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Old 05-29-2009, 05:08 PM   #81
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Wow.... I jumped into this and there is a lot...

First.... is there others in the family to get her to see what is happening?? The money for her animals is huge compared to what she pays for herself...

Another possibility is to show her cash flow and when she will be out of money.... As W2R said, it might be in a few years... (and I think her budget is good AND realistic for someone with out a lot of money)...

But I think showing a worksheet with the budget, showing inflation on the items, showing her SS and earnings and the negative cash flow per month... and the big ZERO in cash at March 2020 (just making up a date).... and saying that you will not be funding her after that...

THEN showing her a worksheet with W2R budget etc... showing that she will run out of money in June 2045 or whatever... that might get her to see the light...

But I think it will be tough love or her moving in and you working to support her...
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Old 05-29-2009, 05:19 PM   #82
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There's another issue here that we haven't discussed.

If she wants to, both you and she know that she can simply refuse to "get with the program" and live within a budget. She could then gleefully run right through that $170,000 before she is 72, at that rate. When she is destitute at 72, one might expect her to play the guilt card:

"But dear, you just wouldn't believe the sacrifices I made when you were a baby. I changed your every diaper, went without things I needed, and put up with your crying, sacrificed my career. And now that I am in my old age, and need YOUR help, you are going to throw me out on the street? How could I have raised someone so heartless?" and so on.

She has the trump card and is in the position of power, here, not you. You cannot make someone change or do something they simply refuse to do.

Maybe Bikerdude's idea of selling both houses and buying a house with an attached MIL apartment, with a separate entrance, is something to consider. The extra money from her house might take her to age 80 or so before she runs out of money.
I think we have the trump card. We have money. What does she have to offer us in exchange for financial support? Tepid motherly love? That can only go so far... I have a European mother and I know all there is to know about guilt trips. They don't work on me at all and DW seems immune too.
If she refuses to go with the program and burns through her savings in 6 years, then I guess she'll have to learn how to spend the rest of her life living on SS. DW would absolutely refuse to help if MIL displayed so little concern about her own situation.
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Old 05-29-2009, 05:21 PM   #83
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If she refuses to go with the program and burns through her savings in 6 years, then I guess she'll have to learn how to spend the rest of her life living on SS. DW would absolutely refuse to help if MIL displayed so little concern about her own situation.
On your end, problem solved! DW is on board!

Even if your MIL burns through her money, she still has her house to cannibalize. That should keep her going for a while longer.
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Old 05-29-2009, 05:26 PM   #84
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Having dealt with relatives with similar approaches to money, do not give up on her. I am also of the opinion that the only way to prevent her from spending all of her retirement money is to buy an annuity. The difference between living on Social Security with an annuity and only Social Security is HUGE. Her approach to money will ensure her retirement fund will be exhausted, along with you.

A fixed annuity with 2% annual increases will return per my quote on Vanguard $10,700. Combine that with 6,000 from roommate and you will have nearly $30,000 with some inflation protection.

As distasteful as this solution is for anyone that is thinking about maintaining a retirement, the reality of what will happen to her otherwise will be to be living on only Social Security by age 75. Yet as years go by she should be able to reduce expenses. In 5-10 years you hopefully will be able to get her to move to a smaller space and convert another 100K to income for her.

Do not give up on her, perhaps by having a fixed amount of income her desire to take care of her animals would inspire her to work part time somewhere to pick up another 5K per year.
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Old 05-29-2009, 07:24 PM   #85
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Rustic23 proposed buying MIL's house and then renting it back to her.
This is an interesting idea but I would advise you to consult a tax lawyer
before taking such a step. Lurking in the back of my mind is the concern
that everything needs to be at fair market value to keep the IRS happy.

I don't know if the numbers would work for such an approach. You
would have a reliable long term renter, presumably, and you could claim
depreciation. You would also be in a position, as landloard, to be firm
about having roomies, pet rules, etc. You could even take steps to
remodel the house somewhat to accomodate additional tennants and
confine the pets to a part of the house.

As for financing, she could probably be the "banker" as suggested,
but part of her "phantom income" would have to be interest. As an
investment, you in turn could claim the "interest paid". In her case,
she would likely be in a low or zero tax bracket so minimum tax on
the interest earned. A long term mortgage at a low interest rate
and a fair market rental value might reduce her housing cost enough
to make the deal attractive for both of you. For the end game, you
own the house with no reverse mortgage loan to pay off, and if any
mortgage is left when MIL passes, your DW inherits.

Like I said, I don't know if the numbers work or even if this is legal,
so get expert advise.

Cheers,

charlie
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Old 05-29-2009, 07:35 PM   #86
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Here my son has a python that stays in his room,
The solution to critters. Get a python and let it roam.
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Old 05-29-2009, 07:53 PM   #87
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The more I consider what she might do with the IRA the better I like a Vanguard annuity with inflation adjustment. She has no pot to exhaust.
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Old 05-29-2009, 07:53 PM   #88
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Charlie I think it is legal, but would have to be within arms-length limits/fair market values. FD could pay on the low end of market for interest and charge her low end for the market rent, so long as it was within the market range. Then charge a slightly higher rent for the roomies.

Problem here is that if FIREdreamer owns the place, mark my words, she will eventually decide that she doesn't need to pay the rent. When that happens, whill FD and his DW be able (in this convoluted situation) to kick her out? Pretty tough, that one! You might say "fine, if she doesn't pay, then FD doesn't have to pay the mortgage." That has its own set of problems...MIL could foreclose, sue, and ruin FD's credit...not that he necessarily needs it, but you never know.

In my opinion, financial arrangements within family relationships where financial responsibility has always bem a problem will inevitably fail. The only way I would ever do that is if MIL had a track record of financial stability and responsibility...say at least 5-7 years worth.

In my opinion, FIREdreamer, if your MIL had any interest at all in this situation, she would be actively trying to figure it out for herself, either by figuring out what to give up, or what job she was going to get. Reading your posts, I can't help but feel like she thinks you are going to fix everything for her. She is just a disinterested or marginally interested party waiting to see the outcome and expecting that it will be positive. You've already explained to her the reality in which she is finding herself. She doesn't understand it? Come on, you don't believe that...she wants you to support her. If it were me, or I would argue that if it were anyone on this board who found themselves in MIL's situation, I guarantee you that we would be doing something about it.

So, what actions has she taken personnally, knowing that she spends 32k, but can only reasonably expect to spend 20k, without you telling her specifically that she must do?

R
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Old 05-29-2009, 08:15 PM   #89
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In my opinion, FIREdreamer, if your MIL had any interest at all in this situation, she would be actively trying to figure it out for herself, either by figuring out what to give up, or what job she was going to get. Reading your posts, I can't help but feel like she thinks you are going to fix everything for her. She is just a disinterested or marginally interested party waiting to see the outcome and expecting that it will be positive. You've already explained to her the reality in which she is finding herself. She doesn't understand it? Come on, you don't believe that...she wants you to support her. If it were me, or I would argue that if it were anyone on this board who found themselves in MIL's situation, I guarantee you that we would be doing something about it.



R



I totally agree . It is time your MIL grows up financially .
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Old 05-29-2009, 08:16 PM   #90
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I don't want to buy her house and rent it back to her because I know that she will find excuses to live in it rent free. She knows that DW won't throw her own mother on the streets. I have no doubt that she would exploit the situation and rent would quickly become the least important bill to pay.
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Old 05-29-2009, 09:00 PM   #91
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In my opinion, FIREdreamer, if your MIL had any interest at all in this situation, she would be actively trying to figure it out for herself, either by figuring out what to give up, or what job she was going to get. Reading your posts, I can't help but feel like she thinks you are going to fix everything for her. She is just a disinterested or marginally interested party waiting to see the outcome and expecting that it will be positive. You've already explained to her the reality in which she is finding herself. She doesn't understand it? Come on, you don't believe that...she wants you to support her. If it were me, or I would argue that if it were anyone on this board who found themselves in MIL's situation, I guarantee you that we would be doing something about it.

So, what actions has she taken personnally, knowing that she spends 32k, but can only reasonably expect to spend 20k, without you telling her specifically that she must do?

R
To be fair, until last week we regarded her situation as a temporary cash flow problem until FIL got another job. But we are now seeing signs that this temporary problem might become permanent. We sat down together yesterday to take a look at her current situation and start planning for that eventuality. That's when she discovered the full extent of the income gap she would be facing without a prompt resumption of alimony payments.

So she's had a whole 24 hours to digest it all. I agree that she must grow up financially but she needs a bit more time to adjust to the new situation. Cutting her current expenses by another 30% is not going to happen overnight (if it was me, I would be slashing expenses like a mad man, but remember she is not like many of us). As others have said, it will require a lot of give and take. I think she understands that the situation is bad, yet she still believes that, somehow, things will work out (and they might). But I need to prepare her for the worst. I need her to face reality in case things don't work out. I have made it clear that she is the only one who can find ways to bridge the income gap she is facing. Cut expenses, get a job, go after FIL... She has to come up with the answer, not me. But she is counting on me to guide her through it all. Look at things like reverse mortgages, annuities, superfluous expenses, supplemental sources of income etc...
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Old 05-29-2009, 09:06 PM   #92
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However it is going to work out, it's good that your wife and you are on the same page. Your MIL will just have to face the music.
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Old 05-29-2009, 10:07 PM   #93
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There are several angles on the buy and rent thing. I had not even considered the tax angles. My idea was to pay mom principle and interest for mom to live on. Rent is another question. Mom could pay rent, or the rent could be a gift back to mom. I think a couple could give mom up to $20,000 tax free each year. I don't think the IRS would much care if you look at it as 'Mom is going to sign over house, and I am going to gift mom so much a year for the rest of her life." Now if you try to treat the house as a depreciating asset, that is a different story.
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Old 05-29-2009, 10:28 PM   #94
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Sorry FD if I went a little overboard. I feel for you and I truly know how your situation feels. I just seemed to recall your post on this subject a long time ago, and I thought she had already understood how severe it might be. And yes, if it was me, I would have adjusted the very month the alimony stopped coming...but that's me.

Apologies if I offended.

R
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Old 05-29-2009, 11:19 PM   #95
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I would take an extended vacation from MIL's problems otherwise she will never figure them out as long as she has you to solve them . She's 66 not disabled .If she wants to live on $32,000 maybe she does have to get a job or figure out where to make cut backs instead of putting it in your lap.
I agree with Moe and I did read your reply to her.

If you and your DW were to suddenly go up in smoke at the same time, who would come to her rescue?
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Old 05-29-2009, 11:47 PM   #96
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Sorry FD if I went a little overboard. I feel for you and I truly know how your situation feels. I just seemed to recall your post on this subject a long time ago, and I thought she had already understood how severe it might be. And yes, if it was me, I would have adjusted the very month the alimony stopped coming...but that's me.

Apologies if I offended.

R
No need to apologize, I wasn't offended at all. I have been suspicious of FIL's intents for a while and have been mulling over several retirement scenarios for MIL (hence some of my previous posts). She of course has known for about a year that, without alimony, her retirement income would take a hit. That's why, when the alimony payments stopped, I reevaluated her financial situation and I asked her to immediately cut her expenses from $46K to $36K a year. It took a couple of months but she was able to make the necessary adjustements (and stick to them). Based on the information I had at the time, I thought that with no alimony coming in, she would probably be able to generate an annual income of nearly $32K ($17,000 from SS + $9,000 from dividends + $6,000 from a reverse mortgage), still a bit less than her reduced spending. So, I knew it would be tight and that the situation was far from ideal, but with a few more adjustments, it seemed doable.

But 2 things happened in the past year that made matters worse: 1) the stock market crashed and her portfolio took a substantial hit, down from $225K to $175K or about $2K less in annual income at 4%, and 2) when she initiated her application for SS benefits a few weeks ago, she found out that she would receive a lot less than she had originally been told ($13,000 instead of $17,000, apparently the SS office made a computational error when she requested an estimate of her benefits in mid-2008). The result: she is facing a much larger income gap than anticipated. And yesterday was when I added it all up for her to see the damage...
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Old 05-29-2009, 11:48 PM   #97
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I agree with Moe and I did read your reply to her.

If you and your DW were to suddenly go up in smoke at the same time, who would come to her rescue?
Don't go telling her, but she would become a very rich lady if DW and I died simultaneously. Thinking of it, last night's dinner had a funny taste...
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Old 05-30-2009, 05:48 AM   #98
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Wow. Interesting thread. Good advices on LBYM, and alternative ways of complementing income/cutting costs. Firedreamer has all my sympathy, it must have been stressful times. I wish you success in convincing your MIL. Let us know how it goes.
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Old 05-30-2009, 09:22 AM   #99
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Rambler, this is a moot point since FIREdreamer has already declined
to buy and rent back to MIL, but I am curious if he could legally deduct
the rent from the mortgage payment each month. Could this be put
in a binding contract? Even if true, I agree that the whole situation
of dealing with family on financial matters is very dicey at best.

Cheers,

charlie
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Old 05-30-2009, 09:57 AM   #100
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I am curious if he could legally deduct
the rent from the mortgage payment each month.
Well, assuming he treated it as a rental for tax purposes, it would seem he could deduct all the mortgage interest and depreciation but add back the rent as income, at least as I understand the tax law for rental property.
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