Help me figure out how to finance MIL's retirement

[Martha]

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 absolutely agree. There is no real reason for her to have this, what is she protecting? A nest egg for her heirs? No need.

 

[FUEGO]

Why does a retired person need a maid? I'm sure she can find time in her busy day to do her own laundry.

She does have a 2500 sf house. That can take quite a while to clean...

 

[FIREd]

I absolutely agree. There is no real reason for her to have this, what is she protecting? A nest egg for her heirs? No need.

After talking to her about the need to keep her LTC policy, I found out that her biggest concern is ending up in a medicaid facility. A friend of hers had to go on medicaid after exhausting her own resources and the level of care dropped off a cliff apparently. So she does not want to protect her nest egg as much as she wants to protect her future quality of life.

 

[ziggy29]

After talking to her about the need to keep her LTC policy, I found out that her biggest concern is ending up in a medicaid facility.

OK, that clears things up -- at least she understands the issue. To me, that is the only rational justification for her to keep LTCI -- understanding the situation and knowing that she needs to pay this in order to stay out of a Medicaid facility.

But that desire to stay at a non-Medicaid facility of her choice comes at a steep cost, and she has some tough decisions to make about what she's willing to give up in order to fund her desire to choose her own facility.

 

[Texas Proud]

OK, that clears things up -- at least she understands the issue. To me, that is the only rational justification for her to keep LTCI -- understanding the situation and knowing that she needs to pay this in order to stay out of a Medicaid facility.

But that desire to stay at a non-Medicaid facility of her choice comes at a steep cost, and she has some tough decisions to make about what she's willing to give up in order to fund her desire to choose her own facility.

And since I know very very little on this kind of insurance.... but have heard some horror stories... I think some research on what the insurance will actually pay is important..

I don't think they pay for a facility just because your MIL wants to go to one... I think she has to be incapacitated or something like that to get the insurance... I have heard that they on average only pay 6 months of benefits as the insured will die by then...

SOOO, maybe a lot of money being paid for very little benefit...

Remember, some people live a long time... my mother is 89 and in good shape... if she was paying this insurance, it would have been a terrible waste of money...

 

[samclem]

LTC insurance may not be a great product, and she may not have the best policy, but it's one of the few items in her budget that might eventually protect FireDreamer's interests. His DW is not gonna be able to stand by and watch her mom go to a substandard facility if the time comes, and this care can be expensive ($150-$250 per day).

Compared to the maid, this might be money well spent.

Also, Mom can't live in two places at once. If she moves into a nursing home, she doesn't need the house and it can be sold to pay for her care for a long time. This would be an alternative to the LTC policy, but for it to work she has to understand that she can't take a reverse mortgage on the house to pay for a lifestyle that she can't afford. The house IS her LTC plan.

Another thought--is this one of those rare cases where an annuity would come in handy? Yes, they are a terrible investment. But, every month Mom will get a check--that's it. That's what she gets to spend. Since she isn't worried about leaving an inheritance and she could use the few extra bucks an annuity might give her every month (compared to a 4% withdrawal rate) it might be a good fit. And then FIREDreamer isn't on the hook for decades of investment advice (and held to blame when the market goes down). Best of all, Mom has a set monthly budget. There's no potential of her impoverishing herself with crazy spending over the next four years and then she comes to visit FIREDreamer for three decades.

 

[shoe]

I find this thread so interesting! This is the nuts and bolts kind of discussion that drew me to this forum.

 

[Moemg]

Another thing that I would look into is life insurance on your FIL making her the beneficiary . I know it's creepy but statistically women outlive men.

 

[FIREd]

LTC insurance may not be a great product, and she may not have the best policy, but it's one of the few items in her budget that might eventually protect FireDreamer's interests. His DW is not gonna be able to stand by and watch her mom go to a substandard facility if the time comes, and this care can be expensive ($150-$250 per day).

Compared to the maid, this might be money well spent.

Another thought--is this one of those rare cases where an annuity would come in handy? Yes, they are a terrible investment. But, every month Mom will get a check--that's it. That's what she gets to spend. Since she isn't worried about leaving an inheritance and she could use the few extra bucks an annuity might give her every month (compared to a 4% withdrawal rate) it might be a good fit. And, FIREDreamer isn't on the hook for decades of investment advice (and held to blame when the market goes down). Best of all, Mom has a set monthly budget. There's no potential of her impoverishing herself with crazy spending over the next four years and then she comes to visit FIREDreamer for three decades.

I have discussed annuities with her and she likes the idea of a guaranteed, steady stream of income coming in each month. But she would only consider the full COLA option, and that means a much lower initial payout. In other words, it doesn't really address the current income gap she is facing and she would still have to cut her expenses significantly. But it would help automate her finances which would be a plus for all parties involved.

Ideally, I would like her to live on SS + dividends from her portfolio + whatever she can pry out of FIL's hands for a few more years. Waiting a few years before annuitizing her portfolio could help increase the monthly pay out (she will be older + interest rates might be higher).

 

[FIREd]

Another thing that I would look into is life insurance on your FIL making her the beneficiary . I know it's creepy but statistically women outlive men.

When she got divorced, I actually suggested she took a life insurance policy on FIL. Her financial future was so dependent on him that I thought it was the right thing to do. But the cost was prohibitive then, and she certainly cannot afford it now.

 

[FUEGO]

Have you considered having her repay her SS payments at age 70 and take a "do over"? Run the math on it and see if it might be worth dumping some of her nest egg into that to get a bigger COLA'd annuitized payment from SS.

 

[ziggy29]

When she got divorced, I actually suggested she took a life insurance policy on FIL. Her financial future was so dependent on him that I thought it was the right thing to do.

I would have been more worried that if something happened to him and he found himself a victim of foul play, this might make her a prime suspect.

 

[FIREd]

I would have been more worried that if something happened to him and he found himself a victim of foul play, this might make her a prime suspect.

I thought about that too . But they live so far apart that she would have had no problem coming up with an alibi...

 

[FIREd]

Have you considered having her repay her SS payments at age 70 and take a "do over"? Run the math on it and see if it might be worth dumping some of her nest egg into that to get a bigger COLA'd annuitized payment from SS.

Thanks, I will look into that. My worry is that she will have to use IRA money to repay the SS at age 70 and such a large one-time withdrawal will push her into the 25% tax bracket for that year and she would have to pay significant taxes on the withdrawal (right now, because her income is so low, she would pay no income taxes on her IRA withdrawals). So I'll have to take that into account.

 

[Texas Proud]

Have you considered having her repay her SS payments at age 70 and take a "do over"? Run the math on it and see if it might be worth dumping some of her nest egg into that to get a bigger COLA'd annuitized payment from SS.

I have an interesting question on this one that just popped into my head..

What are the income tax issues with this? As an example, you are taking SS and paying income tax on a lot of it since you have other income... now at age 70 you repay the whole amount and start to get a higher income... but you paid taxes on a lot of that income you just sent into the gvmt... since you can not go back more than 3 years to amend a return, do you just lose your taxes you paid on the prior years?

 

[FUEGO]

What are the income tax issues with this? As an example, you are taking SS and paying income tax on a lot of it since you have other income... now at age 70 you repay the whole amount and start to get a higher income... but you paid taxes on a lot of that income you just sent into the gvmt... since you can not go back more than 3 years to amend a return, do you just lose your taxes you paid on the prior years?

Good question and I'm not really sure. I was thinking of it in terms of using cash on hand to basically buy a bigger annuity from the govt. But a regular annuity pays you return of principal plus some interest, whereas the SS would be all ordinary income after a certain point.

SS generally becomes taxable for a single taxpayer once other income plus 1/2 of SS exceeds $25,000 per year. In the MIL's case, she has $13,200 SS income per year, or $6600 to add to her other ordinary income. No income other than IRA withdrawals it seems right now (other than a small amount of investment income from taxable investments). So she would have to withdraw $18400 from IRA or receive in the form of income from taxable investments before she exceeds the $25,000 amount ($18400 + $6600). $18400 is ~11% of $170,000 so an unsustainable or unsafe withdrawal rate.

So there may be little or no tax on SS payments if she doesn't exceed some reasonable withdrawal rate. And as long as she doesn't get a job.

 

[Nords]

... since you can not go back more than 3 years to amend a return, do you just lose your taxes you paid on the prior years?

Yes.

The theory is that your investment returns exceed the taxes you pay on holding what amounts to an interest-free loan.

Of course that scheme would've sucked last year... in fact it would suck for just about everyone who turned 62 starting around 1993. There would've been at least one vicious bear in every rolling eight-years period.

 

[Texas Proud]

So there may be little or no tax on SS payments if she doesn't exceed some reasonable withdrawal rate. And as long as she doesn't get a job.

I was thinking more of someone who makes enough to pay the full amount of taxes on their SS payments... my sister is one that does... she will be coming up to that decision point in a year or two.... so it is a pertinent question for her....

 

[ERD50]

OK, I skimmed many of the posts when I saw how long it got, but my suggestions is:

You need to REMOVE yourself from the decision/judgment process. Being in the middle just makes you a nag in her eyes. Everything falls on you and that is not fair to you, or helpful. So, simply present the FACTS to your MIL, and ASK her what she wants to do. Something like:

OK, Dear MIL, if you want to keep your big TV package, phone and pet bills (etc) as they are, you will run through ALL your money by age XX. At that point, all you have is SS at 1,100/month (or whatever - keep everything in today's dollars for simplicity). Then present something like:

At $1,100/month, you can't afford ANY TV, ANY phone, ANY pets, etc (or whatever it works out to). Or ask her where she would make the cuts to get to the $1,100/month.

At that point, it is HER choice - you have not told her to do anything, you just presented facts. Does she want the lifestyle she has now, only to live under the poverty level at age XX, or does she want to cut back some now, and have a more modest lifestyle for a longer time. You could show her how much it would be extended by cutting now, taking in roommates, and all the other good suggestions people have made. But make it HER decision - not yours.

Maybe hint that by age YY (far after her current plan would run out of money), that you MIGHT be in a financial position to pick up the difference she needs to keep her out of the poorhouse, but you can't be sure of anything until far in the future as your finances are uncertain also. That gives her some added incentive to plan for the future.

You are making her problem your problem, and since she doesn't appear to be physically or mentally disabled (maybe just unwilling to face reality), it really is NOT your problem. Don't let her make it your problem, that helps no one.

Good luck.

edit/add - I just realized that the TITLE of this thread reflects the problem. It should not be "Help me figure out how to finance MIL's retirement ", it should be "Help my MIL figure out how to finance HER retirement "

-ERD50

 

[LoftyNotions]

I agree with ERD50's suggestions above with the exception of hinting that you MIGHT be able to help her.

I suspect she would hear I'll save you no matter what, MIL. I think she absolutely has to understand that this is her problem to solve.

ERD hit the nail on the head concerning the title reflecting the problem.

Larry

 

[FIREd]

So now I'm the one with the problem?

I think it is totally naive to look at her situation in a vacuum. You really think that her mess is not going to become my mess at some point? Do you really think that my wife will be able to watch her mom eat cat food without the slightest tinge of pity and compassion when we "selfishly" enjoy our high income or comfortable retirement? Could you? I know for sure that MIL's mess will become my mess sooner or later. My goal is to make it later (and cheaper)...

 

[LOL!]

Well, you could take MIL to Costco to buy her cat food, but isn't that part of the problem? But while there, you can teach her to gnosh on the free food samples there.

 

[FIREd]

But while there, you can teach her to gnosh on the free food samples there.

Now that's a good money-saving suggestion!

 

[W2R]

So now I'm the one with the problem?

I think it is totally naive to look at her situation in a vacuum. You really think that her mess is not going to become my mess at some point? Do you really think that my wife will be able to watch her mom eat cat food without the slightest tinge of pity and compassion when we "selfishly" enjoy our high income or comfortable retirement? Could you? I know for sure that MIL's mess will become my mess sooner or later. My goal is to make it later (and cheaper)...

If she cannot formulate and stick with a $20K budget during the next year, I would urge you to seriously consider selling both houses and buying a house with a MIL apartment with separate entry, as suggested previously by Bikerdude. Buy it with your own money only.

Then she can use the money she gains from selling her house to help her stretch out the time before she has to start depending on you. After half her money is gone, you could start taking her meals to stretch it further.

I am so sorry that you, or anyone, has to deal with such a difficult situation.

 

[ERD50]

So now I'm the one with the problem?

I think it is totally naive to look at her situation in a vacuum. You really think that her mess is not going to become my mess at some point? Do you really think that my wife will be able to watch her mom eat cat food without the slightest tinge of pity and compassion when we "selfishly" enjoy our high income or comfortable retirement? Could you? I know for sure that MIL's mess will become my mess sooner or later. My goal is to make it later (and cheaper)...

I guess you are referring to my post, but yes, to me it looks like you are making this your problem (which is understandable, I just don't think it is really helpful). Time for "tough love", IMO.

It's not looking at it in a vacuum - just the opposite, I am looking at it with the benefit of a little distance and perspective. I understand that you will help your MIL so she is not eating cat food in her old age. But (as you seem to be aware), the best way to assure that is to get her to cut back her spending NOW.

And it sounds like asking her to cut back NOW isn't working too well. So all I'm saying is lay out the consequences to her factually, not emotionally. Show her that the best way to assure that you can help her later, is for her to help herself now, by cutting back.

It is a tough situation, and emotionally draining, I'm sure. You are fortunate that your wife is on board with you, it would be impossible w/o that. I have the opposite problem with my Mom, I sometimes have to encourage her to spend on herself. Not such a tough problem as yours.

You know, the answer is right in your post I quoted. There is only one solution:

1) You don't want to see your MIL destitute.
2) She is spending beyond her means (leading to #1).
3) You (understandably), don't want to make too much of a sacrifice in your own life-style, to support her excessive current spending.

All very reasonable, and the answer (which you seem to be aware of), is she needs to cut back her spending NOW. There is no "try" only "do". Otherwise, you end up at the bad side of #1 or #3.

Do you see any other way for it to play out?

-ERD50