Need advice on Parents' dire financial situation

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Lynx310650
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Need advice on Parents' dire financial situation

Post by Lynx310650 »

This is a follow-up to a post I made several years ago. I apologize if some of the details are murky or just don't make sense, that's just the information my parents choose to give me while still asking me for advice/suggestions. :oops:

My parents are in their early 60s and run a small business that's been losing money for a while. Whether through pride, stubbornness, or just straight up foolishness, they've hung on to it for way too long without looking for other options.

Thankfully, their commercial lease is up in May, and they are planning on finally closing shop at that time.

They've been making ends meet by not or partially paying the rent on their business, and have racked up about 40k in debt by doing so.

Their ONLY asset is their home, which by conservative similar sales data should be worth about $550k, with a mortgage of about $150k. Their plan is to sell the home in May when they close the business and pay off their debt. Being conservative, that should leave them with about $300k in cash when all is said and done.

They have a modest SS payout of about $1300/month coming when my father turns 62 in late 2020.

There was a potential inheritance that never panned out, so this is all the assets/income they are looking at.

They are immigrants so while they can communicate in English, they aren't fluent.

I'd appreciate any and all advice on things like how they should invest their money, what kind of jobs they could seek (drive Uber?), etc.
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Kenkat
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Re: Need advice on Parents' dire financial situation

Post by Kenkat »

What was the small business? Can they get a job working for a similar type business? They likely have some skills to offer there.
Streptococcus
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Re: Need advice on Parents' dire financial situation

Post by Streptococcus »

I think any advice should start with determining how much they spend to live.
Last edited by Streptococcus on Tue Dec 31, 2019 3:19 pm, edited 1 time in total.
ohai
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Re: Need advice on Parents' dire financial situation

Post by ohai »

Hmm. The first question is obviously how much they need to spend every year. Then, we need to know how much they will need to make on top of social security.

Also importantly, how will they pay their bills when they truly retire? Do you and any siblings have enough money to subsidize them?

There must be some standard way to approach this. This situation is actually kind of average for US people.
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Lynx310650
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Re: Need advice on Parents' dire financial situation

Post by Lynx310650 »

Streptococcus wrote: Tue Dec 31, 2019 3:17 pm I think any advice should start with determining how much they spend to live.
I believe minus all their housing expenses they spend about $700-$1000/month to live.
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Re: Need advice on Parents' dire financial situation

Post by livesoft »

I have a sibling that lives on their small social security deposits and who are under age 65, so I do not see the situation as so dire. Your parents will have to get one or more jobs. That's something they should be able to figure out on their own. I expect that a minimum wage job in retail is all they need. For example, as a cashier in a grocery store or small shop. Every time I go to a store I interact with people my age and younger like your parents that are working in the store.
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peterwantstosave
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Re: Need advice on Parents' dire financial situation

Post by peterwantstosave »

They are relatively young. Can they transition to working in their field?

It sounds to me as if their situation has mostly to do with cash management, rather than investing.

I would encourage them to go through Dave Ramsey's Total Money Makeover. Once they've implemented the first three steps, they can invest like Bogleheads, instead of like Ramsey.

All good wishes,

Peter
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aristotelian
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Re: Need advice on Parents' dire financial situation

Post by aristotelian »

Is the business an LLC? I am not a lawyer but they may not be personally responsible for all the debt.
obgraham
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Re: Need advice on Parents' dire financial situation

Post by obgraham »

Are they healthy?
Do they currently have health insurance? What is their plan for that until Medicare kicks in?
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Lynx310650
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Re: Need advice on Parents' dire financial situation

Post by Lynx310650 »

aristotelian wrote: Tue Dec 31, 2019 3:29 pm Is the business an LLC? I am not a lawyer but they may not be personally responsible for all the debt.
I don't think it's an LLC. Their plan is to pay off that debt with the proceeds from the sale of their home.
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Lynx310650
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Re: Need advice on Parents' dire financial situation

Post by Lynx310650 »

obgraham wrote: Tue Dec 31, 2019 3:29 pm Are they healthy?
Do they currently have health insurance? What is their plan for that until Medicare kicks in?
They are relatively healthy for their age, especially my father.

I'm very unfamiliar with the details of ACA, but from what my parents have told me they are paying little to nothing for their health insurance right now due to their very small income. They are in CAlifornia. So I'm guessing the plan is to stay on that.
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Re: Need advice on Parents' dire financial situation

Post by ohai »

I think the likely plan here is for dad to work in some random job, like being a cashier or something like that for 10 years. By that time, their $300k with any more savings can be between $500k and $1 million. It's not a foolproof plan, but they should have enough money to survive.
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Re: Need advice on Parents' dire financial situation

Post by willthrill81 »

ohai wrote: Tue Dec 31, 2019 3:35 pm I think the likely plan here is for dad to work in some random job, like being a cashier or something like that for 10 years. By that time, their $300k with any more savings can be between $500k and $1 million. It's not a foolproof plan, but they should have enough money to survive.
My thoughts are similar. While they would barely have enough income if they claimed SS benefits at age 62, they would be far better off deferring those benefits as long as possible (obviously no later than age 70). Even if they save nothing, this will automatically give them significantly more income for the rest of their lives and, in particular, increase the survivor's benefit for the OP's mom. Anything they can save from him continuing to work will just be an extra cushion.

The OP has said that his parents have $400k of home equity and $40k of debt but will only have $300k after the home sale and paying off debt. What's happening to the other $60k? Real estate fees may be part of that. I would suggest that the parents consider doing an FSBO instead of paying an agent roughly $33k to do it. That represents multiple years worth of their spending and should not be spent unnecessarily.

Thankfully, their spending needs are low enough that they should be fine if the dad can keep working for a while.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Lynx310650
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Re: Need advice on Parents' dire financial situation

Post by Lynx310650 »

willthrill81 wrote: Tue Dec 31, 2019 3:41 pm
ohai wrote: Tue Dec 31, 2019 3:35 pm I think the likely plan here is for dad to work in some random job, like being a cashier or something like that for 10 years. By that time, their $300k with any more savings can be between $500k and $1 million. It's not a foolproof plan, but they should have enough money to survive.
My thoughts are similar. While they would barely have enough income if they claimed SS benefits at age 62, they would be far better off deferring those benefits as long as possible (obviously no later than age 70). Even if they save nothing, this will automatically give them significantly more income for the rest of their lives and, in particular, increase the survivor's benefit for the OP's mom. Anything they can save from him continuing to work will just be an extra cushion.

The OP has said that his parents have $400k of home equity and $40k of debt but will only have $300k after the home sale and paying off debt. What's happening to the other $60k? Real estate fees may be part of that. I would suggest that the parents consider doing an FSBO instead of paying an agent roughly $33k to do it. That represents multiple years worth of their spending and should not be spent unnecessarily.

Thankfully, their spending needs are low enough that they should be fine if the dad can keep working for a while.
Thanks, I was being super conservative with the 300k. Recent sales data shows about $580k-600k for similar homes. But their home has not been renovated at all since it was built in 2000. So I'm not sure how much it would sell for in that condition.
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Re: Need advice on Parents' dire financial situation

Post by bhsince87 »

Lynx310650 wrote: Tue Dec 31, 2019 3:21 pm
Streptococcus wrote: Tue Dec 31, 2019 3:17 pm I think any advice should start with determining how much they spend to live.
I believe minus all their housing expenses they spend about $700-$1000/month to live.
Where do they plan to live after they sell their house? Sounds like they will then have rent payments to cover.
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Lynx310650
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Re: Need advice on Parents' dire financial situation

Post by Lynx310650 »

bhsince87 wrote: Tue Dec 31, 2019 3:48 pm
Lynx310650 wrote: Tue Dec 31, 2019 3:21 pm
Streptococcus wrote: Tue Dec 31, 2019 3:17 pm I think any advice should start with determining how much they spend to live.
I believe minus all their housing expenses they spend about $700-$1000/month to live.
Where do they plan to live after they sell their house? Sounds like they will then have rent payments to cover.
Yes, since that expense is TBD and somewhat controllable depending on where they decide to live, I estimated their expenses minus housing. They want to continue living in CA but I'm not sure if that's doable unless they both are able to get jobs.
BlueCable
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Re: Need advice on Parents' dire financial situation

Post by BlueCable »

You should confirm the LLC situation before selling the house.

Is selling the house really the right move? Are they going to find significantly cheaper housing where they live?
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Re: Need advice on Parents' dire financial situation

Post by Nate79 »

They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
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Re: Need advice on Parents' dire financial situation

Post by willthrill81 »

Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
:thumbsup

Its situations like these that drive many to believe, for better or worse, that their home is a good investment. We can all agree that one's primary residence is not generally a good 'investment', if it even meets that definition in the first place, but at least they now have an asset worth several hundred thousand dollars. 'Forced' savings via home equity is certainly better than no savings.
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Watty
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Re: Need advice on Parents' dire financial situation

Post by Watty »

Lynx310650 wrote: Tue Dec 31, 2019 3:10 pm Thankfully, their commercial lease is up in May, and they are planning on finally closing shop at that time.
They should ask the owner if they will let them out of the lease early.

If they have not been paying the rent they may be glad to end the lease early.
Lynx310650 wrote: Tue Dec 31, 2019 3:10 pm They have a modest SS payout of about $1300/month coming when my father turns 62 in late 2020.
It would be good to check this web site to get a suggested Social Security claiming strategy.

https://opensocialsecurity.com/

Starting Social Security too early could cost them a lot latter on if they end up mostly depending on Social Security.

Their Social Security will be calculated on their highest 35 years of inflation adjusted earnings so if they have a lot of zero or very low years in their earnings history working longer will help their payout amount.
Lynx310650 wrote: Tue Dec 31, 2019 3:10 pm Their ONLY asset is their home, which by conservative similar sales data should be worth about $550k, with a mortgage of about $150k. Their plan is to sell the home in May when they close the business and pay off their debt. Being conservative, that should leave them with about $300k in cash when all is said and done.
It sounds like they likely live in an expensive part of the country. If possible they may want to consider moving to a less expensive area, there are lots of areas you can buy a nice modest house for $150K or even less. If they can't move because of thing like family ties then they could also look at moving an hours drive farther out since in some areas housing prices and rental prices can be a lot less expensive the farther out you get.

Returning to the country they are from could also be an option to consider especially if they still have family there. In some countries you could live a pretty good lifestyle with $300K and Social Security.
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Re: Need advice on Parents' dire financial situation

Post by HomeStretch »

Your parents will have about $27,600 as income from His SS of $1,300/mo x 12 plus $12,000 from their portfolio of $300k @ 4%. Is that enough income to cover everything - taxes, healthcare, living expenses including housing? Will your mom receive any SS that will increase their income?

If your parents can work even part time, they could make enough income to delay claiming SS. This will allow the SS benefit to grow and it receives COLA.

It will help their budget even more if they can move in with a relative.
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JoeRetire
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Re: Need advice on Parents' dire financial situation

Post by JoeRetire »

Lynx310650 wrote: Tue Dec 31, 2019 3:10 pm My parents are in their early 60s and run a small business that's been losing money for a while. Whether through pride, stubbornness, or just straight up foolishness, they've hung on to it for way too long without looking for other options.

Thankfully, their commercial lease is up in May, and they are planning on finally closing shop at that time.

They've been making ends meet by not or partially paying the rent on their business, and have racked up about 40k in debt by doing so.

Their ONLY asset is their home, which by conservative similar sales data should be worth about $550k, with a mortgage of about $150k. Their plan is to sell the home in May when they close the business and pay off their debt. Being conservative, that should leave them with about $300k in cash when all is said and done.

They have a modest SS payout of about $1300/month coming when my father turns 62 in late 2020.

I'd appreciate any and all advice on things like how they should invest their money, what kind of jobs they could seek (drive Uber?), etc.
- They should see if selling their business would yield anything.
- They (perhaps with your help) should check out https://opensocialsecurity.com/ . I doubt that having your father start social security benefits at 62 is optimal if they can afford to delay.
- Certainly they should sell their house and seek out less expensive living arrangements
- In their early 60s, assuming they are healthy, there are tons of jobs available. You haven't indicated what they are capable of doing, so there's no good way to narrow things down much.
- If they can actually live on $700-$1000/month plus housing, their situation isn't very dire, assuming they find low-cost housing.
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Re: Need advice on Parents' dire financial situation

Post by Barcelonasteve »

Can you expand on how you arrived at the SS benefit of $1,300. Would that be only your father’s benefit? If so, is your mother not eligible? Or is it their combined benefits and your mother has already started collecting (if so, how much and how long ago did she start)?
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Re: Need advice on Parents' dire financial situation

Post by SCb&b »

I agree with Nate - their first priority should be finding a reasonable house for $100k or so (probably means moving) and continuing to work to delay SS. But if their expenses outside of housing are $700-1000 and they have $1300 in SS/mo plus $200k in the bank with paid off house they're probably fine, especially if they work a bit longer.

Their biggest risk at this point is inflation so having a paid off house is critical.

If they won't give you full details perhaps you paying for 2 hours with a fee-only planner would be a good use of your or their money?
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Re: Need advice on Parents' dire financial situation

Post by OnTrack2020 »

Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
This sounds totally unrealistic. Not everyone can just pack up and move to a VLCOL area.
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Re: Need advice on Parents' dire financial situation

Post by stoptothink »

livesoft wrote: Tue Dec 31, 2019 3:26 pm I have a sibling that lives on their small social security deposits and who are under age 65, so I do not see the situation as so dire. Your parents will have to get one or more jobs. That's something they should be able to figure out on their own. I expect that a minimum wage job in retail is all they need. For example, as a cashier in a grocery store or small shop. Every time I go to a store I interact with people my age and younger like your parents that are working in the store.
+1. OP's parents have more in assets than my parents, although they are still gainfully employed (around similar age), and they are downright wealthy in comparison to my in-laws. I would hardly call this dire, this is pretty much average.
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Re: Need advice on Parents' dire financial situation

Post by willthrill81 »

OnTrack2020 wrote: Tue Dec 31, 2019 4:25 pm
Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
This sounds totally unrealistic. Not everyone can just pack up and move to a VLCOL area.
It's not "totally" unrealistic. When you're in a bind, you do what you have to do to make ends meet. I'd rather move back to a VLCOL area and live in a $100k home (you might be surprised how nice some of those can be) than live on the street, if those were my options. Seriously, they don't have many options here. Perhaps the OP would be open to his/her parents moving in with him/her, which is what my maternal grandparents did for my grandmother's father. We'll probably see a lot more 'boomerang parents' in the coming years.

Maybe their existing home would allow for them to rent out part of it. Or maybe they could rent out all of it and rent a much smaller place for themselves.
Last edited by willthrill81 on Tue Dec 31, 2019 4:34 pm, edited 1 time in total.
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Re: Need advice on Parents' dire financial situation

Post by willthrill81 »

stoptothink wrote: Tue Dec 31, 2019 4:27 pm
livesoft wrote: Tue Dec 31, 2019 3:26 pm I have a sibling that lives on their small social security deposits and who are under age 65, so I do not see the situation as so dire. Your parents will have to get one or more jobs. That's something they should be able to figure out on their own. I expect that a minimum wage job in retail is all they need. For example, as a cashier in a grocery store or small shop. Every time I go to a store I interact with people my age and younger like your parents that are working in the store.
+1. OP's parents have more in assets than my parents, although they are still gainfully employed (around similar age), and they are downright wealthy in comparison to my in-laws. I would hardly call this dire, this is pretty much average.
Sadly, it's better than average. The median net worth of 65-69 year olds is only about $210k, and the OP's parents have about double that. Granted, the net worth figure doesn't include pensions or SS benefits, but they're still likely better off than most their age.
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Re: Need advice on Parents' dire financial situation

Post by delamer »

Remember that there is an earnings test on Social Security benefits claimed before full retirement age.

Here are the details: https://www.fool.com/retirement/2019-so ... imits.aspx

For people with limited English fluency, working as a cleaner (hotel, office, or residential) or in a restaurant kitchen might be options if health allows.
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Re: Need advice on Parents' dire financial situation

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OnTrack2020 wrote: Tue Dec 31, 2019 4:25 pm
Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
This sounds totally unrealistic. Not everyone can just pack up and move to a VLCOL area.
Life is tough for those that don't save for retirement. $1300/month in HCOL area and home not paid off sounds miserable. But move to a LCOL area, have a paid off home and $2-3k per month they can have a very nice living.
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Re: Need advice on Parents' dire financial situation

Post by bloom2708 »

How much additional will they owe if they wait until May?

I would stop the bleeding now. Could they close the business now, get a home equity line to pay off their debt and then one or both get a job asap?

The house sale would help, but they do need a place to live. If they like what they do, just have them work for a similar business. Getting a paycheck vs going further in debt seems like a positive move.
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Re: Need advice on Parents' dire financial situation

Post by JAZZISCOOL »

willthrill81 wrote: Tue Dec 31, 2019 4:03 pm
Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
:thumbsup

Its situations like these that drive many to believe, for better or worse, that their home is a good investment. We can all agree that one's primary residence is not generally a good 'investment', if it even meets that definition in the first place, but at least they now have an asset worth several hundred thousand dollars. 'Forced' savings via home equity is certainly better than no savings.
I agree this is a valid point "'Forced' savings via home equity is certainly better than no savings.".

I also agree with some suggestions re: moving to a LC area of living or maybe buying a small condo.

In terms of jobs, most metro areas have access to city or state job force training centers that often have free career seminars and training (e.g. resume writing), for all ages and educational backgrounds. Some also have hiring fairs for various companies, etc. That might be something for them to check out.

Also, sounds like they may have some retail experience (?). Retail and restaurants are always hiring and some have decent benefits. Those industries might offer a temporary solution for a paycheck once the business sale is finalized.
Last edited by JAZZISCOOL on Tue Dec 31, 2019 9:09 pm, edited 1 time in total.
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Re: Need advice on Parents' dire financial situation

Post by FoolMeOnce »

It may seem dire because it is happening to your family, but this situation is far from dire. Some choices can make it more challenging, though: claiming social security too early and staying in an expensive locale. Definitely help then look into SS strategies and perhaps provide more detail here, e.g. any spousal SS for mom, or her own SS? Is there a lower cost of living area a bit further out from whatever city/town center they call home, if they want to remain in the same general area? Also, employment with healthcare until Medicare age would be a boon. As would a paycheck to not start drawing from the $300k yet.

My MIL is facing $70k in assets after downsizing her home. We have encouraged her to wait until age 70 before claiming SS (and thus necessarily remaining employed). That is vital. She'll buy a home (max $120k loan) to have mostly fixed housing costs going forward, and buying makes more sense than renting in her situation. She should get by, though we may have to help with lumpy spending. But this only works with delaying SS until 70.
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Re: Need advice on Parents' dire financial situation

Post by gr7070 »

Pump the breaks.
Don't make any significant decisions till they (you?) have a really good handle on their total picture.

As many have said things aren't dire.

First steps to take is to stop the further bleeding ASAP. As mentioned look at getting out of business expenses ASAP.
Look into other jobs ASAP.
I'd get things stable in that regard. Take time. Make wise decisions slowly.

Selling house only makes sense if they have reasonable living alternatives at reasonable cost. It's not like they should be using the home equity to live on at the moment. They have an income issue at the moment. Fix/improve that first short term; make plans to improve that long term.
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Re: Need advice on Parents' dire financial situation

Post by Carefreeap »

Lynx310650 wrote: Tue Dec 31, 2019 3:50 pm
bhsince87 wrote: Tue Dec 31, 2019 3:48 pm
Lynx310650 wrote: Tue Dec 31, 2019 3:21 pm
Streptococcus wrote: Tue Dec 31, 2019 3:17 pm I think any advice should start with determining how much they spend to live.
I believe minus all their housing expenses they spend about $700-$1000/month to live.
Where do they plan to live after they sell their house? Sounds like they will then have rent payments to cover.
Yes, since that expense is TBD and somewhat controllable depending on where they decide to live, I estimated their expenses minus housing. They want to continue living in CA but I'm not sure if that's doable unless they both are able to get jobs.
Do they live near you?

Is the house "elder friendly" i.e. single level, smaller, easier to maintain? If so, they may be good candidates for a reverse mortgage, wrapping the $40k debt into the loan. Depending on where they live in CA rents can be relatively high and of course are not fixed.
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Re: Need advice on Parents' dire financial situation

Post by GoFish »

$40K is a big number in their situation. I would want to know for sure to what extent they are personally liable. If they could get this debt fully or partially discharged through negotiation or other means, it would make a big difference.
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Re: Need advice on Parents' dire financial situation

Post by Jack FFR1846 »

Is your parents' home country cheaper? If so and is safe to return, perhaps that's the best course. In a lower cost country, their money will last far longer.
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Re: Need advice on Parents' dire financial situation

Post by quantAndHold »

OnTrack2020 wrote: Tue Dec 31, 2019 4:25 pm
Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
This sounds totally unrealistic. Not everyone can just pack up and move to a VLCOL area.
Especially immigrants with limited English, who need to find jobs, whose family is all in California.

They might do well to move to a cheaper part of California, though. Lots of people live fairly cheaply in retirement communities out in the desert. They could probably find a much cheaper place within 100 miles of their current home. It won’t be $100k, though.
Yes, I’m really that pedantic.
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willthrill81
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Re: Need advice on Parents' dire financial situation

Post by willthrill81 »

quantAndHold wrote: Tue Dec 31, 2019 9:47 pm
OnTrack2020 wrote: Tue Dec 31, 2019 4:25 pm
Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible. That's going to be a major change but that's what happens when you live your life and don't save any money.
This sounds totally unrealistic. Not everyone can just pack up and move to a VLCOL area.
Especially immigrants with limited English, who need to find jobs, whose family is all in California.
You might be surprised. We live hours from the West coast, but we have a sizable population of immigrants here from Southeast Asia and Russia, many of whom certainly know limited English.

There's a neighborhood in Gulfport, Mississippi, known by locals as 'Little Saigon', and for a few blocks, the only thing written in English is the street signs. And there are a sizable number of Hispanics across the South.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Need advice on Parents' dire financial situation

Post by finite_difference »

Nate79 wrote: Tue Dec 31, 2019 4:02 pm They should sell the house, move to a very low cost of living area, pay cash for a very cheap house (no more than $100k) and get jobs so that they can delay taking SS as much as possible.
+1. If they can delay SS to 67 and work and continue to save, and if they invest according to Boglehead principles, I think they should be very comfortable. I don’t think it’s dire at all. In theory it almost sounds like the could do it now if they buy a house for $150k or less and can live off SS at 62. But I think having a bit more margin is helpful.
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