Dad Died - Handling Mom's Finances

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LifeLearner
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Dad Died - Handling Mom's Finances

Post by LifeLearner » Tue Sep 18, 2018 9:31 pm

Hello,

I come here for help regarding how to strike a balance between helping my mom and saving for myself. First, a snapshot of my mom's situation. She turns 60 next year.

State of Residence: CA

Mom's Assets:
IRA: 150k (inherited from my dad, apparently invested 100% stocks)
Life Insurance: 80k (I believe this will not be taxed)
Savings: 20k

Liabilities:
Mortgage: ~20k left at a 7% rate (very high)
HELOC: ~48k around 3-4% (not sure exactly)

Cars:
Car 1: We owe about 15k but is worth about 20k if we sell, so we plan to sell.
Car 2: We are leasing and plan to buy at the end of the lease. Unsure of exact details, I believe buyoff amount is around 15k at end of lease and there are still 16 payments or so of $350/mo, so a total of about 20-21k owed. We already hit the mileage limit for the lease, so we don't have many options except to buy it at end of lease because paying the overmileage penalty seems like a waste of 2-3k.

Social Security:
My mom's benefit is very small, so I think it makes more sense for her to take my dad's benefit. However, soon after my dad passed about a month ago, I checked and recall seeing that his benefit at 65 years old is around 2k/mo. It looks like I cannot view it here anymore https://www.ssa.gov/benefits/retirement/estimator.html. Is my understanding correct that my mom will be able to get that full benefit amount of 2k/month if she waited until age 65? I also understand that as a widow, my mom can take benefits starting at age 60, but that they'll be reduced. I discussed this briefly with my mom and we believe she'll continue working (if able) until 63-64 and then take on benefits. I also believe that she cannot get the $255 benefit because my dad was not currently taking social security benefits and my mom is not yet eligible. Is this correct?

My mom is in the process of transferring the IRA into her name, and she will designate me as the one to handle the account. I have no desire for any to be left to heirs if it means in any way reducing her standard of living. I'd rather she spend the account to zero before she even passes, and for any unanticipated expenses, I hope to be able to cover.

My first plan of action once the IRA is transferred is to change the asset allocation to something more conservative. 60/40 or 50/50 because at that point, I believe that wealth preservation is more important than seeking higher returns. Fortunately, my dad lucked out with having it at 100% from 2008 onwards, so might as well take those chips off the table now.

Second, I have the cash to easily pay off the mortgage that's at 7% and plan to do so soon, but am waiting to have a good sense before doing so. I'd also like to take care of the HELOC. Here's a brief snapshot for me:

Age: 29
Income: 160k before bonus
Retirement (401k+IRA+HSA): 260k - almost all stock
High Yield Savings: 50k (was planning to save up for a downpayment for a house)
Checking: 40k
Monthly Expenses for me: ~4k based on past year and half
I view my allocation as roughly 80/20 considering my savings as Fixed Income and my Checking as an emergency fund (and outside of my AA).

One wrinkle is how to balance saving for a house and helping my mom. If I liquidate some savings, I could easily pay off both the mortgage and HELOC for my mom by the end of the year and significantly reduce monthly expenditure and give us a good idea of my mom's monthly expenditure. I am leaning toward this. That'll basically just leave property tax and paying off the car, which should be manageable with my mom's income and savings. I should note that the 50k in savings is not a lot toward a downpayment. I live in the bay area where house prices are astronomical.

Speaking of my mom's expenditures, I have no idea what it is in the aftermath of my dad's passing and I'm sure she doesn't either. She'll be medicaid eligible at 65 (I believe). How do I calculate what her medical expenses will be on a year to year basis? Assuming a paid off mortgage and HELOC, this seems like the big expense, and I'm not sure how to plan around it. I didn't imagine I'd be in a position to even have to worry about such a thing so soon... If I assume a smoothed yearly expenditure of 30k including SS, there's a shortfall of 6k. Based on the IRA and life insurance, her assets add to about 230k investable. Using a 4% withdrawal rate, that adds about 9k a year. Total income, I'm projecting as 33k a year, which doesn't leave much margin, but any shortfall, I should be able to cover.

Anybody have thoughts, suggestions? Experiences or stories of being in a similar situation?
Last edited by LifeLearner on Tue Sep 18, 2018 9:46 pm, edited 1 time in total.

drawpoker
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Re: Dad Died - Handling Mom's Finances

Post by drawpoker » Tue Sep 18, 2018 9:35 pm

Correction, the $255 death benefit is available to anyone who had covered social security earnings. You do not have to have been drawing social security already. You just have to die and your surviving spouse gets it.

Your mom can start drawing a spousal benefit on her deceased husband when she turns 60, yes. But the amount will be only 71.5 % of your Dad's benefit. If she waits, the percentage goes up slightly every year until FRA, when, she would get 100% of his PIA.

Remember, also, if she plans to continue working and start drawing a spousal benefit at 60 she can earn no more than $17,040 a year or she will lose some of her benefit. That will go on for five years until she turns 65 (FRA)

As for the inherited IRA, you can certainly advise your Mom on how to invest it. But, unless you yourself are a recognized financial institution, don't think you can be "custodian" under the law. An IRA has to have a custodian, and you want to be careful, if you do not do a "direct" custodian to custodian transfer there are some tricky rules you must follow.

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Watty
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Re: Dad Died - Handling Mom's Finances

Post by Watty » Tue Sep 18, 2018 10:01 pm

The life insurance would be enough to pay off the high interest rate mortgage which is about the only urgent thing. She might do that and then take some time to come up with a long term plan.

A couple of points;

It was not clear if your mom is currently working or able to work.

How much is her house worth?

LifeLearner
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Re: Dad Died - Handling Mom's Finances

Post by LifeLearner » Tue Sep 18, 2018 10:11 pm

Watty wrote:
Tue Sep 18, 2018 10:01 pm
The life insurance would be enough to pay off the high interest rate mortgage which is about the only urgent thing. She might do that and then take some time to come up with a long term plan.

A couple of points;

It was not clear if your mom is currently working or able to work.

How much is her house worth?
She is currently working and should be able to continue working.

A house nearby is listed on zillow for 340k. It looks like it has had the bathroom and kitchens remodeled, which we haven't done.

drawpoker
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Re: Dad Died - Handling Mom's Finances

Post by drawpoker » Tue Sep 18, 2018 10:24 pm

LifeLearner wrote:
Tue Sep 18, 2018 9:31 pm

Speaking of my mom's expenditures, I have no idea what it is in the aftermath of my dad's passing and I'm sure she doesn't either. She'll be medicaid eligible at 65 (I believe). How do I calculate what her medical expenses will be on a year to year basis?
You don't mean medicaid. You mean "Medicare".

She is in Calif, correct? That gives her a leg up. That state has a "birthday rule" where Medicare beneficiaries can switch their Medigap plans once a year without going thru medical underwriting. This is an immense bonus for her, living in the Golden state. That means that when the time comes for her to choose a Medicare supplement plan it is not so critical to make the right choice during Open Enrollment, her state allows a handy loophole to get out and get into something cheaper very smoothly.

California is very generous in that. People unfamiliar with the complexities of Medicare would not fully understand, tho. Of course, that is not to say Original Medicare with a supplement is not her only option. IF she is within the service area of a top-notch Medicare Advantage plan like Kaiser - she could take that at much less monthly cost.

More details needed here. What is the amount of her monthly mortgage payment on the 7% loan? Paying it off completely is only one option; it could be re-financed to a much lower monthly amount and that would leave much more of her (or your) capital to grow.

Also, what is her salary? What is the general state of her health?

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Watty
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Re: Dad Died - Handling Mom's Finances

Post by Watty » Tue Sep 18, 2018 10:35 pm

My gut feel is that since you dad only died a month ago that you are trying to do too much too soon.

The life insurance would be enough to pay off the mortgage, HELOC, and have enough to buy the car when the lease is up. Your Mom should also keep working.

I would do that and have your mom make an appointment to go into the Social Security office to find out exactly what her options are.

In six months or a year when things have settled down you can work with your Mom to come up with a long term plan.

One thing to consider would be to eventually find your mom a less expensive place to live but moving would probably be too big of a change for her so soon after losing your dad. My mom outlived my dad and she insisted in staying in the large family home that I was raised in. That was her choice but as she aged and driving became more difficult that really isolated her. Eventually moving into a condo or an over 55 community might help her have more social connections as she ages.

denovo
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Re: Dad Died - Handling Mom's Finances

Post by denovo » Tue Sep 18, 2018 10:37 pm

What is your mom's annual expenses?
"Don't trust everything you read on the Internet"- Abraham Lincoln

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ObliviousInvestor
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Re: Dad Died - Handling Mom's Finances

Post by ObliviousInvestor » Wed Sep 19, 2018 7:27 am

Regarding Social Security, she has the option of filing for just her own retirement benefit at 62, while allowing her survivor benefit to continue growing until it maxes out at her full retirement age. Though depending on her level of earnings, the earnings test may result in some or all of that benefit being withheld.

(Of note, her full retirement age is not 65. Please see the link above.)
Mike Piper, author/blogger

clydewolf
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Re: Dad Died - Handling Mom's Finances

Post by clydewolf » Wed Sep 19, 2018 2:08 pm

OP wrote: "My mom is in the process of transferring the IRA into her name"

I did not see any place that indicated if your mother was over or under age 59-1/2. If she is less than 59-1/2 she may want to keep some of the IRA as an inherited IRA . She must take penalty free distributions from the inherited IRA. That would be another source of income if needed.

Under age 59-1/2 and needing income from her own IRA would result in the ten percent early distribution penalty.

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ray.james
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Re: Dad Died - Handling Mom's Finances

Post by ray.james » Wed Sep 19, 2018 2:12 pm

clydewolf wrote:
Wed Sep 19, 2018 2:08 pm
OP wrote: "My mom is in the process of transferring the IRA into her name"

I did not see any place that indicated if your mother was over or under age 59-1/2. If she is less than 59-1/2 she may want to keep some of the IRA as an inherited IRA . She must take penalty free distributions from the inherited IRA. That would be another source of income if needed.

Under age 59-1/2 and needing income from her own IRA would result in the ten percent early distribution penalty.
Good point. Op mentioned this:
She turns 60 next year.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

Carefreeap
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Re: Dad Died - Handling Mom's Finances

Post by Carefreeap » Wed Sep 19, 2018 2:41 pm

Are you living with your mom?

Do you have other siblings?

mouses
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Re: Dad Died - Handling Mom's Finances

Post by mouses » Wed Sep 19, 2018 3:04 pm

I am sorry about your Dad. My sympathies to you and your Mom.

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Watty
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Re: Dad Died - Handling Mom's Finances

Post by Watty » Wed Sep 19, 2018 4:03 pm

ObliviousInvestor wrote:
Wed Sep 19, 2018 7:27 am
Regarding Social Security, she has the option of filing for just her own retirement benefit at 62, while allowing her survivor benefit to continue growing until it maxes out at her full retirement age. Though depending on her level of earnings, the earnings test may result in some or all of that benefit being withheld.

(Of note, her full retirement age is not 65. Please see the link above.)
Just FYI, Mike is the author of a book on Social Security.

https://www.amazon.com/Social-Security- ... dpSrc=srch

LifeLearner
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Re: Dad Died - Handling Mom's Finances

Post by LifeLearner » Thu Sep 20, 2018 11:10 pm

drawpoker wrote:
Tue Sep 18, 2018 10:24 pm
LifeLearner wrote:
Tue Sep 18, 2018 9:31 pm

Speaking of my mom's expenditures, I have no idea what it is in the aftermath of my dad's passing and I'm sure she doesn't either. She'll be medicaid eligible at 65 (I believe). How do I calculate what her medical expenses will be on a year to year basis?
You don't mean medicaid. You mean "Medicare".

She is in Calif, correct? That gives her a leg up. That state has a "birthday rule" where Medicare beneficiaries can switch their Medigap plans once a year without going thru medical underwriting. This is an immense bonus for her, living in the Golden state. That means that when the time comes for her to choose a Medicare supplement plan it is not so critical to make the right choice during Open Enrollment, her state allows a handy loophole to get out and get into something cheaper very smoothly.

California is very generous in that. People unfamiliar with the complexities of Medicare would not fully understand, tho. Of course, that is not to say Original Medicare with a supplement is not her only option. IF she is within the service area of a top-notch Medicare Advantage plan like Kaiser - she could take that at much less monthly cost.

More details needed here. What is the amount of her monthly mortgage payment on the 7% loan? Paying it off completely is only one option; it could be re-financed to a much lower monthly amount and that would leave much more of her (or your) capital to grow.

Also, what is her salary? What is the general state of her health?
Yes, she is in California. And yes, meant Medicare - oops. Basically, that means when she becomes eligible for Medicare when she turns 65, we have the ability to change between the specific types, Part A, B, C, or D every year? I briefly looked at Medicare and tucked it away as something I won't need to know for another 5 years or so. I believe we do have Kaiser in our area. I will have to look more into what this Medicare Advantage/Kaiser association thing is.

Uncertain what the monthly payments are.

Salary, unclear. She did bookkeeping at a small accounting shop run by my dad and her together. A friend of my dad's is helping with the CPA-related end and actually, before my dad died, they were already discussing having him join and work with us. So we are trying to work out an arrangement that makes sense for both my dad's friend and my mom to continue the business together. To my knowledge, her health is fine.

Thanks

LifeLearner
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Re: Dad Died - Handling Mom's Finances

Post by LifeLearner » Thu Sep 20, 2018 11:14 pm

Watty wrote:
Tue Sep 18, 2018 10:35 pm
My gut feel is that since you dad only died a month ago that you are trying to do too much too soon.

The life insurance would be enough to pay off the mortgage, HELOC, and have enough to buy the car when the lease is up. Your Mom should also keep working.

I would do that and have your mom make an appointment to go into the Social Security office to find out exactly what her options are.

In six months or a year when things have settled down you can work with your Mom to come up with a long term plan.

One thing to consider would be to eventually find your mom a less expensive place to live but moving would probably be too big of a change for her so soon after losing your dad. My mom outlived my dad and she insisted in staying in the large family home that I was raised in. That was her choice but as she aged and driving became more difficult that really isolated her. Eventually moving into a condo or an over 55 community might help her have more social connections as she ages.
You may be right. My mind has been a blur the past weeks and there are so many things to consider that I didn't know you had to consider when someone dies. And a lot of my mental energy and capacity has been spent worrying about my mom and trying to do what's the best for her. I know that things like debts hang on her pretty heavily, so I'd like to help remove that burden if possible.

One thing I didn't mention is that my grandparents, her parents, currently live with her. Financially, I don't know whether that's a net positive or negative, but I know my grandpa at least gets some social security benefit. I will have to talk to her about this when I see her next. I think moving would be very difficult to do right now, or anytime soon. Cheaper homes would mean moving to an already not-great neighborhood to a worse one...

LifeLearner
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Re: Dad Died - Handling Mom's Finances

Post by LifeLearner » Thu Sep 20, 2018 11:20 pm

ObliviousInvestor wrote:
Wed Sep 19, 2018 7:27 am
Regarding Social Security, she has the option of filing for just her own retirement benefit at 62, while allowing her survivor benefit to continue growing until it maxes out at her full retirement age. Though depending on her level of earnings, the earnings test may result in some or all of that benefit being withheld.

(Of note, her full retirement age is not 65. Please see the link above.)
I did not realize she could do this. For some reason, I considered whether she should just take my dad's benefit at 60 and switch to her own at 65-66, but didn't consider that the opposite is possible - that she can start taking her benefit, however small, at 62 and then switch to the survivor benefit. Unless I am missing something, this seems like a no-brainer to do, correct? I know once you pass about $17k/yr, it starts taking away from social security benefits, but that's at a $2-for-1 rate. So assuming a reduced social security benefit (for ease of math) of $5k/yr, unless she makes $27k in a year, she'll at least see some of the benefit anyway. And if not, she's making $27k/yr which should mostly cover expenses.

Thanks, I'll look into this more and also have my mom make an appointment with the Social Security Administration to get a better handle on the actual numbers.

LifeLearner
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Re: Dad Died - Handling Mom's Finances

Post by LifeLearner » Thu Sep 20, 2018 11:21 pm

Carefreeap wrote:
Wed Sep 19, 2018 2:41 pm
Are you living with your mom?

Do you have other siblings?
No, I do not live with my mom, and yes, I do have a sibling.

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ObliviousInvestor
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Re: Dad Died - Handling Mom's Finances

Post by ObliviousInvestor » Fri Sep 21, 2018 6:16 am

LifeLearner wrote:
Thu Sep 20, 2018 11:20 pm
ObliviousInvestor wrote:
Wed Sep 19, 2018 7:27 am
Regarding Social Security, she has the option of filing for just her own retirement benefit at 62, while allowing her survivor benefit to continue growing until it maxes out at her full retirement age. Though depending on her level of earnings, the earnings test may result in some or all of that benefit being withheld.

(Of note, her full retirement age is not 65. Please see the link above.)
I did not realize she could do this. For some reason, I considered whether she should just take my dad's benefit at 60 and switch to her own at 65-66, but didn't consider that the opposite is possible - that she can start taking her benefit, however small, at 62 and then switch to the survivor benefit. Unless I am missing something, this seems like a no-brainer to do, correct?
Yes, in the case of a widow(er) the optimal choice is basically always to figure out which benefit could be higher (i.e., own retirement benefit at 70 or survivor benefit at FRA) -- then file for the other one ASAP, as there is no downside to filing for the other (smaller) one. Though yes, the earnings test will be relevant.
Mike Piper, author/blogger

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