for someone who contributed the maximum to the system retiring in 2017 at age 66 (Full Retirement Age) is $2,687 per month but will rise to $3,538 per month if you defer collecting Social Security benefits until age 70.  And this higher benefit will continue to grow with inflation over time. If you have sufficient savings to be able to defer collecting Social Security Benefits until age 70, I believe Social Security offers the most cost-effective way to create a guaranteed annuity-like investment stream for your very old age.

Asset Allocation

A CNN Money asset allocation model suggest a mix of 65% bonds, 20% large cap stocks, 5% small cap stocks and 10% foreign stocks for someone 3 -5 years from retirement with a medium risk tolerance and some flexibility about when income is received CNN Money Asset Allocation Wizard.  This is consistent with the financial maxim that the percentage of bonds in your portfolio should equal your age.

However, T Rowe Price’s asset allocation model recommends 50% – 65% stock, 25% – 35% bonds and 5% – 15% short term liquid assets for someone about to retire at age 65.   Within the stock portion of the portfolio, TRowe recommends 15% – 19% international/global stocks, 7% – 10% U.S. mid/small cap stocks and 28% to 36% U.S. large cap stocks.   Within the bond portfolio, TRowe recommends 5% – 7% international bonds, 2% to 4% high yield bonds and 18% to 24% investment grade bonds TRowePrice Asset Allocation Tool.

I believe thinking about and consciously deciding on an asset allocation for your retirement savings/investment portfolio is one of the most important things an investor should do with their portfolio on an annual basis.   Many financial publications and mutual fund companies offer asset allocation models and it may be helpful to consider several and understand what is driving them to help you make a good asset allocation decision for your own portfolio.

My own allocation is a bit closer to the TRowePrice model with 51% equities including a small amount of alternative investments, 32% bonds and 17% short-term cash-equivalent investments.   My bond allocation includes a significant amount of tax-exempt municipal bonds and, in my mind, the higher allocation to cash offsets the potential market risk of a larger allocation to equities while allowing me to benefit from dividend yields that are in many cases higher than bond yields and from potential stock price appreciation over time.   My stock portfolio includes a healthy dose of individual income producing stocks, exposure to Real Estate Investment Trusts (REITs) through an index fund and some individual stocks and a managed bond portfolio in which I own individual bonds rather than bond funds. I see a real advantage to owning individual bonds over a bond fund because, absent a default, you can hold individual bonds to maturity and protect your principal while the value of a bond fund can fluctuate with market conditions and the actions of other fund investors.

Good Advisors

As my bio under “The Blogger” heading above indicates, I worked for 15 years as a stock analyst with Legg Mason and Stifel Nicolaus and was recognized seven times as a Wall Street Journal All-Star analyst. While I have the skills to manage my own investments I work with a full service investment advisor at Stifel, Nicolaus & Company to manage my portfolio and in recent months have shifted from a commission based to fee based compensation structure as Stifel, like many other firms, has implemented the fiduciary rule.

The focus of many investors today is on minimizing investment fees and purchasing low cost index funds or exchange traded funds (ETFs) over using full service advisors and owning actively managed funds or individual stocks. Understanding and minimizing the fees on your investment portfolio is important and there is a lot of investment analysis that passive investments have outperformed most active managers and individual stock pickers.   However, I continue to see value in a full service advisor and a degree of active management, particularly if you have a larger amount of investments.

The key advantages I see to a full service advisor/active management include:

  • Keeping all or almost all your investments in a single place.   This makes it much easier to understand and monitor your asset allocation and will be extremely helpful to your spouse and other surviving relatives if you die or are incapacitated. Some low-cost brokers and funds companies offer a broad enough array of investment options and can provide some advisory services over the phone or in person in the event of a death or impairment but not the same personalized attention as an experienced broker or fee advisor in my view.
  • Index funds may do less well in a more volatile market.   We are approaching 10 years of unprecedented low interest rates and market stimulus from central banks throughout the world.   In this low-volatility, interest/stimulus driven, broad-based post-downturn stock market rally passive investments have outperformed.  But with index funds and the entire market more highly valued and influenced by a relatively small number of mega-market-cap stocks, like Apple and Amazon, will index funds continue to outperform when and if the market and investors are tested by a significant correction and increased volatility?   I can’t predict the future, but believe there is a case to be made that the underlying assumptions that have allowed passive investments to outperform may change and again create an opportunity for value-based investing and active management.
  • You may need an active manager to buy individual bonds.   As noted above, because owning individual bonds provides greater principal protection than a bond fund, I prefer to own individual bonds.   The only practical way to do this may be to work with an active bond manager because buying bonds as individual, particularly tax-exempt issues, can be difficult. In addition, I want to hold individual bonds through a single account with my other investments for administrative convenience and to keep down overall fees.
  • A good advisor can save you from yourself.   Much has been written in recent years on the psychology of investing. One of the most difficult things for even experienced investors to do is to keep one’s nerve when the market is selling off and potentially even buy on dips.   An experienced and trusted advisor can help you keep your nerve in a market downturn and help protect you against following the herd. A good advisor can also protect you against being lazy in a good market by periodically adjusting your asset allocation and culling your portfolio in a tax-efficient manner.

I hope these ideas for evaluating and managing your financial resources for retirement are helpful and will be happy to respond to questions and comments.

I formerly worked at Legg Mason Wood Walker, Inc. and at Stifel Nicolaus & Company, Inc. and previously had some of my investment portfolio with T Rowe Price Investment Services, Inc.  I do not currently receive and do not expect to receive in the future remuneration from any of these companies.

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On the page “What Is Retirement” (see link above on the banner of this blog) I propose a new definition for retirement as “The period of one’s life when one shifts from working primarily for the means of earning income to working primarily for the satisfaction of producing a purpose or result while devoting additional time to recreation, education and leisure activities.” to replace the current Oxford English Dictionary definition of ”The period of one’s life after leaving one’s job and ceasing to work.”

Today’s New York Times has an article entitled “Working Longer May Benefit Your Health https://www.nytimes.com/2017/03/03/business/retirement/working-longer-may-benefit-your-health.html?smprod=nytcore-iphone&smid=nytcore-iphone-share&_r=0

While ultimately concluding that the scientific evidence is inconclusive about whether working longer benefits your health, The New York Times article says the answer tends toward yes and asserts this is true not just for more highly educated, healthier adults in more fulfilling jobs but for many types of jobs that keep the mind active and provide networks for social interactions.

The headline of The New York Times article seems to imply a choice between working full-time and full-time retirement but most of those cited in the article as working past retirement age have shifted from full-time to some type of part-time employment or consulting.    My experience, and that of many well-educated friends, shows them most satisfied in a partial retirement lifestyle where part-time work, consulting or a challenging volunteer position offers the mental stimulation and social networking opportunities that The New York Times article asserts benefit seniors’ health.    I believe seniors, their employers and society in general all benefit from meaningful part-time, consulting and volunteer experiences and that we will see more and more baby-boomer seniors in these partially-retired positions going forward.

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