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Trying to save MIL's financial life... should I bother?
Old 06-28-2007, 11:36 PM   #1
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Trying to save MIL's financial life... should I bother?

Hi,

I need to vent a little. My mother is law got divorced last year. She is 64 and owns her own home (worth about 200K). For the next 10 years she will get $72,000 a year in alimony and she currently has about 300K in her IRA. That's it. No debt. After the divorce she asked me to take a look at her finances because she is clueless when it comes to investments and money in general.

A brief history: she and her ex-husband made a lot of money during the past 20 years (income of $250K+ in the past 5 years) but saved very little of it preferring to "enjoy life while they were young". They never bothered with a budget. Five years ago they bought a huge house in a posh neighborhood for just the 2 of them. My FIL just told me that he had done a lot of research and that the house would be a good investment which would pay for their retirement. Well as it turned out the house ended up being a money pit and it had to be mortgaged to the hilt to help pay for repairs.

Anyways, after the divorce, I stepped in and looked at how her IRA was invested. It was 100% invested in a single mutual fund specializing in emerging markets with a huge expense ratio. So I decided it would be better to roll it over to vanguard and have her invest in a target retirement fund instead. I also sat down with her to talk about her financial future. I looked up at her SS statement and found out that at age 70 she would receive about $1400 a month in benefits. The rest will have to come from her savings. So I created a plan for her: right now, if the alimony payments were to stop (if her ex died for example) she would have to live on about $1200 from SS and $1000 from her IRA (4% SWR). So I figured she should try to live right now on $2500-$3000 a month and save the rest so that in 10 years, when the alimony payments stop, the income from her IRA and SS would allow her to maintain her lifestyle and be finally FI. And in the mean time if the alimony payments stop, she would not have to cut back her expenses too drastically to make it work.

Anyways I came up with a budget for her and everything worked out for 6 months. But now she is at it again with the "enjoying life while I am young" business. Her monthly budget has swelled up to $4700 a month (a lot of entertainment, dining out and conveniences have been added to the budget). I have tried to reason with her but she is resisting. I showed her that in 10 years, if she continues on her current track, she probably will have to cut back her expenses by 40 to 50% to make ends meet. But she doesn't want to hear it. Like she told me, "somehow things will work out, they always do..."

So should I just give up and let her do her thing? I am afraid she is going to become annoyed with me if I press too hard for her to reduce her expenses. That's her money after all...
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Old 06-29-2007, 12:01 AM   #2
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If she is competent, perhaps you should step aside...for now.
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Old 06-29-2007, 12:13 AM   #3
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Tough call, if it was your Mom. I think you should continue to press, given it is your MIL, hard to say. I think the number one issue is what does your wife think it is her mom after all.

It some ways cutting back from 20K/month income (less taxes) to $4700 a month is pretty reasonable accomplishment. It seems that a $3K cut back is probably too drastic when she has income in the 6K range.

If she can build her IRA+savings up to the ~500K (in todays dollars) by the time the alimony stops she should be fine. Can you convince her to do an automatic savings into her Vanguard account of say 500-1,000/month?
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Old 06-29-2007, 12:32 AM   #4
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I understand you feeling frustrated with the "somehow things always work out" attitude. On one hand, yes, it's important not to get caught up worrying about the future, but on the other hand, that doesn't mean you don't plan for the future (or make an attempt to stick to your plan). Yeah sure, things may "work out," if by "work out" you mean "mom's moving in with us."

However, I think you've done about all you can. As you've pointed it, it's her money; it's her life. You can lead a horse to water ...
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Old 06-29-2007, 07:42 AM   #5
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Like anyone with obsessive behavior in denial; druggy, alcoholic, gambler, her behavior isn't the problem. You are.

Unfortunately, YOUR problem is not just whether she listens to you now. It's what your wife's emotional obligation to her will be, once she's broke.

"Oh, Honey.... she simply MUST come live with us. She has no where left to go."
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Old 06-29-2007, 09:19 AM   #6
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Snapshot where she is today. Step away. Do a snapshot every 6 months. Show her how it's going and if/where it is going to break. Maybe you've even done this enough but keep doing it every 6 months. Keep showing all previous trends graphically or whatever presentation makes sense. Maybe she'll start to see before it's too late, and you two are only dealing with it every 6 months rather than constantly.
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Old 06-29-2007, 09:53 AM   #7
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I'm not married but I'm guessing that if the MIL does not get on board with a financial plan she could need more from you than financial advise. You need to take a reading as to how she is accepting you imput and guide her accordingly.
Is your wife on board with all of this? I would think it would be helpful if she was with you.
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Old 06-29-2007, 09:57 AM   #8
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If she is competent, perhaps you should step aside...for now
If by "competent" you mean she is mentally competent, then yes she is. I have made it abundantly clear to her what the consequences of her current spending will be and she understands the situation. But she somehow thinks money will fall from the sky when she'll need it...

Quote:
Tough call, if it was your Mom. I think you should continue to press, given it is your MIL, hard to say. I think the number one issue is what does your wife think it is her mom after all.

It some ways cutting back from 20K/month income (less taxes) to $4700 a month is pretty reasonable accomplishment. It seems that a $3K cut back is probably too drastic when she has income in the 6K range.

If she can build her IRA+savings up to the ~500K (in todays dollars) by the time the alimony stops she should be fine. Can you convince her to do an automatic savings into her Vanguard account of say 500-1,000/month?
My wife is not the least bit interested in money matters (looks like it runs in the family) so that's why I am the one helping her with her finances. My wife does not want to get involved at all in the situation (she's never had a great relationship with her mom) and considers that her mom should be wise enough by now to do the right thing.
I acknowledge that cutting back her expenses from 20K to 4.7K a month is an achievement but my reasoning was that in her situation, I would rather have to cut my lifestyle once and for all and see that lifestyle improve overtime as my nest egg grows rather than having to go through another round of budget cuts in 10 years. Right now she has cut her expenses by 75% but she will have to cut them back again in 10 years by 40% if she stays on the current track. Basically in 10 years she won't be able to afford anything beyond the basics.
Right now I am pushing her to save about $1000 a month with vanguard but there are signs she would like to lower that amount.

Quote:
Yeah sure, things may "work out," if by "work out" you mean "mom's moving in with us."
Quote:
Unfortunately, YOUR problem is not just whether she listens to you now. It's what your wife's emotional obligation to her will be, once she's broke.
Unfortunately for HER, it is NOT going to be our problem. 1) my mom retired on $1300 a month (she has no assets beyond a paid for home) and she is making it work. So if my MIL gets twice that income in retirement, I feel like she's gonna have to make it work too. 2) If she made some sacrifices now, she could be in good financial shape in 10 years. but she has decided not to bother with sacrifices and continues spending like it's going out of fashion. No sacrifices = no reward. 3) My wife does not feel like this is her duty to bail out her mom because of all the stupid decisions she made in the past and is continuing to make (plus like I said they are not very close). 4) My wife feels like we are where we are now because of sacrifices we were willing to make to become FI as soon as possible. In the mean time her mom is and has been living the high life (she spends as much each month as the 2 of us, but we get twice the income). My wife does not want to sacrifice any more than we do now so that mom can continue having her fun...
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Old 06-29-2007, 10:16 AM   #9
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Probably the hardest thing to do is to get a MIL to listen to a SIL.

Second hardest would be to get your mom to listen to you.

My dad still says ( in jest) "Well you've come around some........you're not as stupid as you used to be"..........
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Old 06-29-2007, 10:20 AM   #10
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Snapshot where she is today. Step away. Do a snapshot every 6 months. Show her how it's going and if/where it is going to break. Maybe you've even done this enough but keep doing it every 6 months. Keep showing all previous trends graphically or whatever presentation makes sense.
That's what I have been doing. I have created spreadsheets and graphs to illustrate the situation. I set them up so that we can change parameters to see how they affect the outcome and so that we can track her progress. Every 6 months we plug the new numbers in to see what the future is looking like. I have the feeling she knows that it does not look too good right now with her current spending. But sometimes I feel like she is so overwhelmed by the task that she'd rather not do anything about it. But I think there may be another problem underneath. She feels like the divorce was no fault of hers and that for her to have to cut her expenses to the bone is unfair.

Quote:
Maybe she'll start to see before it's too late, and you two are only dealing with it every 6 months rather than constantly.
The problem is that I not only take care of her financial planning, I take care of managing her checkbook, her EF and pretty much anything else financial (like I said before she has no clue). So every week I see first hand what she spends money on and I can see how this is affecting her future...

Quote:
You need to take a reading as to how she is accepting you imput and guide her accordingly.
Is your wife on board with all of this? I would think it would be helpful if she was with you.
Well she was the one who asked for my input. At the beginning the fear from the "bag lady syndrome" was enough for her to stay on track with the plan I put together. But her old ways came running back in a hurry... My wife thinks that my helping her is a good thing but she does not want to be personally involved. And unlike me she would NEVER tell her mom that she has to cut her expenses...
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Old 06-29-2007, 10:27 AM   #11
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Probably the hardest thing to do is to get a MIL to listen to a SIL
The funny thing is my MIL has a better relationship with me than she does with her own daughter...
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Old 06-29-2007, 10:50 AM   #12
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The funny thing is my MIL has a better relationship with me than she does with her own daughter...
Yes, but your wife has already decided not to get involved and feels no obligation to rescue or shelter her mother when the money runs out.

So it looks like your wife has already made the decision and is just waiting for you to come to your senses work through the process.

My FIL used to bring up magazine articles and other financial issues, and I used to think that he genuinely enjoyed discussing investing & finances. It took me a few years to realize that the financial discussions were a proxy for him to rail against "those Wall Street bahstahds" and his fear of losing his money-- or his fear of me losing his daughter's money. He wasn't in the discusson to learn anything or to take any action-- just to make himself feel better. Eventually I had to mentally separate my financial knowledge into "things we can talk about" and "things we can't talk about". Finally it became easier to just not talk about any of it.

Sounds like your MIL is in the same situation. She was willing to humor you as long as there was a chance that you were going to make money rain down from the sky. Now that you haven't fulfilled your potential she's taking control of her own spending again and waiting for you to go away...
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Old 06-29-2007, 10:52 AM   #13
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"She is 64 and owns her own home" Let that pony run. 10 years from now at 74 she probably won't be in a massive spending mode. When, and if, you are providing for her care you can determine just what her allowance will be - until then it's her life and her money. "Lots of ways to live a life". While you and i might be the forward thinking delayed gratification types we aren't immune from being hit by a bus - if she turned up her toes in a year wouldn't she be pissed if she hadn't spent like a rapper to maximise her life experiences prior to that time? Better to maintain a good relationship with her - or pull away and ignore.
Preaching to myself here - my niece goes through the little $ she has with no discernable thought for tommorrow....very tough to watch her head toward going bust.
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Old 06-29-2007, 12:08 PM   #14
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Originally Posted by FIREdreamer View Post
...I acknowledge that cutting back her expenses from 20K to 4.7K a month is an achievement but my reasoning was that in her situation, I would rather have to cut my lifestyle once and for all and see that lifestyle improve overtime as my nest egg grows rather than having to go through another round of budget cuts in 10 years. ...
It seems like a lot of work to try to impose your own values on your MIL.
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Old 06-29-2007, 12:37 PM   #15
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It seems like a lot of work to try to impose your own values on your MIL.
No kidding...

So I guess I should have done what my instinct usually tells me to do: take care of my own business and don't get involved with other people's finances. I just thought I would make an exception and help someone who seemed to be genuinely in need. My mistake. You're right it's her money after all. If she wants to blow it all, it's her right. The chips will fall where they fall and she'll just have to deal with the situation on her own.
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Old 06-29-2007, 12:53 PM   #16
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So she's spending about 57K per year and is getting 72K in alimony. That seems OK, but your worried her husband might die before the 10 years are up. Well, why not take a term life insurance policy on her husband to cover the remaining years of alimony? Or split the difference and cover only 5 years. I would think the court would agree she should be protected and encourage her husband to participate. Just a thought.
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Old 06-29-2007, 01:22 PM   #17
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Bikerdude,

Actually the death of her ex is only one potential issue. As part of the divorce settlement she agreed to receive 30% of his WAGES for the next 10 years. So if he becomes disabled, or decides to retire before then and his wages go to 0, it is my (and her) understanding that her alimony payments would stop. If his wages take a dive (because of a layoff or what not), her alimony payments will be reduced accordingly.
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Old 06-29-2007, 02:45 PM   #18
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You've done the best you can do. At this point, you should step aside and let her live her life. I know it sucks having to say "I told ya so" to someone when they finally hit bottom, but they'll never learn any other way.

I can empathize with you. My mother is on the same path. The only reason she can make ends meet is my father contributes more to her than even the courts said he must. At some point, the money from him will stop, and she's SOL. I'm mentally preparing for the day I have to tell her to apply for welfare.
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Old 06-29-2007, 04:03 PM   #19
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Before giving up on her, I think it's worth writing her a letter that outlines the best and worst case scenarios and the choices that are hers to make. It might be helpful to have a document that she can reflect on later, perhaps when things are going the way you predicted, and when she is more ready to hear or see your POV. The tone of the letter should not be threatening but should make it clear that the outcome is her responsibility and that baling her out is not part of the FIREdreamer financial plan, because it doesn't need to be. If she doesn't believe you, she can get an independent review.
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Old 06-29-2007, 07:01 PM   #20
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You should back off and let her be. It's her life and her money.
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