Help me figure out how to finance MIL's retirement

[Walt34]

I feel for you FD, although I can't offer any better suggestions than have already been made. We're in a similar situation with FIL, he has about a $22k/year income, a paid-for home but zero savings, and an annuity that someone sold him years ago.

DW and I have been trying to get him to sell the house and move to a retirement community that he could afford. We kept hearing "wait until spring" from the rest of the family but here it is almost June and no steps have been taken.

I have made it clear to the rest of the family that I have done and spent all that I'm going to. The next crisis he has he's on his own.

 

[growing_older]

I understand that you need to budget and plan for a lifestyle that matches MIL current resources and income. But what's going on with FIL? He owes 8 years still of what you described as substantial alimony. I wasn't aware that people can simply refuse to pay court ordered alimony - whether he has a job or not. Presumably he has assets. If he has a required obligation to pay MIL a certain sum, then he should still have the obligation to pay. There should be ways to enforce the terms of the divorce. If there was going to be no alimony, then presumably MIL would have been given more assets instead. FIL cannot keep the marital assets he was awarded to offset the alimony obligation if he then refuses to pay the alimony.

 

[FUEGO]

I understand that you need to budget and plan for a lifestyle that matches MIL current resources and income. But what's going on with FIL? He owes 8 years still of what you described as substantial alimony. I wasn't aware that people can simply refuse to pay court ordered alimony - whether he has a job or not. Presumably he has assets. If he has a required obligation to pay MIL a certain sum, then he should still have the obligation to pay. There should be ways to enforce the terms of the divorce. If there was going to be no alimony, then presumably MIL would have been given more assets instead. FIL cannot keep the marital assets he was awarded to offset the alimony obligation if he then refuses to pay the alimony.

It sounded like this was a "debt up to eyeballs" marriage pre-divorce. The property distribution was probably "who gets the house and who gets the debt". Maybe MIL got the house and no debt in exchange for less alimony. It is generally permissible to allow one side to get more property and less alimony when it is a mutually agreed settlement.

 

[REWahoo]

I wasn't aware that people can simply refuse to pay court ordered alimony - whether he has a job or not.

FIREdreamer addressed this in an earlier post:

As far as getting money from FIL, there is a complication. FIL fast tracked the divorce and MIL, in her haste to get out of the 30-year relationship, agreed to some ridiculous clauses. The settlement stipulates that her alimony is a certain percentage of his earnings. If he earns zip, she gets zip.

 

[brewer12345]

A few thoughts:

- I would definately pursue recourse against FIL via the court system, etc. Might or might not turn up much, but worth a try.

- A reverse mortgage might be worth looking into, but look closely at the costs involved. There is a lot less competition among lenders these days, so one of these loans may be prohibitively expensive.

- It sounds like MIL needs a little more time to come to grips with her situation. I think the first salvo ought to be helping her set up a budget and income plan and then seeing if she sticks to it. If so, then you might have some confidence in her ability to manage this herself. If not, an annuity and/or reverse mortgage might be the way to go since at least that we she cannot run through all her assets (although she could run up debt).

I will say that you have given me renewed appreciation for the financial status of my parents and in laws. MIL has a pension so fat she cannot spend it all, FIL remarried a much younger woman who is financially savvy and will inherit a ton of money, and my parents probably have enough assets to cover themselves (especially if they whack away at some of the extraneous expenses).

 

[growing_older]

The settlement stipulates that her alimony is a certain percentage of his earnings. If he earns zip, she gets zip.

Thought I read the whole thread, but somehow I missed this. FIL is presumably similar retirement age as MIL. This was a very bad provision for her, since it seems likely FIL planned to quit his job all along. You're in a tough spot since you cannot babysit MIL to help her make good decisions. She seems to have got to where she is with a series of choices you might have counseled otherwise, so it's unlikely she will change those tendencies now.

When I was trying to learn how to budget, the thing that helped me was physical boundaries. I could budget so much for each category with an envelope system (no more money in the envelope, no more spending in that category) or with account boundaries - only $X deposited into the account each week so cannot spend more than $X. Credit cards were hard to put limits on. I don't think you want to make her any more dependent on you than she already is, but you might think about whether some kind of limits could help her learn to live within them. Then you can adjust the limits once the system in working.

 

[ziggy29]

FIREdreamer addressed this in an earlier post:

As far as getting money from FIL, there is a complication. FIL fast tracked the divorce and MIL, in her haste to get out of the 30-year relationship, agreed to some ridiculous clauses. The settlement stipulates that her alimony is a certain percentage of his earnings. If he earns zip, she gets zip.

This very clearly demonstrates that sometimes, the money you "save" by not hiring a decent lawyer is a false economy. I can't imagine any competent divorce lawyer recommending that their client sign such an agreement.

 

[Independent]

DW and I have never even hinted that we would bail her out. She has tried several times to fish for information about our financial situation but we keep it for ourselves. I am certain she expects us to help, but so far, every time she brings up the subject we have simply shut down the conversation. When she starts whining about having to cut back, we shut it down. When she laments that we can afford things that she can no longer afford, we shut it down. I think that she has started to realize that we are not going to bail her out afterall. Hopefully it will give her the motivation to make drastic changes.

It's clear that you are really on top of this situation financially. You understand the problem and the likely fixes.

The issue is emotions/communication. I have one thought that hasn't been mentioned.

You say that you don't want to share your financial information. I'd reconsider. I'm not suggesting income or asset information, but just spending. The real goal is to head off expectations that you should bail her out.

You probably have your spending in the same categories that you've used for her spending. Take your spending, divide by the number of people you are supporting, and compare your per person cost to hers. If the numbers are noticeably lower, I'd show them to her. Whether or not you say it, the message is "How could you imagine us supporting your lifestyle when we live on less?". Part of this is to replace perceptions with reality. She probably sees you spending on something she doesn't buy, but forgets all the things she buys that you don't. (You may want to remove your mortgage payment, to get a little more apples-to-apples.)

Other things that have been mentioned make sense. Normally, I wouldn't consider a non-inflation-adjusted SPIA, but this is a special case. It could be a way to ease her into a lower-cost lifestyle. I wouldn't reverse-mortgage yet, hold that in reserve for when she sees the situation as being desperate. The idea of a "temporary" drop in expenses is good. You probably already used the "just until the alimony restarts" line, but maybe you can get a little more mileage out of it.

Good luck.

 

[NW-Bound]

That will not work as FD is a LBYM'er, and has plenty of money leftover. In addition, I am sure that as working people, he and DW are entitled to spend more than a retired non-working woman needs.

The MIL will just say "Good. Just send me what you don't spend".

Many people do not grasp the concept of living within your means. When they see someone else having more, they just want to "share".

 

[Independent]

That will not work as FD is a LBYM'er, and has plenty of money leftover. In addition, I am sure that as working people, he and DW are entitled to spend more than a retired non-working woman needs.

The MIL will just say "Good. Just send me what you don't spend".

Many people do not grasp the concept of living within your means. When they see someone else having more, they just want to "share".

Note that I specified that he would only share spending, not income. If FD is an LBYM'er, he is probably spending less per-person than she is, and that's the point I would try to make.

I didn't think I was "entitled" to spend more per-person when I was working than when I'm retired (after adjusting for mortgage and taxes). My goal was to spend about the same.

 

[NW-Bound]

Note that I specified that he would only share spending, not income. If FD is an LBYM'er, he is probably spending less per-person than she is, and that's the point I would try to make.

Yes, I saw that. However, I remember seeing some of FD's previous posts, and he and DW did allow themselves some luxuries. MIL would just say "I want the same".

Which is why I used the word "entitle" for lack of a better term. Even though I consider myself an LBYM'er, when I worked full-time and had good income, I allowed myself extraneous toys and recreations. I also needed better clothes, etc...

 

[Meadbh]

Thanks W2R,

Your budget looks a lot like the one I envision for her. But she always finds some weak justifications to avoid cutting costs. Like she wants to keep the newspaper... to line up the cat boxes with. Literally $200 p!ssed away! Basic cable? Not enough channels to keep her entertained (mind you every time I go there she is watching Oprah on one of the local channels and I have never seen her watch one of the premiums channels). I already had her cut the landline to the most basic service (local+911, no more long distance, caller ID, voice mail, etc....) but she needs to keep the landline because of the alarm system and DSL internet.
But I will show her your proposed reduced budget so that she can see that I am not the only one who thinks there is a lot of non-essentials in her current budget.

Show her W2R's budget and tell her you had an external consultant.

Would she respond to a financial coach on an ongoing basis?

 

[Maurice]

FIREdreamer -

First of all let me say I really feel for you. If something happened to my MILs husband I would be in a similar situation. Indeed I might say I'd be even worse off because I can't imagine there is another human being on the planet with as little financial acumen and as large of a sense of entitlement as my MIL... but I digress.

There is lots of good advice on this thread. Let me just add two suggestions.

- could DW 'guilt' her father into helping out a bit? I'm reminded of a friend of mine who recently divorced... he knew he had to set his ex up for good (divorcing at 60ish) because if he didn't take care of her his daughters would have to and he didn't want to do that to them. Maybe there's a guilt card one of you can play there to get some aid?

- Maybe it'll help if she feels like she has some choices as opposed to having a new budget imposed on her. For example, lay out a list of actions she could take with associated budgetary impact - both on the expense side and the income side. THen say 'you need to pick 12k worth out of this list'. When she looks at it that way, she may see that LTC insurance or a maid are luxuries she can't afford. She may also see that 20hrs a week at Wallmart is preferable to, say, cutting back on her pet care.

 

[Brat]

Although retail wages are low many retailers offer employees discounts. So, rather than working at Wallmart consider PetSmart (I do not know if they offer employee discounts). MIL may even have a great skill set for that environment.

 

[FIREd]

I have some progress to report. I must have made an impression on MIL because she wanted to see me today to go over her expenses. She had looked over her budget line by line and had decided, without much prodding at all, to immediately cut $6,000 out of her budget (the pets' budget is also taking a 20% hair cut). A very encouraging start. I also suggested she used a system of envelops to make sure she stays on budget. She loves the idea. So her annual expenses would now stand at $30K, with an income of $20K (she would prefer not to do a reverse mortgage at this time if she can help it). So she would still be short $10K. Next step: try to guilt FIL (as Maurice puts it) into giving her $1,000 a month in alimony (well below what he used to give her). If she succeeds, that would bridge her income gap nicely... for now. If not, it's back to the drawing board and cut cut cut.

 

[Nords]

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.

As Ziggy says, it can all be done legally at market rents.

The problem is raising the rent or having to evict the tenant. The first could be handled with a very-long-term lease, although the IRS would probably look askance at anything over a few years. I doubt that the IRS would bother to chase down a taxpayer solely for renting to relatives, but if the taxpayer was in trouble for other issues (or got nailed with an in-depth audit) then it might become an enforcement issue. And you can see how well the second would work even with a non-related tenant. Some states are very landlord-friendly but most state laws are designed to protect innocent tenants from, um, Snidely Whiplash. A financially irresponsible relative could thumb their nose at their landlord for months, even years. It'd literally be easier for a landlord to let the lender foreclose and evict the tenant, although even that legislation is on the tenant's side.

Of course the IRS assumes the home is depreciated (whether or not the owner actually took depreciation on Schedule E) and would want its 25% depreciation recapture tax upon sale.

Speaking from personal experience, renting to family is a lose-lose-lose situation.

Show her W2R's budget and tell her you had an external consultant.
Would she respond to a financial coach on an ongoing basis?

I'm thinking she has enough there for a Suze Orman special episode...

 

[FIREd]

Note that I specified that he would only share spending, not income. If FD is an LBYM'er, he is probably spending less per-person than she is, and that's the point I would try to make.

I didn't think I was "entitled" to spend more per-person when I was working than when I'm retired (after adjusting for mortgage and taxes). My goal was to spend about the same.

DW and I are indeed spending less per person than she does, despite the fact that we have a mortgage, and expensive life and disability insurance policies to maintain. We also pay for my health insurance premiums out of pocket. We live on 1/3 of our net income which can still afford us quite a few luxuries, as NW-bound noted, because we keep our fixed expenses at rock bottom. We save the other 2/3. If she knew how much we saved each month, there no doubt that she'd expect us to become her personal pension fund. So I don't want to share either income, networth or savings rate with her. But I do share our spending with MIL so that she can see that, yes, one can live on less than she does and not live on the streets. But because her fixed expenses are so much higher than ours, we can afford luxuries that she can't. And that's all what she sees.

 

[FIREd]

Although retail wages are low many retailers offer employees discounts. So, rather than working at Wallmart consider PetSmart (I do not know if they offer employee discounts). MIL may even have a great skill set for that environment.

I was thinking, why not become a pet sitter? Pet sitters around here charge $30 a visit or $60 a day! With her knowledge and love of pets, it sounds like a perfect match to me...

 

[Moemg]

I have some progress to report. I must have made an impression on MIL because she wanted to see me today to go over her expenses. She had looked over her budget line by line and had decided, without much prodding at all, to immediately cut $6,000 out of her budget (the pets' budget is also taking a 20% hair cut). A very encouraging start. I also suggested she used a system of envelops to make sure she stays on budget. She loves the idea. So her annual expenses would now stand at $30K, with an income of $20K

Congratulations ,Looks like she is making progress !

 

[brewer12345]

I was thinking, why not become a pet sitter? Pet sitters around here charge $30 a visit or $60 a day! With her knowledge and love of pets, it sounds like a perfect match to me...

Pet sitter or dog walker would be great. Low set up costs and relatively high wage for a personable someone who likes dogs.

 

[bubba]

The dog walker idea is a great suggestion. My lady charges $15 per visit, and if I'm traveling that 4 visits per day. AFAIK, her only expense is some kind of insurance (don't know the premiums) and gas to/from the client's house. She spends 30 minutes here at each visit.

I've really enjoyed this thread. Her initial budget didn't look too bad to me except for the pet budget and the cleaning lady. It stinks to have to cut the budget so deeply that the important stuff must go. Glad to see that she is making progress.

 

[Scrapr]

FD

I just read through this entire thread. You are a saint. It sounds like your MIL is making progress. (but will it be fast enough?)

Besides the obvious that has been suggested (W2R's budget) how about if MIL sells her house. Doubles her nest egg. Eliminates repairs, insurance & taxes. Move in with her friends in dire straights. Now the pets may have to be downsized too. And another line item downsized.

As well as continuing the the other fronts of guilting FIL, etc. I highly doubt MIL will look for a job. She may say that but it is an amorphous, cloudy thing out there. Not real. Doesn't sound like she has ever worked. She is not serious about it. But the dog walking deal has possibilities. Heck, there are pooper scooper routes around here. Get both sides of the deal so to speak!

 

[Meadbh]

I'm thinking she has enough there for a Suze Orman special episode...

or one of these

Maxed Out - TV Shows - W Network

Til Debt Do Us Part - Gail Vaz-Oxlade

 

[kombat]

Pets: $6000 (she has quite a few of them)
Maid: $800
Newspaper: $200
Charity: $1500
Alarm system: $400

I just found $9k in easily-cut spending in her budget without even trying. How on earth does she spend $500/month on pets? That's ridiculous. Why does a retired person need a maid? I'm sure she can find time in her busy day to do her own laundry. Newspaper? Sure, it's cheap, but you can read the news on the web for free. Charity? I don't want to start a flame war here, but poor people can't afford to give money away. If she's retired, she should volunteer her time instead. Why does she need an alarm system if she's home all the time?

And that's without cutting questionable things like vacation, gifts, and the termites/pest control.

Don't let this woman drag you down with her.

 

[Darryl]

W2R edited the budget beautifully.

As previously mentioned your wife needs a role here. SIL is in a very weak position to tell MIL what to do.

Printout a firecalc run at her current spend rate and one using W2R budget probably a 25 year difference in survival rate. You MUST have this conversation while there is still something to talk about as 5 years from now it will be beyond rescuing. If you're willing to support her every want god bless you. If you intend to support your children and yourselves the sooner you tell her the better her ability to plan correctly. It appears that quiet and polite may be the worst course of action.