Help me figure out how to finance MIL's retirement

[W2R]

This another expense I think should be cut. It is unrealistic for someone with her very small nest egg be paying 8% of her annual $20k income for this type of insurance.

I agree, and in fact I do not carry LTC insurance myself. But I waffled because some people feel it is essential. If she eliminates it, she could budget a much more liveable $3100 for miscellaneous spending money, instead of $1500.

Also, if she takes in 1-2 of her friends as renters/roommates, she might be able to keep her pets (which I would imagine might be a huge issue for her).

The budget needs to firmly cover food, shelter, medical, and utilities. I think she could live on a lot less for food, but wanted to generously fund it. A small steak (or whatever) once a week can go far in making someone on a tight budget feel less deprived.

I would imagine that her first reaction is going to be, "You just want to keep me from spending my money so that you will inherit it!" so the OP will probably have to somehow get her to accept the standard 4% SWR as reasonable in her own mind.

 

[ziggy29]

This another expense I think should be cut. It is unrealistic for someone with her very small nest egg be paying 8% of her annual $20k income for this type of insurance.

It's usually said that LTCI is really only something needed by the middle and upper middle class -- the wealthy can bankroll the LTC out of pocket and those of little means can have a considerable portion of it picked up by the government (albeit perhaps not at the facility of one's choosing). And I don't know that there are enough assets here to justify the cost.

The only problem with dropping it is that if circumstances change and she wanted to pick it up again, it would likely be much more costly. But in reality I'd have to think the chances of that are rather slim.

 

[Brat]

Although we have LRC insurance I do not believe it is appropriate in this situation.

Note that the budget proposed does not set aside any savings for home maintenance. She is relatively young and eventually the roof, water heater, furnace etc. will need replacement.

She need a reality check about her finances but also hope that if she manages her spending closely it is do able.

 

[ziggy29]

Note that the budget proposed does not set aside any savings for home maintenance. She is relatively young and eventually the roof, water heater, furnace etc. will need replacement.

I see $1200 budgeted for home repair annually. Don't know if that's enough in her case, but it may have to be and for only the most urgent repairs; the conventional wisdom is that one should budget about 1% of a home's value for annual repair and maintenance.

 

[HFWR]

...because some people feel it is essential...

Let me guess... LTC insurance salespeople?

 

[ziggy29]

Let me guess... LTC insurance salespeople?

Unlike some kinds of high-commission insurance (koffkoffwholelifekoffkoff), for the right circumstances I think LTC might be prudent. I'd agree that it's probably oversold, though -- a lot like annuities.

The bottom line is that if you have very few assets to protect, you probably don't need LTC -- eventually gummint assistance would come into play, the main downside being that you couldn't pick the facility. And if you're wealthy, you can pay cash for the care.

In short, the prime target demographic for whom LTC might make sense is solidly middle to upper middle class, probably with at least a few hundred thousand dollars in assets to protect, and who want to see to it that those assets pass to their heirs and not to the nursing home.

 

[FIREd]

Of course it is up to her where she will cut, but for example, how about:

Medicare: $1200
Medigap: $2200
LTC Insurance: $1600
Property taxes: $900
Home insurance: $900
Gas: [-]$1500[/-] $800 - drive less
Drug and Medical Co-pays: $1200
Food: [-]$5000[/-] $3600 (this is definitely enough for a single person living alone on a budget)
Pets: [-]$6000[/-] $600 (she has quite a few of them) Poor people can't afford more than $50/mo on pets - eliminate expenses or find homes for them
[-]Maid: $800[/-] $0 (unnecessary luxury)
[-]Vacation: $1200[/-] $0 (unnecessary luxury)
[-]Newspaper: $200[/-] $0 (unnecessary luxury)
Car repairs: $1000
Car Insurance: $900
Home repairs: $1200
[-]Charity: $1500[/-] $0 (she can't afford it)
Gifts: [-]$1500[/-] $200 (simple, handmade gifts)
TV: [-]$700[/-] $400 (bare bones basic cable)
Phone: [-]$800[/-] $300 (cheapest landline, no long distance)
[-]Alarm system: $400[/-] $0 (poor people can't afford alarm systems)
Termites and Pest Service: [-]$600[/-] $100 (yearly termite inspection only - - she will have to use a can of bug spray to deal with pests herself)
Utilities:$1400
Miscellaneous (classes at local college, eating out, movies, clothes, etc...): [-]$3600[/-] $1500 (cut out classes, eating out, movies, cut back on clothes or get second hand)

Total [-]$36,300[/-] $20,000

The reason I keep emphasizing "poor people" is not that I personally think that she is poor at all - - but she needs to get in that mindset if she is going to cut back sufficiently.

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.

 

[FIREd]

Does she have a spare bedroom and bathroom? If so than she needs to get a roommate the extra $400-$500 a month will make a big difference. It beats the heck out of working especially at her age in this economy. Plus it may get you of the hook for helping out all the time.

If she has an extra bedroom but it is being used than have her sell some stuff on ebay to make room.

Second thought what about going after the Ex. I didn't think that quitting your job got you out of paying alimony. Perhaps they can negotiate a lump sum instead of 10 years worth of alimony.

I'd show her W2R budget and tell her that is pretty much she HAS to live on unless she figures which unpleasant way she wants to generate more income, job, roommate,or Ex.

Thanks Clifp. She has actually 2 spare bedrooms and her house is quite large (about $2,500 sq.ft. IIRC). And there is plenty of stuff she could sell on Ebay (good idea!)... Also the local economy is not that bad and I think she would have a reasonable chance to find a part time job even now. As for the Ex, I want her to go after him more aggressively but so far her attitude has been "let's wait and see". I don't think she can afford to wait much longer.

 

[FIREd]

I personally think that she can't afford the LTC insurance and that her medicare supplemental insurance could probably be downgraded (right now she has plan J, but I think that she could go with plan C). Because of the way she lived all these years, she can't fathom "scrimping" on insurance, especially health insurance.

 

[ziggy29]

I personally think that she can't afford the LTC insurance and that her medicare supplemental insurance could probably be downgraded (right now she has plan J, but I think that she could go with plan C). Because of the way she lived all these years, she can't fathom "scrimping" on insurance, especially health insurance.

Health insurance itself needs to be one of her core expenses and probably not one she can cut too much. The only possible exception is on Medigap if she's over-insuring herself with extremely low deductibles and copays.

LTC, on the other hand, can probably be cut. It's not like she won't get any if she runs out of money. I'm assuming in her situation there's no expectation of passing much of an estate to her heirs? If not, that would seem to make the decision to cut LTC easier.

 

[FIREd]

I see $1200 budgeted for home repair annually. Don't know if that's enough in her case, but it may have to be and for only the most urgent repairs; the conventional wisdom is that one should budget about 1% of a home's value for annual repair and maintenance.

I do a lot of repairs myself so her budget needs to cover just the cost of materials. She had a new roof and A/C installed 2 years ago, so her home repair costs should be below average for the next 10-15 years.

 

[FIREd]

Health insurance itself needs to be one of her core expenses and probably not one she can cut too much. The only possible exception is on Medigap if she's over-insuring herself with extremely low deductibles and copays.

LTC, on the other hand, can probably be cut. It's not like she won't get any if she runs out of money. I'm assuming in her situation there's no expectation of passing much of an estate to her heirs? If not, that would seem to make the decision to cut LTC easier.

She would like to pass as much of her estate as possible to my wife. That's why she has been reluctant to consider a reverse-mortgage. We have made it clear that she is not in a position to worry about such things. DW doesn't expect a dime of inheritance from her anyways. That's why I think she should get over that mental hurdle and try to stretch all of her resources to remain financially independent. For us, it's far more important than any inheritance.

 

[REWahoo]

She would like to pass on her as much of her estate as possible to my wife. That's why she has been reluctant to consider a reverse-mortgage. We have made it clear that she is not in a position to worry about such things. DW doesn't expect a dime of inheritance from her anyways. That's why I think she should get over that mental hurdle and try to stretch all of her resources to remain financially independent. For us, it's far more important than any inheritance.

Isn't it ironic that folks in this situation think they are doing their children a great favor when in reality they are making their kids miserable through their actions?

Not me. I'm spending it all before I go. (I'm doing a great job of rationalizing, right? )

 

[FIREd]

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.

Well she might not physically disabled, but I think that she might be "financially disabled", she just doesn't understand money (or math) and she is very naive about her finances. She married very young and she never had to work for money or take care of the family finances. FIL used to take care of every aspect of their finances (and be quite secretive about it from what I understand) and it seems like, for 30 years, she never felt the need to get involved. When she divorced she was shocked to discover they had so much debt and so little saved up for retirement. She had simply no idea... So it's no wonder that something as basic as balancing a checkbook seems to be an impossible challenge for her. I have tried to teach her the basics so that she could handle on her own things like keeping a checkbook register, printing a budget, calculating how much to transfer from savings, etc... It's like it's coming in one ear and coming out the other.

 

[FIREd]

Isn't it ironic that folks in this situation think they are doing their children a great favor when in reality they are making their kids miserable through their actions?

Not me. I'm spending it all before I go. (I'm doing a great job of rationalizing, right? )

Yes do your kids a favor and spend it all!!!

 

[crazy connie]

2500 sq foot home Why not downsize to a condo and bank some. Less in taxes insurance and mtc and an improved nest egg. If in a senior type complex then the built in friends and activities cost less.

 

[FUEGO]

1. Downsize to a smaller house or condo? 2500 sf is a lot for one person. That is why she needs a maid.
2. Get a part time job to fund her pets and other hobbies.
3. In regards to costs that MIL doesn't want to cut because she thinks she still needs the goods/services - propose a compromise. Get her to agree to cut some costs for a three month period. If she misses the goods/services after three months and feels like she is getting value for money, then reinstate the services. I'm thinking newspaper, some cable, pest control, alarm, maid, charity. You don't have to get her to commit permanently, just secure a 3 month commitment and then re-evaluate at the end of 3 months. She may find she doesn't really miss some of the things she gives up.
4. Reverse mortgage - it may help. Or even getting a reverse mortgage on a smaller place. Would renting instead of owning make sense financially? Another interesting idea I have seen where the parent wants to leave a house to a child in their estate is for the child to essentially fund a reverse mortgage and take a note on the house in exchange for payments. It would save all those reverse mortgage fees.

Oh yeah, be careful you do not become an enabler. Sometimes too much help isn't good when it encourages reckless behavior.

 

[FinanceDude]

I think you're in a tough spot.

I doubt FIL will get a job to support the alimony payments. The fact he voluntarily quit a well paying job speaks volumes, he is trying to punish her......

She HAS to give up the niceties she enjoyed when she and you FIL were together, she's living like the money's still coming in, which is a big problem.

You are getting good advice from the folks on here.......

 

[charlie]

FIREDREAMER, I sympathize with you and your MIL and wish you all of
the best.

In scanning the posts on this thread, I did not see anyone mention
the obvious (to me anyway) idea of converting her IRA funds to
an immediate annuity.

At age 66 in California, a female could get about $1083 per month for
life with no beneficiaries. This would give her about $12,996 per year
which added to her SS would amount to $26,196.

To make up the $5804 shortfall, she could do a reverse mortgage as
you mentioned. This would keep her in her home, which is probably
very important to her (and keep her out of yours ).

She could then look for a roomie, as others have mentioned, to bring
in a little extra cash to get her to the $36,000 level. Or perhaps
she could look for some part time work like substitute teaching if
she is so inclined.

In any case, staying in her own home will probably make both of you
happier, and since her eyes glaze over on money management issues,
an immediate annuity takes that burden away from both of you.

Many will disagree with the annuity idea, saying it is not inflation
friendlly. This is a valid observation, but her SS is indexed to inflation
and her part time work and roomie income would help make that up.

Good luck and,

Cheers,

charlie

 

[W2R]

In scanning the posts on this thread, I did not see anyone mention
the obvious (to me anyway) idea of converting her IRA funds to
an immediate annuity.

Posts #2 and #5 on this thread. An inflation adjusted annuity yields less than one that isn't.

 

[FinanceDude]

In scanning the posts on this thread, I did not see anyone mention
the obvious (to me anyway) idea of converting her IRA funds to
an immediate annuity.

The current interest rate environment means she would in effect lock in a LIFETIME low payment, with NO hedge against inflation, that's a bit scary..........

 

[LOL!]

Since you are over there doing repairs and other things, I don't see why you can't schedule some pet "accidents".

"But Fluffy, ran right into the circular saw blade!"

"Oh, did that rat poison wrapped in raw hamburger that I put out have any effect?"

 

[ziggy29]

The current interest rate environment means she would in effect lock in a LIFETIME low payment, with NO hedge against inflation, that's a bit scary..........

True, but there *are* a few SPIAs with an inflation kicker. The problem is that the monthly income you receive in the beginning takes a HUGE hit with the inflation rider. The inflation protection can be VERY expensive, as it is with LTCI.

 

[charlie]

Well, I knew the annuity idea would stir things up.

The annuity would pay about 7.6% on the $170,000 investment.
Where can she get this with safety? No, I don't sell annuities but
I do believe they have a place for some situations. This is one.

True, inflation will eat away at her income over time, but as everyone
has noted, her expenses are way out of line. It will take her some
time to adjust her lifestyle to a more appropriate level. Reducing
expenses and learning how to manage money is very difficult for
a person who has led a sheltered life. Also, her income needs should
be somewhat lower as she reaches advanced years and the LTC
insurance will cover the end game.

If you think about it, an annuity would force her to live within her
means. She would have to learn how to live on a monthly income
and would not be able to tap an IRA for "extras". This is all too easy
and tempting ...... believe me!

Cheers,

charlie

 

[crazy connie]

Perhaps she could get the pet fix from volunteering at a shelter/rescue group. Also, the Govt has jobs which pay nominal wages but give you a purpose. Check out the Americorp/Vista program for jobs which are not full time and many are geared to nominal work experience. A little extra income can go a long way!