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...
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...
