Help me figure out how to finance MIL's retirement

[FUEGO]

Quote:

Originally Posted by Texas Proud What are the income tax issues with this? As an example, you are taking SS and paying income tax on a lot of it since you have other income... now at age 70 you repay the whole amount and start to get a higher income... but you paid taxes on a lot of that income you just sent into the gvmt... since you can not go back more than 3 years to amend a return, do you just lose your taxes you paid on the prior years?

Good question and I'm not really sure. I was thinking of it in terms of using cash on hand to basically buy a bigger annuity from the govt. But a regular annuity pays you return of principal plus some interest, whereas the SS would be all ordinary income after a certain point.

SS generally becomes taxable for a single taxpayer once other income plus 1/2 of SS exceeds $25,000 per year. In the MIL's case, she has $13,200 SS income per year, or $6600 to add to her other ordinary income. No income other than IRA withdrawals it seems right now (other than a small amount of investment income from taxable investments). So she would have to withdraw $18400 from IRA or receive in the form of income from taxable investments before she exceeds the $25,000 amount ($18400 + $6600). $18400 is ~11% of $170,000 so an unsustainable or unsafe withdrawal rate.

So there may be little or no tax on SS payments if she doesn't exceed some reasonable withdrawal rate. And as long as she doesn't get a job.

[Nords]

Quote:

Originally Posted by Texas Proud ... since you can not go back more than 3 years to amend a return, do you just lose your taxes you paid on the prior years?

Yes.

The theory is that your investment returns exceed the taxes you pay on holding what amounts to an interest-free loan.

Of course that scheme would've sucked last year... in fact it would suck for just about everyone who turned 62 starting around 1993. There would've been at least one vicious bear in every rolling eight-years period.

[Texas Proud]

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Originally Posted by FUEGO So there may be little or no tax on SS payments if she doesn't exceed some reasonable withdrawal rate. And as long as she doesn't get a job.

I was thinking more of someone who makes enough to pay the full amount of taxes on their SS payments... my sister is one that does... she will be coming up to that decision point in a year or two.... so it is a pertinent question for her....

[ERD50]

OK, I skimmed many of the posts when I saw how long it got, but my suggestions is:

You need to REMOVE yourself from the decision/judgment process. Being in the middle just makes you a nag in her eyes. Everything falls on you and that is not fair to you, or helpful. So, simply present the FACTS to your MIL, and ASK her what she wants to do. Something like:

OK, Dear MIL, if you want to keep your big TV package, phone and pet bills (etc) as they are, you will run through ALL your money by age XX. At that point, all you have is SS at 1,100/month (or whatever - keep everything in today's dollars for simplicity). Then present something like:

At $1,100/month, you can't afford ANY TV, ANY phone, ANY pets, etc (or whatever it works out to). Or ask her where she would make the cuts to get to the $1,100/month.

At that point, it is HER choice - you have not told her to do anything, you just presented facts. Does she want the lifestyle she has now, only to live under the poverty level at age XX, or does she want to cut back some now, and have a more modest lifestyle for a longer time. You could show her how much it would be extended by cutting now, taking in roommates, and all the other good suggestions people have made. But make it HER decision - not yours.

Maybe hint that by age YY (far after her current plan would run out of money), that you MIGHT be in a financial position to pick up the difference she needs to keep her out of the poorhouse, but you can't be sure of anything until far in the future as your finances are uncertain also. That gives her some added incentive to plan for the future.

You are making her problem your problem, and since she doesn't appear to be physically or mentally disabled (maybe just unwilling to face reality), it really is NOT your problem. Don't let her make it your problem, that helps no one.

Good luck.

edit/add - I just realized that the TITLE of this thread reflects the problem. It should not be "Help me figure out how to finance MIL's retirement ", it should be "Help my MIL figure out how to finance HER retirement "

-ERD50

[LoftyNotions]

I agree with ERD50's suggestions above with the exception of hinting that you MIGHT be able to help her.

I suspect she would hear I'll save you no matter what, MIL. I think she absolutely has to understand that this is her problem to solve.

ERD hit the nail on the head concerning the title reflecting the problem.

Larry

[FIREd]

So now I'm the one with the problem?

I think it is totally naive to look at her situation in a vacuum. You really think that her mess is not going to become my mess at some point? Do you really think that my wife will be able to watch her mom eat cat food without the slightest tinge of pity and compassion when we "selfishly" enjoy our high income or comfortable retirement? Could you? I know for sure that MIL's mess will become my mess sooner or later. My goal is to make it later (and cheaper)...

[LOL!]

Well, you could take MIL to Costco to buy her cat food, but isn't that part of the problem? But while there, you can teach her to gnosh on the free food samples there.

[FIREd]

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Originally Posted by LOL! But while there, you can teach her to gnosh on the free food samples there.

Now that's a good money-saving suggestion!

[W2R]

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Originally Posted by FIREdreamer So now I'm the one with the problem? I think it is totally naive to look at her situation in a vacuum. You really think that her mess is not going to become my mess at some point? Do you really think that my wife will be able to watch her mom eat cat food without the slightest tinge of pity and compassion when we "selfishly" enjoy our high income or comfortable retirement? Could you? I know for sure that MIL's mess will become my mess sooner or later. My goal is to make it later (and cheaper)...

If she cannot formulate and stick with a $20K budget during the next year, I would urge you to seriously consider selling both houses and buying a house with a MIL apartment with separate entry, as suggested previously by Bikerdude. Buy it with your own money only.

Then she can use the money she gains from selling her house to help her stretch out the time before she has to start depending on you. After half her money is gone, you could start taking her meals to stretch it further.

I am so sorry that you, or anyone, has to deal with such a difficult situation.

[ERD50]

Quote:

Originally Posted by FIREdreamer So now I'm the one with the problem? I think it is totally naive to look at her situation in a vacuum. You really think that her mess is not going to become my mess at some point? Do you really think that my wife will be able to watch her mom eat cat food without the slightest tinge of pity and compassion when we "selfishly" enjoy our high income or comfortable retirement? Could you? I know for sure that MIL's mess will become my mess sooner or later. My goal is to make it later (and cheaper)...

I guess you are referring to my post, but yes, to me it looks like you are making this your problem (which is understandable, I just don't think it is really helpful). Time for "tough love", IMO.

It's not looking at it in a vacuum - just the opposite, I am looking at it with the benefit of a little distance and perspective. I understand that you will help your MIL so she is not eating cat food in her old age. But (as you seem to be aware), the best way to assure that is to get her to cut back her spending NOW.

And it sounds like asking her to cut back NOW isn't working too well. So all I'm saying is lay out the consequences to her factually, not emotionally. Show her that the best way to assure that you can help her later, is for her to help herself now, by cutting back.

It is a tough situation, and emotionally draining, I'm sure. You are fortunate that your wife is on board with you, it would be impossible w/o that. I have the opposite problem with my Mom, I sometimes have to encourage her to spend on herself. Not such a tough problem as yours.

You know, the answer is right in your post I quoted. There is only one solution:

1) You don't want to see your MIL destitute.
2) She is spending beyond her means (leading to #1).
3) You (understandably), don't want to make too much of a sacrifice in your own life-style, to support her excessive current spending.

All very reasonable, and the answer (which you seem to be aware of), is she needs to cut back her spending NOW. There is no "try" only "do". Otherwise, you end up at the bad side of #1 or #3.

Do you see any other way for it to play out?

-ERD50

[harley]

This has been a great thread, and every time I thought of an idea someone else covered it in a later reply. So here I am with just one suggestion left.

How about manipulating her into believing suggesting to her that she has been set up by ex-FIL to fail, and that he is laughing up his sleeve at her? He's maybe even working the retired/widowed woman pool now, and telling all his golf buddies how he burned her and how she's so dumb and worthless she's going to have to go live with the kids. Get her good and mad at him, and then let HER come up with ideas on how she can show that SOB that she can take care of herself. SHE CAN live on a reasonable budget, even without his money. SHE CAN get a job (P/T, F/T, pet sitting, whatever) and make her own way though the world. Hell, if she gets mad enough she may even be able to add to the nest egg, and leave DW some money. Wouldn't that just show him. Plus, she can outlive him and get additional revenge.

I'm not sure what her feelings are toward him, but if it was me, I would be mad! Another side effect of righteous indignation might be taking him back to court for a better settlement.

Y'all might be different, but I do my best work when I'm totally pissed off personally motivated.

[FIREd]

Quote:

Originally Posted by ERD50 I guess you are referring to my post, but yes, to me it looks like you are making this your problem (which is understandable, I just don't think it is really helpful). Time for "tough love", IMO. It's not looking at it in a vacuum - just the opposite, I am looking at it with the benefit of a little distance and perspective. I understand that you will help your MIL so she is not eating cat food in her old age. But (as you seem to be aware), the best way to assure that is to get her to cut back her spending NOW. And it sounds like asking her to cut back NOW isn't working too well. So all I'm saying is lay out the consequences to her factually, not emotionally. Show her that the best way to assure that you can help her later, is for her to help herself now, by cutting back. It is a tough situation, and emotionally draining, I'm sure. You are fortunate that your wife is on board with you, it would be impossible w/o that. I have the opposite problem with my Mom, I sometimes have to encourage her to spend on herself. Not such a tough problem as yours. You know, the answer is right in your post I quoted. There is only one solution: 1) You don't want to see your MIL destitute. 2) She is spending beyond her means (leading to #1). 3) You (understandably), don't want to make too much of a sacrifice in your own life-style, to support her excessive current spending. All very reasonable, and the answer (which you seem to be aware of), is she needs to cut back her spending NOW. There is no "try" only "do". Otherwise, you end up at the bad side of #1 or #3. Do you see any other way for it to play out? -ERD50

Oh, I absolutely agree with you. The only option is for her to cut her expenses now or find a way to make some money. She knows she has no other option. DW and I have never even hinted that we would step in and help her financially, so hopefully she understands that she has to find a solution to her own problems. I have been very factual with her, showing her a number of simulations showing the impact of her current spending on the survivability of her portfolio, and I think that she got the message. She has already cut $6,000 out of her budget which is a good start but, as I wrote in previous posts, I also understand that it will take a little bit of time for her to accept the fact that, in two years time, she went from living an upper middle class lifestyle with few spending restrictions to one where a latte at Starbucks is a luxury she can't afford anymore. Right now she is looking at ways to increase her income rather than cutting her expenses further. I think it's worth investigating.

[FIREd]

Quote:

Originally Posted by harley This has been a great thread, and every time I thought of an idea someone else covered it in a later reply. So here I am with just one suggestion left. How about manipulating her into believing suggesting to her that she has been set up by ex-FIL to fail, and that he is laughing up his sleeve at her? He's maybe even working the retired/widowed woman pool now, and telling all his golf buddies how he burned her and how she's so dumb and worthless she's going to have to go live with the kids. Get her good and mad at him, and then let HER come up with ideas on how she can show that SOB that she can take care of herself. SHE CAN live on a reasonable budget, even without his money. SHE CAN get a job (P/T, F/T, pet sitting, whatever) and make her own way though the world. Hell, if she gets mad enough she may even be able to add to the nest egg, and leave DW some money. Wouldn't that just show him. Plus, she can outlive him and get additional revenge. I'm not sure what her feelings are toward him, but if it was me, I would be mad! Another side effect of righteous indignation might be taking him back to court for a better settlement. Y'all might be different, but I do my best work when I'm totally pissed off personally motivated.

She IS mad. It's a mixture of feelings though. She feels like her ex owes her for basically destroying her life but at the same time she wants to show him that she can make it on her own. The reality is, she's still not over the guy. It was a long marriage which ended up very abruptly with few explanations and little closure.

That would have been me, I would have never signed that half-a$$ divorce settlement without consulting a lawyer first. But she feels like what is done is done and she doesn't want to reopen the wound I guess.

[jdw_fire]

Quote:

Originally Posted by ERD50 I understand that you will help your MIL so she is not eating cat food in her old age. But (as you seem to be aware), the best way to assure that is to get her to cut back her spending NOW. And it sounds like asking her to cut back NOW isn't working too well. So all I'm saying is lay out the consequences to her factually, not emotionally. Show her that the best way to assure that you can help her later, is for her to help herself now, by cutting back. ... 1) You don't want to see your MIL destitute. 2) She is spending beyond her means (leading to #1). 3) You (understandably), don't want to make too much of a sacrifice in your own life-style, to support her excessive current spending. -ERD50

FD, i have not been able to tell for sure from your posts if you think she will get to the sustainable budget or not but it seems to me that if it isnt a certainty then the way to make it a certianty is to buy an annuity with her liquid assets. at present the way she is able to overspending the sustainable budget is by spending those assets, so if they were gone (used to purchase an annuity) she would not be able to overspend and she would have a guaranteed income for life. now as to whether that annuity needs to be COLAed will take some thought. if you think that her expenses will (in a real sense) go down in the future then no COLA may be needed. after all, those animals will eventually die.

i also wonder about the necessity of the medigap and LTC insurance. my mom has medigap coverage from her HMO that costs her nothing above the medicare part B premium. yes she has copays but they seem reasonable. as to the LTC insurance, it is for protecting assets, which if she gets the annuity, will not be large, since getting a reverse morgage may very well also be required in the future.

[samclem]

Quote:

Originally Posted by jdw_fire as to the LTC insurance, it is for protecting assets, which if she gets the annuity, will not be large, since getting a reverse morgage may very well also be required in the future.

No, as FIREDreamer mentioned, his MIL wants the LTCI so that she can get better (i.e. non-Medicaid) LTC if she eventually needs it. It seems to me that the two ways to accomplish that would be LTCI or keeping open the optionof a reverse mortgage on the house.

I agree that in this particular case an annuity might make sense, as it puts a limit on her spending and gets FIREDreamer out of the role of no-win roles of financial advisor and budget cop. He's considering an annuity, but wants to wait a few years as her monthly payout will be higher (due to lower expected longevity and higher interest rates). The risk: In a couple of years her nest egg has diminished so much that her payout is smaller. When she sees that number, she'll be even less likely to sign on for an annuity.

[jdw_fire]

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Originally Posted by samclem No, as FIREDreamer mentioned, his MIL wants the LTCI so that she can get better (i.e. non-Medicaid) LTC if she eventually needs it. It seems to me that the two ways to accomplish that would be LTCI or keeping open the optionof a reverse mortgage on the house.

what i have heard is that once a person is in a particular LTC facility they aren't likely to get kicked out because they run out of assets (i.e. have to have medicaid start paying for them). maybe i have heard incorrectly

Quote:

Originally Posted by samclem I agree that in this particular case an annuity might make sense, as it puts a limit on her spending and gets FIREDreamer out of the role of no-win roles of financial advisor and budget cop. He's considering an annuity, but wants to wait a few years as her monthly payout will be higher (due to lower expected longevity and higher interest rates). The risk: In a couple of years her nest egg has diminished so much that her payout is smaller. When she sees that number, she'll be even less likely to sign on for an annuity.

which is why i suggested getting the annuity now. i understand the desire to wait for better interest rates but if there is nothing left when those better interest rates appear then there wont be an annuity and there will be a second lifestye change.

[shoe]

When my FIL went into a nursing home in 1992 we had to have 6 months of private pay in order to get him into the facility we had chosen. Our understanding was that once he was unable to pay with his own funds he could stay under Medicare.

[Bestwifeever]

FireDreamer, you are doing a great job. Your suggestions will keep sinking in and she will find herself able to cut more expenses. I also think she is a lucky woman to have so many areas that she CAN trim--so many luxuries in my eyes that are relatively easy to do without.

I don't think the LTC policy premiums are a problem--but that pet budget! Oh my.

[honobob]

Firedreamer. you do not want to be the smuck to encourage your MIL to throw away her LTCI. It may very well be the only smart thing she did in planning for her future. I can't believe how cavalier so many people are here about throwing away this valuable retirement tool with so little information and I can't believe the flimsy excuses they give for not having LTCI and their misguided belief that the government will take good care of them for not planning for their own care. But that should be in a separate thread.

I would check her policy. I just checked my ten year old policy with CalPERS and my coverage amount has increased 48% although my premiums have only increased a little over inflation. If I were to buy the same coverage today it would cost me $360 a month. I pay about $131 a month. Break even point isn't very long and I've been able to wake up for 3650 mornings thanking God I'm not in a nursing home and knowing I'd be getting $192 tax free each and every day if I was. I'd take a low interest 30 year mortgage to pay the long term care if needed if she has a good policy. I'd rather die with 25 years left on a mortgage than spending down the property in 3 and being in a medicaid bed. When my father spent 5 months in a SNF he paid $5,000 a month. When he had medical care through medicare they physically moved him to a medicare bed even though they held his paid for bed. Even in the nice facility I found for him there was a noticeable difference in beds (location, location, location). I can only imagine what a medicaid bed would be like in a lesser facility.

YMMV IMHO Wake up and smell the coffee!

[honobob]

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Originally Posted by shoe When my FIL went into a nursing home in 1992 we had to have 6 months of private pay in order to get him into the facility we had chosen. Our understanding was that once he was unable to pay with his own funds he could stay under Medicare.

Yay for the good old days. My father spent 5 months in a SNF when I first took over his care. He was supposed to die in six months and never live outside a nursing home. He spent about 9 years at my home. He finally had a medical problem and went back and forth between a SNF and the hospital. From day one the SNF (a different one) bothered me for his financial assets even though he had 90-110 days that medicare pays. Because I'm a Jr. they wanted me to prove that my home in CA and any bank accounts were not his! I provided his assets that would cover about a year of care even though I knew he would not live long enough to exhaust his medicare days. Hell, he was supposed to die 9 and a half years ago. Soooo...next time he went to the hospital they "dumped" him. Refused to take him back even though all his stuff was there, he had lots of medicare days left and proof of ability to pay for at least a year. An advocate at the hospital said this is very common. She got him into a rehabilitation center but it was evident that he would not recover so she arranged a new self pay home for him. He transfered in in the afternoon and died by 6:00am the next morning.