Help me figure out how to finance MIL's retirement

[FIREd]

We thought we had a few more years before dealing with the problem, but there we are... I have been helping MIL with her finances for a few years now (she is truly clueless when it comes to money) and she relies on my advice to make important decisions. While I feel very confident planning for my own retirement, I find it hard to help planning hers. I guess it feels a bit too "real"?!? While I plan to have a lot of cushion in my retirement plan, hers has a very small margin of error. So I am begging for pointers...

A bit of background: FIL divorced MIL 2 years ago. FIL was supposed to pay her a substantial alimony for a period of 10 years. Unfortunately, he voluntarily quit his well paid position early last year and has been unable to find another job. While the situation is supposedly temporay, MIL fears that she'll never see another dime from him again. We now have to seriously consider that possibility.

MIL is 66, great health (her mom lived into her 90's), unemployed and with few qualifications (SAHW most of her life), with $170K in retirement accounts (mostly IRA) and a home worth $200K (paid for). No other assets to speak of.

For the past 14 months, MIL was able to avoid touching her retirement accounts and has paid for her living expenses out of savings. Starting in August, she'll have about $1,100 a month in SS coming in. Her savings will run out in November and she will have to start tapping her retirement accounts. Her annual living expenses are currently about $36K, but I am working with her to try and reduce that to $32K. It has been a battle.

Between her SS check and the dividends from her IRA (about 4% yield), we are looking at an annual income stream of $20K, far short of the 32K needed.

This is far from an ideal situation, and my first reaction was: without that alimony coming in, you can't afford to retire. She finds the prospect of getting a job at her age less than thrilling and she wants to investigate alternatives before starting to polish her "resume".

It seems like a reverse-mortgage could help. But, according to a calculator I found on Wells-Fargo's website, it might only give her an additional $6K-$7K a year. I don't know how current interest rates affect the monthly payments and I would appreciate any clarification on the subject. But, even with a reverse mortgage, she would still have a gap of $5K-$6K between her income and expenses.

Do you guys have any other suggestions on how to bridge the income gap?
Thanks!

[W2R]

It doesn't look good.

Quote:

Her annual living expenses are currently about $36K, but I am working with her to try and reduce that to $32K. It has been a battle. Between her SS check and the dividends from her IRA (about 4% yield), we are looking at an annual income stream of $20K, far short of the 32K needed.

I think you are either going to have to persuade her that she can live on $20K, or else you are going to have to resign yourself to having her move in with you.

(1) Maybe she could take in another woman as a roommate, which might give her an additional $5K-$10K in rent, but that still would not meet the needs she thinks she has.

(2) Likewise, she could buy an inflation adjusted immediate lifetime annuity with about $50K of her IRA (I wouldn't dare spend any more on it) if she can do that without incurring any immediate taxes or fees, and at her age that might increase her income a little. It still wouldn't be enough.

(3) Oh - - maybe with the reverse mortgage it might be. I have heard that they are not all one would hope.

I hope some others here have better ideas than I do. This is a tough situation.

[Rambler]

She needs to get her expenses down. No ifs, ands, or buts allowed. My folks live on about 22k per year total for the two of them. She can do it if she wants. If you don't convince her that it can be done, prepare yourself to fund HER retirement instead of yours.

My own MIL lives with her other daughter. MIL's income is about 10k per year. She could not live on her own unless she had about 10k more income, but she has no assets at all. We end up buying food for the two of them (I've posted on this before), because if we send MIL home with money, it will become a new purse, cell phone, or pair of designer jeans for StupidSIL instead of food for MIL. That said, we have thus far still supported them with several $k per year. On MIL's last visit, we told her we could no longer give money as we know what SSIL does with it, and because we will have two kids in university to pay for.

You MUST get her expenses down. Go line by line, item by item if you have to. Explain to her every step of the way...she'll have to make trade-offs. If she wants Item A, then she'll have to give up Items B & C, or eat cat food. You MUST insist that you will be funding your own retirement, not hers. You should also help her attach any earnings of FIL, and grab any of his assets possible by legal means to cover the lost alimony and forward alimony.

Good luck, I feel for you, having BTDT.

R

[W2R]

It does sound ridiculous that she insists on spending so much money herself, unless you are living in an area with high cost of living.

I live alone and I know what that costs, at least here in Louisiana. I am not planning to spend as much as she says she "needs" after I retire. I have never spent that much. I don't think I could spend that much if I spent all day every day shopping and my life depended on it.

Now in high cost of living areas, such as Seattle where Ha lives, it is more difficult to keep expenses down (as he has told us from time to time).

[FIREd]

Quote:

Originally Posted by Want2retire It doesn't look good. I think you are either going to have to persuade her that she can live on $20K, or else you are going to have to resign yourself to having her move in with you. (1) Maybe she could take in another woman as a roommate, which might give her an additional $5K-$10K in rent, but that still would not meet the needs she thinks she has. (2) Likewise, she could buy an inflation adjusted immediate lifetime annuity with about $50K of her IRA (I wouldn't dare spend any more on it) if she can do that without incurring any immediate taxes or fees, and at her age that might increase her income a little. It still wouldn't be enough. (3) Oh - - maybe with the reverse mortgage it might be. I have heard that they are not all one would hope. I hope some others here have better ideas than I do. This is a tough situation.

Thanks W2R,

She has been accustomed to an upper middle class lifestyle while married (typical case of "I'm in debt up to my eyeballs!" though) and this is very hard for her. Things like getting a roommate is probably off her radar screen, though I think this is an excellent idea. She has a number of girlfriends with similar situations (two of them are currently looking for a job), so maybe they could pool their resources. I had been thinking about a SPIA, but with interest rates currently so low, I don't know if it should be an option at this time.

[W2R]

Quote:

Originally Posted by FIREdreamer Thanks W2R, She has been accustomed to an upper middle class lifestyle while married (typical case of "I'm in debt up to my eyeballs!" though) and this is very hard for her. Things like getting a roommate is probably off her radar screen, though I think this is an excellent idea. She has a number of girlfriends with similar situations (two of them are currently looking for a job), so maybe they could pool their resources. I had been thinking about a SPIA, but with interest rates currently so low, I don't know if it should be an option at this time.

Things like getting a roommate may have been off her radar screen, but it's time that these things get back ON her radar screen. She cannot afford the lifestyle she would like to live. That's great about her girlfriends - - maybe she could get TWO of them to move in. That would give her twice the rent.

It may be hard for her to face the facts of life, but either she is going to have to do that or else you are going to have to sell her house and move her in with you. I agree with Rambler - - fund your own retirement, not hers.

You're right about the SPIA. I really don't think that is such a great idea, especially right now.

At the very best, it sounds like she is going to have to get a roommate and you are going to have to pay her bills for her and give her a weekly "allowance" like a child. She doesn't sound capable of making a budget for herself. What an awful situation for you to have to deal with.

[Rambler]

Quote:

Originally Posted by Want2retire It does sound ridiculous that she insists on spending so much money herself, unless you are living in an area with high cost of living. I live alone and I know what that costs, at least here in Louisiana. I am not planning to spend as much as she says she "needs" after I retire. I don't think I could spend that much if I spent all day shopping and my life depended on it.

My folks live in California...not in LA or the more expensive cities, but it is California, which by itself makes the cost of living higher than many areas. Their home is paid for. They have no debt of any kind. ...and live just fine on 22k. They take car trips once or twice a year, but no air travel or fancy hotels. Food while traveling is sandwiches and fruit packed at home. No starbucks (or coffee for that matter). Eat out about once a month at the chinese buffet. Granted their meats are the less expensive cuts, cooked at home. Always have plenty of fruits and veggies. They have two cars, one is two years old (replaced a 7 year old that was totaled when a drunk hit them), the other is 14 years old. Both are well maintained. Dad does the yardwork himself. Mom bakes bread once or sometimes twice a week. They have a computer and internet, but no cable (they wouldn't watch most of the stuff on cable anyway).

Simple people, simple tastes, no debt, paid off home. Don't spend a fortune on clothes, but don't buy used/thriftware either. Dad still wears his old work uniforms when working out in the yard (retired 7 years ago).

R

[FIREd]

Quote:

Originally Posted by Rambler She needs to get her expenses down. No ifs, ands, or buts allowed. My folks live on about 22k per year total for the two of them. She can do it if she wants. If you don't convince her that it can be done, prepare yourself to fund HER retirement instead of yours. My own MIL lives with her other daughter. MIL's income is about 10k per year. She could not live on her own unless she had about 10k more income, but she has no assets at all. We end up buying food for the two of them (I've posted on this before), because if we send MIL home with money, it will become a new purse, cell phone, or pair of designer jeans for StupidSIL instead of food for MIL. That said, we have thus far still supported them with several $k per year. On MIL's last visit, we told her we could no longer give money as we know what SSIL does with it, and because we will have two kids in university to pay for. You MUST get her expenses down. Go line by line, item by item if you have to. Explain to her every step of the way...she'll have to make trade-offs. If she wants Item A, then she'll have to give up Items B & C, or eat cat food. You MUST insist that you will be funding your own retirement, not hers. You should also help her attach any earnings of FIL, and grab any of his assets possible by legal means to cover the lost alimony and forward alimony. Good luck, I feel for you, having BTDT. R

Thanks R,

I already convinced her to lower her expenses from $46K to $36K over the past year. We now have to start cutting into what she sees as essentials... I think that many of these items are not essential at all (maid? gifts? vacation? eating out?) and that there is still plenty to cut out. We live in an area with a very low COL, so I personally think that she could live on much less than $32K. But you are right, she's gonna have to put everything on the table and make difficult choices.

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. I am not sure she has a case to grab any of his assets either (assets were equally divided during the divorce) and it is my understanding that my estranged FIL might himself be in financial dire straits.

As for helping her financially, as you can imagine, we are less than thrilled about the prospect. First because we, as LBYM types, would hate having to bail out someone who showed so little restrain spending her money over the years. Second, because we feel that she expects us to bail her out, as if she was entitled to our money. And three, because we don't think she is making enough of an effort to cut her expenses.

This whole thing is stressing DW out...

[aaronc879]

I would say she's in better shape than most people her age. She's been able to hold off on SS until age 66 so she'll get a larger check for life. She has no debt with a paid off house and $170K in savings. She's old enough for Medicare. The only problemI see is her overspending. $36K/yr? On what? She has plenty of money to get by. Her house is only worth 200K so i'm assuming taxes aren't too excessive. She's better off than almost everyone in the history of my family has been at her age. I may be the first and only person ever in my family to end up in a better position than your MIL. She should be just fine.

[W2R]

Quote:

Originally Posted by FIREdreamer Thanks R, I already convinced her to lower her expenses from $46K to $36K over the past year. We now have to start cutting into what she sees as essentials... I think that many of these items are not essential at all (maid? gifts? vacation? eating out?) and that there is still plenty to cut out. We live in an area with a very low COL, so I personally think that she could live on much less than $32K. But you are right, she's gonna have to put everything on the table and make difficult choices.

You are going to have to sit down with her and be brutally honest. Tell her she is poor and she can't afford a maid or vacations. Seems like she has been living in a fantasy world for quite some time, and somebody has to get her to face the truth.

(Well, I suppose that technically $20K with a paid off house in a low COL area isn't poor, but to her it is.)

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Originally Posted by FIREdreamer As for helping her financially, as you can imagine, we are less than thrilled about the prospect. First because we, as LBYM types, would hate having to bail out someone who showed so little restrain spending her money over the years. Second, because we feel that she expects us to bail her out, as if she was entitled to our money. And three, because we don't think she is making enough of an effort to cut her expenses. This whole thing is stressing DW out...

I can imagine. She probably feels obliged to help her mother in any way she can.

Situations like this have the potential to be a huge strain on the best of marriages.

[FIREd]

Quote:

Originally Posted by aaronc879 I would say she's in better shape than most people her age. She's been able to hold off on SS until age 66 so she'll get a larger check for life. She has no debt with a paid off house and $170K in savings. She's old enough for Medicare. The only problemI see is her overspending. $36K/yr? On what? She has plenty of money to get by. Her house is only worth 200K so i'm assuming taxes aren't too excessive. She's better off than almost everyone in the history of my family has been at her age. I may be the first and only person ever in my family to end up in a better position than your MIL. She should be just fine.

Good point, and when she gets depressed at the prospect of living on much less money, I try to remind her that she is not in such a bad position compared to many of her peers. But it doesn't seem to give her much comfort. Her (reduced) expenses are as follows (annual):

Medicare: $1200
Medigap: $2200
LTC Insurance: $1600
Property taxes: $900
Home insurance: $900
Gas: $1500
Drug and Medical Co-pays: $1200
Food: $5000
Pets: $6000 (she has quite a few of them)
Maid: $800
Vacation: $1200
Newspaper: $200
Car repairs: $1000
Car Insurance: $900
Home repairs: $1200
Charity: $1500
Gifts: $1500
TV: $700
Phone: $800
Alarm system: $400
Termites and Pest Service: $600
Utilities:$1400
Miscellaneous (classes at local college, eating out, movies, clothes, etc...): $3600

Total $36,300

I have asked her to cut back on the Miscellaneous. But I think she could also cut back on gas, food, pets, newspaper, maid, vacation, alarm system, gifts, charities, as well as TV and phone.

I just don't think she wants to just "get by" for the rest of her life...

[Nords]

[Consolidated below.]

[FIREd]

Quote:

Originally Posted by Want2retire You are going to have to sit down with her and be brutally honest. Tell her she is poor and she can't afford a maid or vacations. Seems like she has been living in a fantasy world for quite some time, and somebody has to get her to face the truth. (Well, I suppose that technically $20K with a paid off house in a low COL area isn't poor, but to her it is.) I can imagine. She probably feels obliged to help her mother in any way she can. Situations like this have the potential to be a huge strain on the best of marriages.

The hardest part for her to accept is that life is never going to be as "fun" as it used to be.

I try to be as honest as I can about her situation and I don't sugar coat it. She is fully aware that her current lifestyle is unsustainable, but she tries to hold on to the last vestiges of her former life.

DW is rather angry because she feels her parents have been irresponsible with money. It kills her to think that we may have to either cut back on our own expenses or delay our own retirement date for the sake of her mom with whom she only has what I would describe as a "cordial" relationship. But she still feels a sense of duty regarding her mom.

[Nords]

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Originally Posted by FIREdreamer I have asked her to cut back on the Miscellaneous. But I think she could also cut back on gas, food, pets, newspaper, maid, vacation, alarm system, gifts, charities, as well as TV and phone. I just don't think she wants to just "get by" for the rest of her life...

Geez, FD, what more are you expected to do here? Take control of her finances and dole out the cash every week?

I think you're being used as a whipping boy sympathetic ear.

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Originally Posted by FIREdreamer But she still feels a sense of duty regarding her mom.

I'm not trying to pile on here, but perhaps it'd help to reframe the discussion.

Conventional wisdom is that we shouldn't subsidize our kid's college educations or lifestyles any more than absolutely necessary. (Gotta know your kids, some deserve the help more than others while a few absolutely won't succeed without it.) We're also admonished by every financial advisor in the world not to mess with our own retirements for the sake of helping out our kids. Indeed, such parental sacrifice may only stunt the kid's growth to full financial maturity.

Perhaps that logic can also be extended to one's parents. It could even be put as bluntly as "OK, Ma, are you suggesting that I cut back my expenses by $5K/year and keep working for another eight years to subsidize your pet food bill? Is that what you really want, Ma?"

[FIREd]

Quote:

Originally Posted by Nords Geez, FD, what more are you expected to do here? Take control of her finances and dole out the cash every week? I think you're being used as a whipping boy sympathetic ear.

Well, it's bad. She called me this afternoon all freaked out because the bank said she had no more money on her bank account while her checkbook register showed a balance of $500. I went there and her checkbook had not been balanced since... October 2007. I thought she could handle something that basic, so I never worried about it. Wrong. I spent 4 hours cleaning up the mess (she suddenly felt the need to be precise as we went through every transaction between 10/07 and 05/09 to find the mistakes). I have to print out a budget for her every month, calculate how much to take out of her savings account to pay the bills and most of the time, help her with the transfer. I have her use Quicken with automatic downloads and she still finds ways to mess that up... So pretty much, yes, I already help her keep her finances under control and in a way, yes I kinda dole out the cash every month.

[FIREd]

Quote:

Originally Posted by Nords Perhaps that logic can also be extended to one's parents. It could even be put as bluntly as "OK, Ma, are you suggesting that I cut back my expenses by $5K/year and keep working for another eight years to subsidize your pet food bill? Is that what you really want, Ma?"

I'm afraid she might answer "yes"!

[W2R]

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.

[aaronc879]

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Originally Posted by FIREdreamer I have to print out a budget for her every month, calculate how much to take out of her savings account to pay the bills and most of the time, help her with the transfer. I have her use Quicken with automatic downloads and she still finds ways to mess that up... So pretty much, yes, I already help her keep her finances under control and in a way, yes I kinda dole out the cash every month.

It sound like you're doing everything. Where's your wife fit into this? It's her mother. If she feels compelled to help then shouldn't she be the one giving her time? I'd say go ahead and help her by giving your time but stop short of giving her your money.

[FIREd]

Quote:

Originally Posted by aaronc879 It sound like you're doing everything. Where's your wife fit into this? It's her mother. If she feels compelled to help then shouldn't she be the one giving her time? I'd say go ahead and help her by giving your time but stop short of giving her your money.

DW is not in a position to give a lot of her time (long hours, lots of travel), while I am. I don't mind helping MIL and relieving DW of her "duty". I probably save MIL several thousand dollars a year by doing all her yard work, helping with her finances and taxes, handling most repairs around the house, etc... I feel like I am contributing a lot already and I agree, I would prefer to keep our contributions non-monetary.

[Rambler]

I was just about to post something like W2R did above. My figures came out a little different, but they would anyway because each of us has our own preferences (item A vs Item B). I figured she could save about $16k off the budget you posted. Rant: $5000 for food? ya gotta be kiddin me. $6000 for pets? She doesn't yet understand the depth of her situation. $1500 for charity? She's gonna be in the soup line if she keeps this up.

BTW, my budget for food for when DW and I retire is $700/mo at today's COL...and I am figuring that we will use just a little more than half of that. Is everything she eats pre-cooked at the deli for her? Good grief...

I understand you wanting to help...but based on what you have written, I would go over the figures with her one more time, then high-tail it outta Dodge. If not, you will end up getting suckered into financing her deli/pet/charity/etc habits.

R