Help for an old lady?

[harley]

Hi everyone.

I'm not sure if this is the right forum for this question, but it seems like the best fit.

My mother has recently (last week) lost her husband of 34 years to cancer, and along with the heartache that goes with that kind of loss she has been left in fairly severe financial straits. Between his military pension and both of their Social Securities, they were living off $90K/year, after taxes. Pretty sweet.

However, they assumed she would die first, and that he would be fine with his pension and SS. He came from a long lived family, and she didn't. He appeared to be in much better health, although that turned out to be an illusion based on not going to the doctor for over 20 years. And the assumption was bad anyway, just based on statistics.

Anyway, he died first. They have no real investments, and were somehow managing to spend almost all of the incoming money each year. She's left with his (higher) SS - $1300/month. They also had $140K in savings accounts (makes me want to scream!). He had about $100K in life insurance policies. And she owns 2 parcels of low value property, maybe $50K for the two. And her house, free and clear. If sold, maybe $200K. So anyway, she's going to have a $15K SS income, and maybe $300K to live on, for who knows how long. I'm already working on getting her to recognize that she can't spend so freely anymore. Hopefully I can get that through to her.

I'm retired and have plenty of money for my situation, and I know a fair amount about how to invest it and take care of myself and my wife going forward. So I consider myself fairly well educated for that type of investing. However, I know very little about investing a smaller amount very safely. I'm hoping she can draw between 5-8%/year to suppement her SS. If she dies with a penny left, great. But I don't want her to run out.

I will help her as needed, but she would prefer to do this without what she sees as charity. She wants me to help her handle her finances, since she has obviously never learned. She was a good saver, but a lousy manager. I know what they did wrong, but that's hindsight now. I'm going to be studying up on bonds and other safer investments, and was hoping the folks here could give me some advice about things to look into.

Thanks very much.

Harley

 

[FinanceDude]

Isn't there joint and survivor payments on a military pension payout??

 

[shoe]

Harley, sorry about your dad. Your mother is lucky to have a son who gives a damn. Peace.

 

[REWahoo]

Harley, tough situation.

Have you considered Vanguard's new Managed Payout Funds? Perhaps splitting her $300K between the 5% and 7% payout funds would simplify things and do the trick.

 

[Abreutime]

How old is your mother?

 

[FinanceDude]

Harley, tough situation.

Have you considered Vanguard's new Managed Payout Funds? Perhaps splitting her $300K between the 5% and 7% payout funds would simplify things and do the trick.

Good idea on the managed payout option, let her stay in the house, help her put a budget together, and tell her that she has to live on about $35,000 a year...........

 

[ProspectiveBum]

Isn't there joint and survivor payments on a military pension payout??

This was my first question, as well. I only did a bit of quick digging, but it looks like survivor benefits are not a given. From this website: Now and the Future - Military Benefits

Retired pay ends with the death of the retiree and is not transferred to his survivors unless he is a member of the Retired Serviceman's Family Protection Plan (RSFPP) and / or the Survivor Benefit Plan (SBP).

The Survivor Benefit Plan is apparently a kind of insurance policy that will pay 55% of the deceased parties benefits to a spouse or dependent. From what I read, it was an opt-in plan with a premium. In this case, they probably didn't bother with it, because they expected the husband to out-live his wife.

I know there's some debate here about them, but a reverse mortgage might be an option for your Mom as well. One more thing to consider, anyway.

 

[FinanceDude]

I had a sad situation with this myself. I met with a couple whose husband took the "lifetime only" option even though he had had prostate cancer and was 6 years older than his wife.

They wanted to know what could be done, but it was too late. Last I heard the cancer was back..........

 

[Texas Proud]

Sorry to hear about her loss... and her predicament... sp?

It is a sad story that keeps getting told... the husband makes sure that he is taken care of as long as he lives, but does nothing for the wife.... sorry to see this again..

As someone pointed out, it might matter how old she is.... if she is in her late 80s and is not expected to live much longer... than she is fine... if she is in her early 60s, then there is a problem...

I find it interesting that you say your mother lost her husband... that would indicate he was not your father... guess it doesn't make any difference... but does she have other children? Some by him? If she needs help, maybe you do not have to be the only one...

 

[OAG]

I suggest you look through his papers. You should find a document called a Retiree Account Statement and it is an annual issue by a organization called DFAS (Defense Finance and Accounting Service (Phone # 1-800-321-1080) located in London, KY. On this document you should see all deductions from his Military Retired Pay (look for an entry regarding SBP Costs and in the bottom section it will have defined SBP coverages, if any). It may also contain a entry for "VA Waiver" if he had a Service Disability. He could have waived the SPB or RSFPP but it initially was not easy to do (and the spouse would have had to agree to it in the case of SPB). Also it could have been increased or dropped at several points in time but the spouse would have had to concur in a dropping (SBP). If there is a "VA Waiver" entry you need to get in touch with the Veterans Administration (See the phone book under Government listings). In any event you (really you should) may want to get in touch with one of the "Military Service Organizations" listed in the phone book (for example Disabled American Veterans (DAV), Veterans of Foreign Wars (VFW), etc.,) or your State Veterans Organization (this will be a phone listing under State Govenment). There are some benefits possible for the Spouse and they deal with financial assistance and other benefits dealing with the funeral and internment. Most states have a point of contact for survivors of veterans that is there to assist in EXACTLY this situation - use them.

 

[Coach]

Harley, I'm sorry to hear about this difficult situation.

I hope your Mother will let you work with her on developing a budget. That seems like an essential first step.

Coach

 

[Animorph]

Here's a case where I would look at getting an immediate annuity. An added benefit is that it would force a reasonable spending pattern. Safe, guaranteed not to run out, and probably a better monthly income than you could safely provide from investments.

I might keep $50k or so in savings for any large expenses, if that looks necessary and she can refrain from spending it.

Absolutely an option here.

 

[jclarksnakes]

My wife and I opted to not get the survivor benifit plan when I retired from the army. There are many military retirees and their wives who opted to not take the SBP. We found that life insurance was a lot less expensive than the SBP and also considered that at some point later (sooner than we thought actually) we would have enough in our portfolio that my pension would not really be needed. Better late than never but IMHO the OP needs to get his mom thinking about a LBYM lifestyle.
Jeff

 

[harley]

Man, what a great group of people. I appreciate all the answers. Just to answer a few questions:

She is 72. Has a pacemaker and some medical issues, but I wouldn't put it past her to live 25 more years. Or 1. That's why I'm trying to be conservative.

No Survivor's benefits. They had a lot of debt 34 years ago when they got married, so they took the full payout. When everything was paid off (at least 25 years ago), they just upped their lifestyle and spent almost all of it. Foolish in the bad sense of the word.

No, he wasn't my father. I didn't even like him that much. Actually, she's not my real mother, she's my aunt, but she raised me and my brother when my real mom died when I was 8, so she's my mother to me. No other surviving kids (brother died 7 years ago).

As far as VA disability benefits, I've been in touch with the Army Mutual Aid Assoc. They are going to see if he can get benefits based on having been in Vietnam and dying of lung cancer, and will let me know if there is anything else I could look into. Actually, I have to give the military organizations props, they've been very helpful and considerate, as opposed to the civilian insurance companies. None of them even said "condolences". Just "we'll send a packet. Fill it out and include a death certificate." I never was in the military, and I'm impressed by their attitude. I'll also look into some of those other orgs mentioned by OAG.

I appreciate the suggestion on the Vanguard Managed Payout funds. I'll look into that. I'm also going to look into Wellesley(?). I've seen a couple of mentions on the board, and that sounds like a possibility. The reverse mortgage is also a consideration if she stays in the house. I'm trying to get her to move closer to me. She's currently in the middle of nowhere, down a dirt road on a river, totally isolated except for 1 neighbor. But I can only talk, I can't make her do anything. Just like my daughter.

I think the biggest hurdle will be the budget, and living with her means. That's going to take a wake-up call. She can't get her hair done every week anymore.

I truly appreciate all of your consideration, kindness and suggestions. You're a good group of people.

Harley

 

[harley]

Sorry, the immediate annuity suggesion came in while I was tying the previous response. I'm prejudiced against them, but should probably keep an open mind. We're going to be working with a salaried FA connected with USAA. I'll see what he has to say before we do anything. I'm assuming by being salaried instead of fee or commission based he'll be less conflicted. It would be interesting to see what kind of payout you could get from an annuity for $250K. Thanks for the suggestion.

Harley

 

[Lsbcal]

... she owns 2 parcels of low value property, maybe $50K for the two

The only thing I can think to add is that for 2008-2010 the federal cap gains taxes go to 0% when the person is in the 15% bracket. Perhaps this might help when/if selling the property. I imagine the 2009 rate is pretty safe but would not count on the 2010 to be available -- will depend on the parties in power.

 

[Marquette]

I'm rather prejudiced against annuities as well, and I even work for an annuity company, but I'd seriously consider an SPIA in her case. At least look at your options and get some numbers. If she doesn't care about an estate, and at her age, it might make sense to gamble against the mortality tables and maximize her income stream.

 

[outtarentals]

The only thing I can think to add is that for 2008-2010 the federal cap gains taxes go to 0% when the person is in the 15% bracket. Perhaps this might help when/if selling the property. I imagine the 2009 rate is pretty safe but would not count on the 2010 to be available -- will depend on the parties in power.

If she lives in one of the 9 community property states (Arizona, California, Idaho, Louisiana, Nevada, N. Mexico, Texas. Washington, Wisconsin) it's possible she will receive the 100% stepped up basis on the entire value of the properties and won't have to pay any capital gains taxes at all on them when she sells them. In some circumstances, she could get stepped up basis on the inherited portion of the properties, but still have to pay capital gains on her half. These rules apply not just to real estate but to other assets as well.

It would depend on how title to the properties was held, and she would need an appraisal as of the date of death or within a specific time period. Could be worth looking into.
She is very lucky to have you to look out for her, Harley - that is priceless.

 

[Buckeye]

My 94-year old MIL gets only $1450 per month (SS, pension, and help from us) and still manages to get her hair done every week and a perm when required. She doesn't go anywhere fancy. She would die of depression and embarassment very quickly if she couldn't get her hair done every week. Be careful.

 

[harley]

You're probably right about the hair. What with not having any myself it seems like an extravagance

I should probably pick my battles carefully.

Thanks everybody.

Harley

 

[2B]

Be careful when you do a budget based on her housing costs. With what you've said it is probably going to be the biggest chunk of her spending. What's nice is that housing is probably one of the easiest things to cut back on. It's an emotional issue but its where the leverage is.

I'm firmly against a reverse mortgage because by taking one you've admitted you can't afford your housing costs anymore. There are also lots of fees involved that makes the return pretty poor. When she finally needs assisted living, her one big asset will basically be gone.

I'm always against any annuity but except for her health it might not be too bad an idea for her. Check with Vanguard and see what the payout is. There isn't an heir issue and the payout might be over 10%. A key issue is how is she going to fund assisted living an nursing care so if she goes with an annuity she needs to not go in too deep.

 

[nwsteve]

Harley
One other possibility to check is the unclaimed property listings for your Mom's state and any prior state's of residence. While working through my deceased Mom's information I found a stock disbursement from her life insurance which demutualized. I then did a search on her deceased husband's name and found several listings in his name. Bunch of paperwork depending on the state but you might be surprised what is out there, especially given their apparent low interest in managing their finances.
nwsteve

 

[harley]

2B - I agree about the reverse mortgage. Another decent idea ruined by high costs. I don't even want to think about LTC. Any coverage she could get would be prohibitively expensive, even for me to pay. I suspect with this one we'll just have to hope for the best and pay out of pocket if and when the time comes.

nwsteve - excellent idea.Should have thought of it myself. I actually recovered a decent chunk of change for myself a few years ago when I did the unclaimed property search. Thanks for the idea.

Harley

 

[Buckeye]

Did she file for her stimulus payment? You can still file for free on many sites including TaxAct. They have a selection in one of the drop-down menus to shortcut most of the questions for a "stimulus payment only" return.