Elderly Relative Short on Money

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bajdygba1
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Elderly Relative Short on Money

Post by bajdygba1 » Thu Aug 16, 2018 9:45 pm

Hi guys,

I have a ton of respect for the people on this board and have learned a lot from all of you. I would love to hear your take on my mother in law's situation.

Long story short, she just got divorced at age 65, and money will be tighter than anticipated. She took Social Security early, and makes about $1k a month. This is her only source of income, and she doesn't have any high-paying skills or desire to go back to work. Her total share of the divorce proceeds is about 290k, which includes her share of the recently-sold family house. She has no other assets and there is no alimony. Most of the money is in taxable retirement accounts, and I think she will be in the 10% federal bracket.

Her biggest cost will be rent, and she understandably has no desire to live in a dump. We are looking at a subsidized elderly housing unit that costs $1250 a month in rent. After utilities, it will probably be closer to $1400. Car insurance is $800 a year, and she has some small medical bills. Overall, I think she could make do with about $2400 a month. This will certainly not be luxurious but should cover basic necessities. This level of spending involves withdrawing about $20k a year pre-tax, or roughly 6.8% of the total. Not ideal!

The money was previously managed by her ex-husband, and she knows absolutely nothing about investing. The money is currently held by her nephew, who is a CFP, and I think the firm charges about 1% for a management fee. Given her tight situation, this $2900 seems like it could be put to better use, and she has asked me for my help and opinion.

In thinking about asset allocation, a few thoughts are in my head:

1. Going with the generally recommended bond % for retirees could be a problem, especially with today's low bond interest rates. A Monte Carlo simulation of 65% bonds/30%stocks/5% cash has a 50% chance of running of money after 20 years.

2. A higher stock allocation will not cause her to worry, because she has no knowledge of or concern over the details of her money. As long as the $1500 shows up in her checking account every month, I expect she will be happy. In a way this is an advantage over most retirees who know just enough to put themselves in a panic every time the market dips.

Option A: Traditional allocation of 50% bonds/50% stocks. Sell $750 of each every month and transfer to checking account.

Option B: 80% stocks/20% bonds. Chance of running out of money after 20 years goes from 50% to 31%

Option C (Non Boglehead option): 100% stocks. Dividend focus. Half total market index, half a basket of 20 or so high yielding stocks (think ATT, Verizon, Utilities etc). The idea is that with a total dividend yield of 3.75%, 11k of the 20k taken out would come from dividends and only 9k from stock sales. This would minimize the pain of regular stock selling in a 2009 style crash, while hopefully giving a little more growth than a 50% bond portfolio.

Please let me know what you guys think, and keep in mind that emotions will come into play here much less than usual. Thank you!

daveydoo
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Re: Elderly Relative Short on Money

Post by daveydoo » Thu Aug 16, 2018 10:19 pm

bajdygba1 wrote:
Thu Aug 16, 2018 9:45 pm
...The money is currently held by her nephew, who is a CFP, and I think the firm charges about 1% for a management fee. Given her tight situation, this $2900 seems like it could be put to better use, and she has asked me for my help and opinion....
I agree, and so sorry about your relative.

Might this beloved nephew assist your MIL for (wait for it) free and not be a total parasite? It's one thing if you're "helping" a well-off family member with your unearned 1% AUM but to take advantage of someone in financial trouble -- that's bad, imo. Then again, I think that's what these folks are taught -- prey on friends and family first.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

NancyABQ
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Re: Elderly Relative Short on Money

Post by NancyABQ » Thu Aug 16, 2018 10:33 pm

Was she married for at least 10 years, and is 1/2 her husbands Social Security benefit higher than what she earned from her own employment record?

https://www.ssa.gov/planners/retire/divspouse.html

randomguy
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Re: Elderly Relative Short on Money

Post by randomguy » Thu Aug 16, 2018 10:40 pm

bajdygba1 wrote:
Thu Aug 16, 2018 9:45 pm
Hi guys,

I have a ton of respect for the people on this board and have learned a lot from all of you. I would love to hear your take on my mother in law's situation.

Long story short, she just got divorced at age 65, and money will be tighter than anticipated. She took Social Security early, and makes about $1k a month. This is her only source of income, and she doesn't have any high-paying skills or desire to go back to work. Her total share of the divorce proceeds is about 290k, which includes her share of the recently-sold family house. She has no other assets and there is no alimony. Most of the money is in taxable retirement accounts, and I think she will be in the 10% federal bracket.

Her biggest cost will be rent, and she understandably has no desire to live in a dump. We are looking at a subsidized elderly housing unit that costs $1250 a month in rent. After utilities, it will probably be closer to $1400. Car insurance is $800 a year, and she has some small medical bills. Overall, I think she could make do with about $2400 a month. This will certainly not be luxurious but should cover basic necessities. This level of spending involves withdrawing about $20k a year pre-tax, or roughly 6.8% of the total. Not ideal!

The money was previously managed by her ex-husband, and she knows absolutely nothing about investing. The money is currently held by her nephew, who is a CFP, and I think the firm charges about 1% for a management fee. Given her tight situation, this $2900 seems like it could be put to better use, and she has asked me for my help and opinion.

In thinking about asset allocation, a few thoughts are in my head:

1. Going with the generally recommended bond % for retirees could be a problem, especially with today's low bond interest rates. A Monte Carlo simulation of 65% bonds/30%stocks/5% cash has a 50% chance of running of money after 20 years.

2. A higher stock allocation will not cause her to worry, because she has no knowledge of or concern over the details of her money. As long as the $1500 shows up in her checking account every month, I expect she will be happy. In a way this is an advantage over most retirees who know just enough to put themselves in a panic every time the market dips.

Option A: Traditional allocation of 50% bonds/50% stocks. Sell $750 of each every month and transfer to checking account.

Option B: 80% stocks/20% bonds. Chance of running out of money after 20 years goes from 50% to 31%

Option C (Non Boglehead option): 100% stocks. Dividend focus. Half total market index, half a basket of 20 or so high yielding stocks (think ATT, Verizon, Utilities etc). The idea is that with a total dividend yield of 3.75%, 11k of the 20k taken out would come from dividends and only 9k from stock sales. This would minimize the pain of regular stock selling in a 2009 style crash, while hopefully giving a little more growth than a 50% bond portfolio.

Please let me know what you guys think, and keep in mind that emotions will come into play here much less than usual. Thank you!
No magic bullet. Upping your stock allocation will up the success rate but it will also make the failures happen earlier (year 10 instead of 18). And I would worry about her seing some news story about stocks being down 30% and call.

Realistically she needs to increase income (even 10k/year for 3 years would be huge) or expenses (she might not like the 1k/month places but it is more in line with what she can afford). Both of those will be tough sells.

Katietsu
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Re: Elderly Relative Short on Money

Post by Katietsu » Thu Aug 16, 2018 10:41 pm

It looks like she might even have no federal liability at all. Is this a high cost of living area because that seems like high rent for someone in her situation? If her health is good, you might want to look into an immediate annuity for part of her funds.

You will also need to plan for the likelihood of increased healthcare spending.

How will she respond if you tell her that the math does not work? If she was confronted with needing to reduce rent, get rid of her car, or work part time, would she accept the reality of it? Alternatively, if she spends at the proposed rate now and ends up with just social security in 15 years, what would the plan be? I know this is all made more difficult by the divorce. So, changes may need to be made in steps. Even a part time job watching older children after school or working at a hospital gift shop for 10 hours a week would make a huge difference in her budget.
Last edited by Katietsu on Thu Aug 16, 2018 10:47 pm, edited 1 time in total.

Dottie57
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Re: Elderly Relative Short on Money

Post by Dottie57 » Thu Aug 16, 2018 10:47 pm

An SPIA can be bought within an IRA. It would give 6% payout - better than 4%.

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Jerry55
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Re: Elderly Relative Short on Money

Post by Jerry55 » Thu Aug 16, 2018 10:51 pm

Most, if not all, subsidized housing has income limits, which typically include assets. Look at that first.
Also, the Nephew who is handling her finances sounds like a true gentleman and a scholar....for a price.

Other than that, I won't add anything else, because you have a lot to consider...
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

DC3509
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Re: Elderly Relative Short on Money

Post by DC3509 » Thu Aug 16, 2018 10:52 pm

Katietsu wrote:
Thu Aug 16, 2018 10:41 pm
It looks like she might even have no federal liability at all. Is this a high cost of living area because that seems like high rent for someone in her situation? If her health is good, you might want to look into an immediate annuity for part of her funds.

You will also need to plan for the likelihood of increased healthcare spending.

How will she respond if you tell her that the math does not work? If she was confronted with needing to reduce rent, get rid of her car, or work part time, would she accept the reality of it. Alternatively, if she spends at the proposed rate now and ends up with just social security in 15 years, what would the plan be? I know this is all made more difficult by the divorce. So, changes may need to be made in steps. Even a part time job watching older children after school or working at a hospital gift shop for 10 hours a week would make a huge difference in her budget.
I agree about the cost of rent seeming very high -- is this def. a HCOL? I would be very weary about dumping that much money into rent every month. At least if it was a house, you would be able to tap the money potentially again in the future -- either through selling the house, a HELOC, potentially a reverse mortgage. I think the name of the game here needs to be trying to find every way to make the $290K last as long as possible. I don't think putting $1400 a month into rent achieves that objective and you will be out of options sooner or later. If it is a HCOL would she be open to moving? I think an annuity is a bad idea for the same reason. This needs to be about extending her assets as long as possible.

I'm not so sure how much healthcare costs are going to impact things. She is not buying a LTCI or worried about private pay at a nursing home. She will be on Medicare until she is on Medicaid, if she needs it.

I agree about the CFP, but are you willing to take on that chore now? If not, then perhaps it is simply 1% that is well spent. It does not sound like she is capable of managing her own money and she might blow the $290K completely if someone else isn't helping her manage it.

mega317
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Re: Elderly Relative Short on Money

Post by mega317 » Thu Aug 16, 2018 10:55 pm

She is going to have to reconcile her desire to not work with her desire not to live in a place she considers a dump.

Forget about the dividend plan. Bad idea and you can read probably hundreds of hours worth of discussion here about it (some people will disagree with my conclusion).

What happens if she runs out of money? I suppose it could fall to you to take care of her since you're presumably married to her child?

The nephew sounds like a wonderful influence here.

grkmec
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Re: Elderly Relative Short on Money

Post by grkmec » Thu Aug 16, 2018 10:57 pm

My two cents: She should get a part time job and try to make $1k / month and look to work 5-10 years + Option A on the 290k

DC3509
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Re: Elderly Relative Short on Money

Post by DC3509 » Thu Aug 16, 2018 11:01 pm

mega317 wrote:
Thu Aug 16, 2018 10:55 pm
She is going to have to reconcile her desire to not work with her desire not to live in a place she considers a dump.

Forget about the dividend plan. Bad idea and you can read probably hundreds of hours worth of discussion here about it (some people will disagree with my conclusion).

What happens if she runs out of money? I suppose it could fall to you to take care of her since you're presumably married to her child?

The nephew sounds like a wonderful influence here.
If taking care of her is a realistic possibility, then I would really rethink this rent plan. You might not want to become more involved in this, which is perfectly understandable. But Fannie Mae has a program whereby adult children can buy a house for an elderly parent and the residence is considered owner-occupied, even if the child never lives there. The advantage is that you get very competitive mortgage interest rates. It might make sense to explore this and potentially split the mortgage with her on a very small condo. Again, at least you are putting the money into something that could be recouped someday. Just a thought.

bajdygba1
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Re: Elderly Relative Short on Money

Post by bajdygba1 » Thu Aug 16, 2018 11:06 pm

Thanks for the replies guys.

1. I think the 1k a month is half of her husband's SS, but she took it at age 61 or something. That was a big mistake.

2. We are in Massachusetts, which tends to be above average cost of living. She could get a slightly cheaper place, but the current place is very convenient and close to our house, where she spends a lot of time. It is maybe 100-200 more expensive than much less desirable alternatives. One potential place is $1000 a month and about 20 minutes away. This means more driving time, which is dangerous especially as she gets older, more wear and tear on the car, more gas, etc.

3. I'll look into the SPIA, thank you. As a young person I tend to immediately discount the possibility of ever buying annuities, but I'll consider it for her.

4. She has two children, my wife and her brother. Both households make around $200k a year. When she runs out of money, she will be taken care of by her kids. Hopefully she can make it 15-20 years before that happens.

5. I don't particularly want to get involved and take responsibility for helping her invest, because I know it will cause some family stress for me if the market crashes or something. However, I think 3k a year is way too much for her to pay. Maybe she'll get the family discount. I haven't actually confirmed what her current fees are, and I doubt she knows.

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Re: Elderly Relative Short on Money

Post by AlohaJoe » Thu Aug 16, 2018 11:07 pm

Realistically...she can just withdraw 6%. 6% withdrawals still worked 2/3rds of the time (as long as you had more than 50% stocks). And that's assuming a 30-year retirement. The reality is that most people die before 30 years, which makes 6% even safer in practice. When you take mortality into account 6% works 85-90% of the time.

At that point it is really her choice; it should be based on her risk tolerance (and other preferences) and not yours or those of Bogleheads. She can stay in an expensive place ($1,200 a month seems like a lot to me!), not have a roommate, not have a job, etc. And she has (approximately) a one-in-eight chance of needing to make dramatic cuts to spending late in life. Maybe she thinks that 1-in-8 chance is taking to not having to get a job or have a roommate.

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Watty
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Re: Elderly Relative Short on Money

Post by Watty » Thu Aug 16, 2018 11:12 pm

bajdygba1 wrote:
Thu Aug 16, 2018 9:45 pm
We are looking at a subsidized elderly housing unit that costs $1250 a month in rent. After utilities, it will probably be closer to $1400.
That is a very expensive area. She might want to consider moving to a less expensive area. If she wants to stay in the same city then moving some place that is an 30 to 60 minutes farther out could dramatically reduce her housing costs.

I agree with the prior comments about her needed to work, even part time work where she earns $500 to $1,000 a month would make a big difference while she can still work. It would not need to even be a traditional job since she could do things like babysitting.

ColoRetiredGirl
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Re: Elderly Relative Short on Money

Post by ColoRetiredGirl » Thu Aug 16, 2018 11:28 pm

Katietsu wrote:
Thu Aug 16, 2018 10:41 pm
It looks like she might even have no federal liability at all. Is this a high cost of living area because that seems like high rent for someone in her situation? If her health is good, you might want to look into an immediate annuity for part of her funds.

You will also need to plan for the likelihood of increased healthcare spending.

How will she respond if you tell her that the math does not work? If she was confronted with needing to reduce rent, get rid of her car, or work part time, would she accept the reality of it? Alternatively, if she spends at the proposed rate now and ends up with just social security in 15 years, what would the plan be? I know this is all made more difficult by the divorce. So, changes may need to be made in steps. Even a part time job watching older children after school or working at a hospital gift shop for 10 hours a week would make a huge difference in her budget.
+1. This is sage advice. To improve her situation, she may need to work now while she is employable before she actually becomes “elderly”. FYI, at 60 I ran the NYC marathon. I know people in their 30s who cannot walk around the block. 65 is not elderly IMHO.

DC3509
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Re: Elderly Relative Short on Money

Post by DC3509 » Thu Aug 16, 2018 11:34 pm

ColoRetiredGirl wrote:
Thu Aug 16, 2018 11:28 pm
Katietsu wrote:
Thu Aug 16, 2018 10:41 pm
It looks like she might even have no federal liability at all. Is this a high cost of living area because that seems like high rent for someone in her situation? If her health is good, you might want to look into an immediate annuity for part of her funds.

You will also need to plan for the likelihood of increased healthcare spending.

How will she respond if you tell her that the math does not work? If she was confronted with needing to reduce rent, get rid of her car, or work part time, would she accept the reality of it? Alternatively, if she spends at the proposed rate now and ends up with just social security in 15 years, what would the plan be? I know this is all made more difficult by the divorce. So, changes may need to be made in steps. Even a part time job watching older children after school or working at a hospital gift shop for 10 hours a week would make a huge difference in her budget.
+1. This is sage advice. To improve her situation, she may need to work now while she is employable before she actually becomes “elderly”. FYI, at 62 I ran the NYC marathon. I know people in their 30s who cannot walk around the block. 65 is not elderly IMHO.
The "she should get a job mantra" -- I agree with the sentiment, but getting a job even in your 60s when you have very few skills is not automatic or even easy.

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celia
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Re: Elderly Relative Short on Money

Post by celia » Thu Aug 16, 2018 11:38 pm

bajdygba1 wrote:
Thu Aug 16, 2018 9:45 pm
Her biggest cost will be rent, and she understandably has no desire to live in a dump. We are looking at a subsidized elderly housing unit that costs $1250 a month in rent. After utilities, it will probably be closer to $1400. Car insurance is $800 a year, and she has some small medical bills. Overall, I think she could make do with about $2400 a month.
This means she can probably live on $28,800 a year even though her income is only $12,000 a year??? How can you even go past this step? Costs will go up more than her SS and the difference between expenses and income will only grow, especially medical expenses. What is she doing for medical insurance now? What if she has a toothache or needs glasses? What happens when her car breaks down? Get rid of the car (and insurance) and use public transportation instead. There will still be a gap since rent is more than her income, so she needs to start making tough choices. Cheaper housing? Roommate? Get a part-time job? Ride a bike? She just can't afford spending like this.

The 290K needs to be saved for emergencies, such as when she has bigger medical expenses, needs LTC, or there is a burglary or fire and needs to replace something(s).
2. A higher stock allocation will not cause her to worry, because she has no knowledge of or concern over the details of her money. As long as the $1500 shows up in her checking account every month, I expect she will be happy.
I hope the $1500 includes her SS. If she wants more than that, she needs to figure out how to get earn it.

DC3509
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Re: Elderly Relative Short on Money

Post by DC3509 » Thu Aug 16, 2018 11:52 pm

Why do people think the medical expense part of this is tricky? She is on Medicare. If she needs LTC it would be foolish to pay that out of the $290K. She would simply convert the $290K into a Medicaid complaint annuity, start taking the annuity payments, and immediately qualify for Medicaid.

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celia
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Re: Elderly Relative Short on Money

Post by celia » Fri Aug 17, 2018 12:12 am

DC3509 wrote:
Thu Aug 16, 2018 11:52 pm
Why do people think the medical expense part of this is tricky? She is on Medicare. If she needs LTC it would be foolish to pay that out of the $290K. She would simply convert the $290K into a Medicaid complaint annuity, start taking the annuity payments, and immediately qualify for Medicaid.
It is my understanding that annuity companies won't let you put most/all of your assets in an annuity.

She also would not qualify for Medicaid as they have a 5-year look-back rule (ie, what did you do with the money you used to have).

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Re: Elderly Relative Short on Money

Post by bajdygba1 » Fri Aug 17, 2018 12:14 am

1. Point taken about "elderly." I should have titled it "retired relative..."

2. She has been working part time helping one of her friends plan parties and decorate for the last few years. I didn't include this in the initial post because her friend will be moving in a year or so and the job will go away. I think she makes $800 a month or so, so it will definitely help for the next year.

3. She spends a lot of time with my 3 children, and is very selfless and helpful with them. I think when her other job goes away, we will start paying her around $500 a month for help with child care. I don't think it makes sense for her to work for minimum wage in an unfulfilling job when she loves spending time with her grand kids, and lets us go food shopping, take a nap, etc. She wouldn't want to take "charity" but having a retired grandparent is hugely helpful to us and worth way more to us than $500.

4. If she runs out of money in 10-15 years, my brother-in-law and I should be in a position to replace the lost retirement income. This will be around the time my kids start going to college, so it won't be the best timing, but we can make it work. Hopefully she makes it 20-25 years.

5. If i had to choose today, I think I would go with 66% stocks and 33% bonds/cash.

DC3509
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Re: Elderly Relative Short on Money

Post by DC3509 » Fri Aug 17, 2018 12:31 am

celia wrote:
Fri Aug 17, 2018 12:12 am
DC3509 wrote:
Thu Aug 16, 2018 11:52 pm
Why do people think the medical expense part of this is tricky? She is on Medicare. If she needs LTC it would be foolish to pay that out of the $290K. She would simply convert the $290K into a Medicaid complaint annuity, start taking the annuity payments, and immediately qualify for Medicaid.
It is my understanding that annuity companies won't let you put most/all of your assets in an annuity.

She also would not qualify for Medicaid as they have a 5-year look-back rule (ie, what did you do with the money you used to have).
Both of these statements are incorrect. Medicaid-complaint annuities are special annuities sold to comply with Medicaid and are designed to convert all of your assets into immediate income. The five-year look-back does not apply to a Medicaid-compliant annuity. The income still has to be paid to the nursing home first, but if the person passes away before the annuity payments are over, then the heirs can get the remaining annuity payments. This is usually better from an inheritance perspective of spending everything down first.

Here is a good article on it in MA:

http://www.margolis.com/our-blog/using- ... -residents

DC3509
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Re: Elderly Relative Short on Money

Post by DC3509 » Fri Aug 17, 2018 12:34 am

bajdygba1 wrote:
Fri Aug 17, 2018 12:14 am
1. Point taken about "elderly." I should have titled it "retired relative..."

2. She has been working part time helping one of her friends plan parties and decorate for the last few years. I didn't include this in the initial post because her friend will be moving in a year or so and the job will go away. I think she makes $800 a month or so, so it will definitely help for the next year.

3. She spends a lot of time with my 3 children, and is very selfless and helpful with them. I think when her other job goes away, we will start paying her around $500 a month for help with child care. I don't think it makes sense for her to work for minimum wage in an unfulfilling job when she loves spending time with her grand kids, and lets us go food shopping, take a nap, etc. She wouldn't want to take "charity" but having a retired grandparent is hugely helpful to us and worth way more to us than $500.

4. If she runs out of money in 10-15 years, my brother-in-law and I should be in a position to replace the lost retirement income. This will be around the time my kids start going to college, so it won't be the best timing, but we can make it work. Hopefully she makes it 20-25 years.

5. If i had to choose today, I think I would go with 66% stocks and 33% bonds/cash.
Could you build an in-law suite or a small addition to your house for her? What do condos run in the area?

The chances that she will ever run out of money go down significantly if she has less expensive home arrangements. I think that is the key.

gotester2000
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Re: Elderly Relative Short on Money

Post by gotester2000 » Fri Aug 17, 2018 12:40 am

Buy a SPIA if she cannot handle money. It will give close to 18k + 12k SS = 30k/yr.

290k is not going to produce 18k/yr adjusted for inflation. $800/month will be a safe withdrawal.

Without SPIA ,she has to live on 1.8k/month if she cannot work or be a dependant.

CurlyDave
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Re: Elderly Relative Short on Money

Post by CurlyDave » Fri Aug 17, 2018 1:05 am

bajdygba1 wrote:
Thu Aug 16, 2018 9:45 pm
... This will certainly not be luxurious but should cover basic necessities. This level of spending involves withdrawing about $20k a year pre-tax, or roughly 6.8% of the total. Not ideal!
I would go back to the 2011 Trinity Study update https://www.onefpa.org/journal/Pages/Po ... 0Line.aspx and carefully read it again.

But this time, don't limit your thinking to inflation-adjusted withdrawals. Look at the non-adjusted withdrawal tables. Specifically Table 1.

A 7% withdrawal rate has a 91% 30 year chance of success with a 75/25 stock/bond allocation. Success rates are higher for shorter periods.

Since you have two relatives who might be willing to subsidize expenses, if necessary, this might be a viable solution. I would consider each relative offering to make up half of the inflation adjustment for the non-SS part of her income stream. This might amount to a few hundred $ per year initially, increasing slowly over time. Not a huge burden.

The other thing to look at is the rent. Everyone does not have to live in a HCOL area. In my little town in rural Southern Oregon, family friends just bought an older double-wide in a senior park for $55k. Park rent is $710/mo, but that covers all outside landscape maintenance on an 1800 sf dwelling. Not a dump any any means, although not luxurious.

A smaller place could be less expensive.

Leemiller
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Re: Elderly Relative Short on Money

Post by Leemiller » Fri Aug 17, 2018 7:14 am

DC3509 wrote:
Thu Aug 16, 2018 11:01 pm
mega317 wrote:
Thu Aug 16, 2018 10:55 pm
She is going to have to reconcile her desire to not work with her desire not to live in a place she considers a dump.

Forget about the dividend plan. Bad idea and you can read probably hundreds of hours worth of discussion here about it (some people will disagree with my conclusion).

What happens if she runs out of money? I suppose it could fall to you to take care of her since you're presumably married to her child?

The nephew sounds like a wonderful influence here.
If taking care of her is a realistic possibility, then I would really rethink this rent plan. You might not want to become more involved in this, which is perfectly understandable. But Fannie Mae has a program whereby adult children can buy a house for an elderly parent and the residence is considered owner-occupied, even if the child never lives there. The advantage is that you get very competitive mortgage interest rates. It might make sense to explore this and potentially split the mortgage with her on a very small condo. Again, at least you are putting the money into something that could be recouped someday. Just a thought.
The Fannie Mae program is one I haven’t heard of, thanks very much for posting. My 70-something father (who both works and lives in a dump) has been resistant to purchasing something, even with me co-signing.

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Re: Elderly Relative Short on Money

Post by Gill » Fri Aug 17, 2018 7:44 am

ColoRetiredGirl wrote:
Thu Aug 16, 2018 11:28 pm
+1. This is sage advice. To improve her situation, she may need to work now while she is employable before she actually becomes “elderly”. FYI, at 60 I ran the NYC marathon. I know people in their 30s who cannot walk around the block. 65 is not elderly IMHO.
Thanks for this comment! I felt very old when I saw someone age 65 referred to as "elderly". Figured the OP must be very young...
Gill

cas
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Re: Elderly Relative Short on Money

Post by cas » Fri Aug 17, 2018 7:48 am

bajdygba1 wrote:
Thu Aug 16, 2018 9:45 pm

Long story short, she just got divorced at age 65 . . . She took Social Security early, and makes about $1k a month.

Her biggest cost will be rent, and she understandably has no desire to live in a dump. We are looking at a subsidized elderly housing unit that costs $1250 a month in rent. After utilities, it will probably be closer to $1400. Car insurance is $800 a year, and she has some small medical bills.
The lack of more specific mention of medical costs is making me a bit nervous, so let me check on some things quickly:

1. She's 65, so she signed up for Medicare this year, right? It would be really bad if being in the midst of the divorce caused that to slip her mind. (Medicare Pt B premiums go up permanently if you forget to sign up on time.)

2. Is the $1000/month in SS before or after the premiums for Medicare Part B ($134/month) and Part D (if she signed up for it, costs vary) is taken out of her SS? (Medicare premiums are automatically deducted from monthly SS before it lands in her checking account. But if she is 65, that would be a relatively recent new deduction. And it wouldn't be happening if she forgot to sign up for Medicare.)

3. What other options did she (or didn't she) choose for her Medicare? Part D (prescription coverage)? A Medigap plan that would help her pay the out of pocket costs that Part B (doctor office visits, lab tests) doesn't pay? (Pt B has a 20% copay, plus doesn't cover dental/glasses.) Medigap might be a separate, noticeably large bill that would be arriving monthly. (Or possibly also deducted from SS, I think - not sure.) A Medicare Advantage plan rather than a Medigap plan? - in which case you would have to read the details to know what kind of coverage it provides relative to prescriptions, Pt B copays, dental/glasses.

It is worth digging into what type of coverage she selected, because it can make a huge amount of difference in what type of medical bills she is exposed to going forward. Vanguard recently published a research paper on health care expenses in retirement (using a 65 year old woman as their base case. ) Paper is a bit long, but I would highly recommend looking at Figure 2 on p. 6 which shows the big difference that selection of a Medigap plan (vs no Medigap plan) can make in possible annual out of pocket medical costs. And Figure 9 on p 12 that shows how out of pocket costs tend to rise as people age.

"Planning For Health Care Costs in Retirement" (Vanguard Research, 2018). https://personal.vanguard.com/pdf/ISGPLHC.pdf

(My apologies for this post if the Medicare angle is all completely under control, well known to you, and accounted for within the $1000/month SS you mention. The Vanguard paper predicts a median cost of $5200 in out of pocket medical expenses (including premiums) for a medium-health-risk 65 year old woman in 2018, so it seemed a bit worrying that medical expenses (including premiums) wasn't one of the larger items you mention in the budget. And I particularly wanted to make sure that important age-65 Medicare decisions aren't something the slipped off the radar in the midst of the stress of everything else. )

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Re: Elderly Relative Short on Money

Post by Mr.BB » Fri Aug 17, 2018 8:05 am

"This is her only source of income, and she doesn't have any high-paying skills or desire to go back to work"
Im sorry to sound harsh, but she is only 65, there are plenty of basic jobs out there that she can earn some extra money for a few years. Even if she brings in an extra $10,000 a year ( which I don't think will affect her Social Security, you would have to verify at what income level they begin to penalize you). I work with lots of people who are in there 70's who love their work and still work full and part time.
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Re: Elderly Relative Short on Money

Post by bajdygba1 » Fri Aug 17, 2018 8:35 am

The lack of more specific mention of medical costs is making me a bit nervous, so let me check on some things quickly:

1. She's 65, so she signed up for Medicare this year, right? It would be really bad if being in the midst of the divorce caused that to slip her mind. (Medicare Pt B premiums go up permanently if you forget to sign up on time.)


Yes, I know she is on Medicare. She said it's deducted from her SS and she writes a check every month or something (Part D?).


2. Is the $1000/month in SS before or after the premiums for Medicare Part B ($134/month) and Part D (if she signed up for it, costs vary) is taken out of her SS? (Medicare premiums are automatically deducted from monthly SS before it lands in her checking account. But if she is 65, that would be a relatively recent new deduction. And it wouldn't be happening if she forgot to sign up for Medicare.)



3. What other options did she (or didn't she) choose for her Medicare? Part D (prescription coverage)? A Medigap plan that would help her pay the out of pocket costs that Part B (doctor office visits, lab tests) doesn't pay? (Pt B has a 20% copay, plus doesn't cover dental/glasses.) Medigap might be a separate, noticeably large bill that would be arriving monthly. (Or possibly also deducted from SS, I think - not sure.) A Medicare Advantage plan rather than a Medigap plan? - in which case you would have to read the details to know what kind of coverage it provides relative to prescriptions, Pt B copays, dental/glasses.

I haven't been involved in her finances at all up until now, and I don't know the answer to any of these questions. Thanks for asking them.


It is worth digging into what type of coverage she selected, because it can make a huge amount of difference in what type of medical bills she is exposed to going forward. Vanguard recently published a research paper on health care expenses in retirement (using a 65 year old woman as their base case. ) Paper is a bit long, but I would highly recommend looking at Figure 2 on p. 6 which shows the big difference that selection of a Medigap plan (vs no Medigap plan) can make in possible annual out of pocket medical costs. And Figure 9 on p 12 that shows how out of pocket costs tend to rise as people age.

"Planning For Health Care Costs in Retirement" (Vanguard Research, 2018). https://personal.vanguard.com/pdf/ISGPLHC.pdf

(My apologies for this post if the Medicare angle is all completely under control, well known to you, and accounted for within the $1000/month SS you mention. The Vanguard paper predicts a median cost of $5200 in out of pocket medical expenses (including premiums) for a medium-health-risk 65 year old woman in 2018, so it seemed a bit worrying that medical expenses (including premiums) wasn't one of the larger items you mention in the budget. And I particularly wanted to make sure that important age-65 Medicare decisions aren't something the slipped off the radar in the midst of the stress of everything else. )

It certainly is not known to me or under control. I expect it is not known to her either. $5200 is concerning. The one bright spot here is that if she runs out of money in 10-15 years both her children will have paid off all student loans and should be in a good position to help her. THank you.

randomguy
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Re: Elderly Relative Short on Money

Post by randomguy » Fri Aug 17, 2018 8:35 am

gotester2000 wrote:
Fri Aug 17, 2018 12:40 am
Buy a SPIA if she cannot handle money. It will give close to 18k + 12k SS = 30k/yr.

290k is not going to produce 18k/yr adjusted for inflation. $800/month will be a safe withdrawal.

Without SPIA ,she has to live on 1.8k/month if she cannot work or be a dependant.
Is your SPIA producing 18k/year inflation adjusted also or are you doing an apples to oranges comparison? The nominal SWR (i.e. no inflation adjusted) for a 50/50 allocation is somewhere in around 6% or pretty much what that SPIA she can buy today will offer. Obviously a portfolio gives the chance of an upside and a downside

Spirit Rider
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Re: Elderly Relative Short on Money

Post by Spirit Rider » Fri Aug 17, 2018 8:39 am

I will just throw this out there.

It might make sense for her to suspend SS now to earn delayed retirement credits until 70, but continue Medicare. Making sure she is enrolled in Medigap and Part D.

The two siblings can split the SS she would have been getting from SS, including COL increases until 70. While gently encouraging to earn a little more on her own until then.

That several hundred now may provide dividends if she and her genes have a reasonably long life expectancy.

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Re: Elderly Relative Short on Money

Post by Jack FFR1846 » Fri Aug 17, 2018 8:48 am

If she's in central or eastern Massachusetts (where I am), I challenge you to walk into any retail business and either not find a "help wanted" sign or if you ask the owner, they're not looking for people. Businesses all over this end of the state are looking for people and this is prime time to look. College students start in the next couple weeks as do high school students. There's going to be openings everywhere. There is absolutely no reason why she can't work at Stop & Shop. I see the store manager where I shop and she's in her 70's. "She doesn't want to go back to work" doesn't cut it. I'd like to stop working and have someone provide me with a Pagani Huayra BC, but that ain't gonna happen.

As others say, managing her money in this way or that is not going to magically provide some treasure trove of money to do all the things she'd like to do.

And by the way......65 is far from elderly.
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randomguy
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Re: Elderly Relative Short on Money

Post by randomguy » Fri Aug 17, 2018 9:46 am

Jack FFR1846 wrote:
Fri Aug 17, 2018 8:48 am

And by the way......65 is far from elderly.
Somewhere after about 50 peoples aging really diverges. There are a lot of 65 years that are pretty elderly (i.e. no mobility and tons of health issues) and some 80 years olds that aren't. OP would really need to think about capabilities before pushing this. It would be the easiest solution though.

Swimmer
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Re: Elderly Relative Short on Money

Post by Swimmer » Fri Aug 17, 2018 10:24 am

OP indicates MIL currently works part-time planning/decorating. Is her cognitive ability failing? If not, I agree that a job would be the answer, and it sounds like she does have marketable skills. I would encourage employment for obvious financial reasons as well as physical and psychological stimulation.

Sorry, but unless she is in poor health, 65 is no age to sit back and depend on others to solve personal problems.

I’d suggest having a frank discussion with her about the facts with an explanation that she needs to take some personal responsibility for herself with the caveat that you will be there to answer questions she may have and help along the way. Do you think she is too old to learn? or is she taking the path of least resistance?

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Re: Elderly Relative Short on Money

Post by VictoriaF » Fri Aug 17, 2018 11:22 am

I also suggest getting an SPIA for your mother in law.

HCOL areas usually have excellent public transportation. Can your mother in law get rid of the car and use bus and metro?

Victoria
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Re: Elderly Relative Short on Money

Post by gd » Fri Aug 17, 2018 11:54 am

Areas in MA vary a lot in elder services, but I think a Council on Aging is standard for towns to receive state funding. Check with the local one for services available, and check beforehand in any areas she might relocate to. Some towns have lots of housing options and-- this will be important later-- transportation options, others very little. Buses, taxis, and uber/lyft are not common everywhere.

Consider getting a new nephew, unless he can make a case for it. I'm all for charging for useful professional services, but I'd be ashamed to do that.

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VictoriaF
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Re: Elderly Relative Short on Money

Post by VictoriaF » Fri Aug 17, 2018 12:02 pm

gd wrote:
Fri Aug 17, 2018 11:54 am
Consider getting a new nephew,
Or a niece.
gd wrote:
Fri Aug 17, 2018 11:54 am
Some towns have lots of housing options and-- this will be important later-- transportation options, others very little. Buses, taxis, and uber/lyft are not common everywhere.
In my HCOL county, people over certain age get vouchers for half-price cab rides. Our public-transportation options are outstanding and those of the Medicare age get half-priced travel cards.

Victoria
Last edited by VictoriaF on Fri Aug 17, 2018 12:05 pm, edited 1 time in total.
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gtaylor
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Re: Elderly Relative Short on Money

Post by gtaylor » Fri Aug 17, 2018 12:04 pm

On the expense side in MA, there are subsidies available for heat and electricity: https://www.mass.gov/how-to/apply-for-h ... assistance The tests are I think income only, so your mother seems like she would qualify. Probably even with any of the suggested low skill jobs she ought to be pursuing.

There is also the state "Circuit Breaker" property tax and/or rent credit which might apply. There are many other similar programs. Check with the local Council on Aging.

There are quite a few sub-1400 1br and studio options out there, maybe some compromise in location would be needed.

The other traditional way to reduce expenses is not to go it alone. She could have a roommate. Or should could eventually find a partner or spouse.

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Re: Elderly Relative Short on Money

Post by gotester2000 » Fri Aug 17, 2018 12:17 pm

randomguy wrote:
Fri Aug 17, 2018 8:35 am
gotester2000 wrote:
Fri Aug 17, 2018 12:40 am
Buy a SPIA if she cannot handle money. It will give close to 18k + 12k SS = 30k/yr.

290k is not going to produce 18k/yr adjusted for inflation. $800/month will be a safe withdrawal.

Without SPIA ,she has to live on 1.8k/month if she cannot work or be a dependant.
Is your SPIA producing 18k/year inflation adjusted also or are you doing an apples to oranges comparison? The nominal SWR (i.e. no inflation adjusted) for a 50/50 allocation is somewhere in around 6% or pretty much what that SPIA she can buy today will offer. Obviously a portfolio gives the chance of an upside and a downside
Not inflation adjusted but she can save some money from the fixed income(30k) then. If she is unable to manage large sum of money its entirely possible that someone will take advantage of that and the portfolio may cease to exist in a few years.
Better to have fixed income and work whatever she can.

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Re: Elderly Relative Short on Money

Post by bajdygba1 » Fri Aug 17, 2018 12:20 pm

Thanks again for the suggestions.

1. The consensus seems to be "get a job," "pay lower rent," and "65 is not old!" Many suggestions, like moving to a cheaper area, and getting rid of the car, are not practical in her case. Minimum wage in MA looks like it will be about $12 an hour next year.

2. I think working 12-16 hours a week, and adding another $750 or so to monthly income, might be doable and a big help. I'm not sure if this would also qualify her for the Earned Income Tax Credit, possibly reducing tax liability from the IRA withdrawals. In addition, my wife and I can start giving her $500 a month for the considerable help she gives us with the kids. She watches out kids by herself one day a week when my wife and I are at work, and helps us out in all sorts of other ways. Paying her for this is the least we can do. This raises her income from $1000 a month to $2250 a month with no withdrawals from the retirement accounts.

3. Now, she can stay in the apartment and have $850 in money for other expenses without touching the retirement account. She can withdraw from it for major expenses or unusual occurrences. I would lean toward maybe 65 stock/35 bond. Hopefully if she works for 3-5 years it grows a little, and at that point she can replace the income from work with withdrawals.

4. If she still runs out of money, the "kids paying her" plan is still on the table.

5. In terms of money management, I feel perfectly qualified to help her implement a 3 fund portfolio. I'm not seeing a lot of value added in paying a professional, except to have someone take the blame if the market returns are sub-par.

What do you guys think?

Chris K Jones
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Re: Elderly Relative Short on Money

Post by Chris K Jones » Fri Aug 17, 2018 12:30 pm

It sounds like a solid plan to me. My only concern is that if/when the investments head south, you will get blamed or she will panic and get out of the market at the wrong time.

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Re: Elderly Relative Short on Money

Post by HIinvestor » Fri Aug 17, 2018 12:31 pm

If she really loves watching your children and you really want to hire her, you could pay her what you’d have to pay whomever is watching your kids, which would be higher than minimum wage, plus overtime if it’s over 40 hours/week. That could supplement her income and earnings as well.

$500 a month wouldn’t cover many hours of watching at minimum wage.

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Re: Elderly Relative Short on Money

Post by Bfwolf » Fri Aug 17, 2018 12:36 pm

I'm sorry that you are in this situation.

I think that ensuring she is not paying a 1% management fee for her money is crucial. She definitely can't afford that.

I like your plan of paying her $500 a month for babysitting.

In terms of asset allocation, here's an outside-the-box way of thinking about it: consider her money your wife's and her brother's from an asset allocation perspective. Let me explain.

When she dies, I presume that most/all of her money will go to your wife and her brother, with maybe some going to the grandkids. And you stated that if she runs out of money, she'll be taken care of with money from your wife and her brother. So one way or another, either your family and your wife's brother gets what is left over when she dies or you guys are on the hook for any shortfall if she outlives her money.

So why not agree with a reasonable standard of living with your MIL and just tell her that money will be available every month. Then invest her money at an asset allocation that makes sense for your wife and her brother. If the markets do well, great! If they do poorly, you'll make up the shortfall. It's basically you guys selling an SPIA to her but without the insurance company's profit margin.

There are of course some shortfalls of this plan:

1) If the stock market does well, she would reasonably want to spend more money. So you may not really receive the full upside of a more aggressive asset allocation.

2) If the stock market does poorly and she runs out of money, you have to step in and help when YOUR investments haven't done well either.

But I think this isn't far off from what you're proposing when you say invest the money in 2/3 stocks with a fairly hefty withdrawal rate.

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Re: Elderly Relative Short on Money

Post by Dottie57 » Fri Aug 17, 2018 12:38 pm

bajdygba1 wrote:
Fri Aug 17, 2018 12:20 pm
Thanks again for the suggestions.

1. The consensus seems to be "get a job," "pay lower rent," and "65 is not old!" Many suggestions, like moving to a cheaper area, and getting rid of the car, are not practical in her case. Minimum wage in MA looks like it will be about $12 an hour next year.

2. I think working 12-16 hours a week, and adding another $750 or so to monthly income, might be doable and a big help. I'm not sure if this would also qualify her for the Earned Income Tax Credit, possibly reducing tax liability from the IRA withdrawals. In addition, my wife and I can start giving her $500 a month for the considerable help she gives us with the kids. She watches out kids by herself one day a week when my wife and I are at work, and helps us out in all sorts of other ways. Paying her for this is the least we can do. This raises her income from $1000 a month to $2250 a month with no withdrawals from the retirement accounts.

3. Now, she can stay in the apartment and have $850 in money for other expenses without touching the retirement account. She can withdraw from it for major expenses or unusual occurrences. I would lean toward maybe 65 stock/35 bond. Hopefully if she works for 3-5 years it grows a little, and at that point she can replace the income from work with withdrawals.

4. If she still runs out of money, the "kids paying her" plan is still on the table.

5. In terms of money management, I feel perfectly qualified to help her implement a 3 fund portfolio. I'm not seeing a lot of value added in paying a professional, except to have someone take the blame if the market returns are sub-par.

What do you guys think?
I think your willingness to help with money is great. A job definitely helps. The suggestion on SS from ex-husband should be checked on. Consider a series of small SPIAs after age 70 - spread apart by 3 or more years. Not suggesting all money should be used but maybe 150k.

stan1
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Re: Elderly Relative Short on Money

Post by stan1 » Fri Aug 17, 2018 12:43 pm

Your MIL is in a spot where she needs to take more risk but really is not able to given she needs to stretch that money out for 20-30 years. She will likely need every bit of her money during her lifetime and higher equity risk could be catastrophic if she needed cash during a market downturn. My mom is in a similar situation. She's generally had about 30% in equities and 70% in bonds/CDs over the last 30 years from age 55 to 85. She is by no means investing for her heirs. She is holding steady for now but my brother and I both gift her money throughout the year so she can continue to live on RMDs and dividends at least for now. We were able to move her to a very low cost of living area near my brother which has helped.

For your mom compensating her for child care is a great idea. If your family or your brother in law's family will eventually be able to let her move in with you that will also help. I can understand why a 65 year old woman would want a place of her own for now.

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Re: Elderly Relative Short on Money

Post by bloom2708 » Fri Aug 17, 2018 12:49 pm

Gill wrote:
Fri Aug 17, 2018 7:44 am
ColoRetiredGirl wrote:
Thu Aug 16, 2018 11:28 pm
+1. This is sage advice. To improve her situation, she may need to work now while she is employable before she actually becomes “elderly”. FYI, at 60 I ran the NYC marathon. I know people in their 30s who cannot walk around the block. 65 is not elderly IMHO.
Thanks for this comment! I felt very old when I saw someone age 65 referred to as "elderly". Figured the OP must be very young...
Gill
At 35 I finished the full Twin Cities Marathon just behind an 80 year old completing his 100th marathon. 61 is a looong way to go with $12k in SS and $290k in investments. There is going to have to be some type of income generated or she will have to move in with the OP or another relative. No easy solutions.
Last edited by bloom2708 on Fri Aug 17, 2018 1:36 pm, edited 1 time in total.
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Re: Elderly Relative Short on Money

Post by randomguy » Fri Aug 17, 2018 1:10 pm

gotester2000 wrote:
Fri Aug 17, 2018 12:17 pm
randomguy wrote:
Fri Aug 17, 2018 8:35 am
gotester2000 wrote:
Fri Aug 17, 2018 12:40 am
Buy a SPIA if she cannot handle money. It will give close to 18k + 12k SS = 30k/yr.

290k is not going to produce 18k/yr adjusted for inflation. $800/month will be a safe withdrawal.

Without SPIA ,she has to live on 1.8k/month if she cannot work or be a dependant.
Is your SPIA producing 18k/year inflation adjusted also or are you doing an apples to oranges comparison? The nominal SWR (i.e. no inflation adjusted) for a 50/50 allocation is somewhere in around 6% or pretty much what that SPIA she can buy today will offer. Obviously a portfolio gives the chance of an upside and a downside
Not inflation adjusted but she can save some money from the fixed income(30k) then. If she is unable to manage large sum of money its entirely possible that someone will take advantage of that and the portfolio may cease to exist in a few years.
Better to have fixed income and work whatever she can.
The point is that SPIA isn't magically giving her more money. You are choosing to take more money now and less later. And you could do the same with investing yourself. It is all about how much risk she wants to take on.. A SPIA has the rough risk profile of a bond portfolio. A market portfolio is a lot riskier. Does she want to take that risk or not in exchange for potentially having more money? Remember the average SWR of a 50/50 portfolio is about 5.5% which is a lot higher than what the SPIA is putting out (~4-4.5% for a 30 year term. but with variable payouts the exact number is a bit iffy). Could result in her having more money to spend from 75-95. Depending on the kid backstop in case of portfolio failure (i.e. what happens in year 25 if she goes broke), she might have the ability to take risk. I am sort of counting on kids not ripping off their mom:)

If she was 75 or 80, I would feel a lot more comfortable about buying that nominal SPIA. That is 10+ less years of your income being reduced by 2%/year. And the mortality credits really start making a difference (both in winners and losers cases) as you age. But obviously she has to make to those ages.

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Re: Elderly Relative Short on Money

Post by jminv » Fri Aug 17, 2018 1:24 pm

bajdygba1 wrote:
Fri Aug 17, 2018 12:20 pm

2. I think working 12-16 hours a week, and adding another $750 or so to monthly income, might be doable and a big help. I'm not sure if this would also qualify her for the Earned Income Tax Credit, possibly reducing tax liability from the IRA withdrawals. In addition, my wife and I can start giving her $500 a month for the considerable help she gives us with the kids. She watches out kids by herself one day a week when my wife and I are at work, and helps us out in all sorts of other ways. Paying her for this is the least we can do. This raises her income from $1000 a month to $2250 a month with no withdrawals from the retirement accounts.
She could always live with you. Trade free rent for childcare services. Gets her out of her financial situation and you're leaning to supporting her anyway partly now and more in the future if she runs out of money. This would alleviate the latter issue. It would also stop years of money worries and/or transfers. Depends whether she and your family would be interested in that arrangement or not (especially the part about living together).

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celia
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Re: Elderly Relative Short on Money

Post by celia » Fri Aug 17, 2018 1:50 pm

Heck, I'm over 65 and manage assets for some elderly relatives. (80s and 90s is elderly to me.)

I would never think of charging them a fee as that would make them run out of assets sooner. :oops: As POA, I would then have a new problem to solve.

HereToLearn
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Re: Elderly Relative Short on Money

Post by HereToLearn » Fri Aug 17, 2018 1:53 pm

I posted this comment earlier, but it disappeared (user error, no doubt).

If your mother wants to earn money and likes caring for children, would she consider working as a nanny? That pays well over minimum wage in the northeast, and she could find P/T work if that is all she wanted. For instance, after school until parents return from work, so 2:30-7pm or so.

I have hired a 65 year old nanny to drive my 80-something year old mother once my mother was not safe to drive. The nanny had hours free during the day while the children were in school, so it worked perfectly for my mother's medical appointments.

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