Trying to help my mother-in-law get on a better path.
62
Salary $63,500
Debt: $5k with the IRS-
$5k car loan at 7% with 1 year left. $199 payment
Rent: $1800
Savings: $10k range
Credit: slowly creeping ,750 range and should improve soon once her student loans are officially off her credit report. That is pending
Only retirement is a Pension through work: unknown amt but my guess is with just 1 account, it is not enough to retire and cover medical etc. I am going to try and find this info out, but this concerns me
Her company offers an 11% match I believe, that she does not do. I really want her to get on this ASAP. She doesn't think she can afford to, but I am going to try and help her budget and see where we can trim things out.
Her father is 92 and although hopefully he goes another 10 years, she will ultimately inherit enough from the sale of his house to hopefully put a substantial amount down on a house/ condo, keep the sales price down and possibly a shorter term loan. The house isn't worth a whole lot- maybe $275-300k or so, but no mortgage. At the time, will have to see if we can do a 1031 exchange or something to offset the capital gains, but she isn't there yet. I am not sure it's worthwhile for her to live in the house. It would need an entire gut job and too much deferred maintenance. In a perfect world, if it were move in ready, then it would be a no brainer. She also cannot move in the house right now to save money either.
She really, really wants to buy a house/condo but even though I agree her rent is high (could be a house payment including taxes) and she is not building equity, or giving her a tax advantage, she needs to prioritize saving for retirement first right?
(She most likely won't find anything cheaper around here to rent unfortunately in the meantime) maybe $1500 rent if we are lucky, but the rents are insane. We have been looking. With any drop in rent, she could funnel the savings monthly elsewhere but no luck yet finding something suitable.
I don't want to see her push off retirement savings and having to work later in life just to pay house bills that come up unexpectedly.
In my opinion, what good is a mortgage if you are on the hook for a new roof or heating system etc, and end up in default or having to borrow against your 401k to cover the expenses. (She has already borrowed from her 401k in the past for medical bills etc)
Aside from that, with current interest rates and her debt-to-income ratio would lead to a $200-235k ish allowable house depending on downpayment and you can't buy anything around here for that, so it's likely out of the question anyhow. But she still may want to keep any savings for a downpayment.
With her income, when the time comes, she would qualify for low- and moderate-income housing which would reduce the sales price of a house , or preferably a condo. I think a house is probably best to avoid with maintenance, etc.
My thoughts on what she should do:
Hold off a few years on looking into a condo/ house pourchase and prioritize retirement savings, boosting credit score, lowering expenses, auto piloting the difference into savings goals etc
1. Pay down the $5k bad debt - she is meeting with a tax advisor soon. (She had tried doing the taxes on her own to save money, but I think it ultimately ended up costing more in the long run now that she owes the IRS. Hopefully he can square things away.) Going to see what options are available with the IRS and unless they can negotiate, they are charging her penalty, late fees etc and her payments aren't chipping away so the interest much be sky high which is why I suggest she crush it.
2. Contribute to get at least most of the employer match, which depends on what is left in savings, but she can slowly increase to rebuild. I can find out how much they contribute up to.
3. Roth IRA if we can find room in the budget, but likely not. Maybe even a small amt for now? Even a few grand?
4: anything left, pay the car down and then take that monthly savings and auto pilot into a savings account for next vehicle, house downpayment etc.
5: use any funds from sale of house to max out retirement for that year / purchase condo, etc. Will have to see where her finances are at that time.
Any suggestions are much appreciated, thanks!
I am tempted to suggest that once we clears up the with IRS, Assuming she has at least a grand or 2 saved- to just pay off the car and then work on the rest. What is the best route?
advice for mother in law
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Bikes4life
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advice for mother in law
Last edited by Bikes4life on Sat Mar 18, 2023 12:44 pm, edited 1 time in total.
Re: basic advice needed
Your ideas look in line with the general suggestions in places such as Prioritizing investments and Investment Order. Good luck!
Re: basic advice needed
Getting information on this and finding out what Social Security she will get would be the first thing to do before trying to come up with any other plans. If she is widowed or divorced after ten years of marriage she can also claim Social Security based on the husbands earnings history.Bikes4life wrote: ↑Mon Jan 23, 2023 8:23 am Only retirement is a Pension through work: unknown amt but my guess is with just 1 account, it is not enough to retire and cover medical etc. I am going to try and find this info out, but this concerns me
She can check this web site to get a good suggestion about when she should start Social Security.
https://opensocialsecurity.com/
If she inherits the house then it will be at a stepped up cost basis so she will not need to pay any capital gains taxes if she sells it as soon as she inherits it.Bikes4life wrote: ↑Mon Jan 23, 2023 8:23 am At the time, will have to see if we can do a 1031 exchange or something to offset the capital gains, but she isn't there yet. I am not sure it's worthwhile for her to live in the house.
You cannot count on that though since her father could need to move into a nursing home and the home equity may be needed to pay for that.
From what you have said her moving into the house if she inherits it does not sound realistic since there are so many other home owning expenses and all the costs to fix it up.
Is there any chance that she could move in with her dad to save on rent? That might be a win/win situations since he might be able to use some help around the house.
She will likely be in a very low or zero retirement tax bracket so a deductible IRA or her 401k would likely be a lot better.Bikes4life wrote: ↑Mon Jan 23, 2023 8:23 am 3. Roth IRA if we can find room in the budget, but likely not. Maybe even a small amt for now? Even a few grand?
That is a fantastic match but it almost sounds too good to be true so it would be good to check to make sure that the details about that are right.Bikes4life wrote: ↑Mon Jan 23, 2023 8:23 am Her company offers an 11% match I believe, that she does not do. I really want her to get on this ASAP.
She would need to contribute about $7K to get that match which would put $14K into her 401k. She would save some taxes so her take home pay might only be reduced but about $5,500. That is too good of a deal to pass up. If she cannot fit that into her budget then it would be really worth while her her to get a part time job so that she could afford to get that match.
Re: basic advice needed
Watty wrote: ↑Mon Jan 23, 2023 9:00 amThat is a fantastic match but it almost sounds too good to be true so it would be good to check to make sure that the details about that are right.Bikes4life wrote: ↑Mon Jan 23, 2023 8:23 am Her company offers an 11% match I believe, that she does not do. I really want her to get on this ASAP.
She would need to contribute about $7K to get that match which would put $14K into her 401k. She would save some taxes so her take home pay might only be reduced but about $5,500. That is too good of a deal to pass up. If she cannot fit that into her budget then it would be really worth while her her to get a part time job so that she could afford to get that match.
I agree, what field is she in that she gets both a pension contribution AND an 11% match? I wonder if it’s not something more like, 11% of her pay automatically gets put in the pension and she’s been getting it all along without knowing it. Is she a teacher or public employee? Her pension might actually be decent, so I wouldn’t completely discount it. Also need to confirm that she will be getting social security and how much.
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Bikes4life
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Re: basic advice needed
So apparently she does have a pension, and also an employer match available to her at 9%
That is still fantastic.
She is straightening out her 5k bad debt with IRS with an accountant
She is also back on the house hunt mindset.
I told her now is not a good time to buy.
She got pre-approved for 310k, which doesn't buy much
There is a state funded program that will give her 17,500 towards her down payment. Not payable back
Essentially, the rest of us tax payers are footing the bill.
Anyhow, I am looking at it this way.
Aside from higher rates, at 62, a 30yr mortgage is like a jail sentence.
It still seems to me like she should be maxing out her employer match before even thinking about a house. She cant do both
Even with the "free" 17500, if values are inflated, in theory a house could drop by that potentially a year from now rendering that 17k a waste. I have seen it in 08 with the 8k obama money. Values dropped.
I also told her a house, or ideally a condo, is likely another 800 a month more than she is paying in rent now with taxes, ins, pmi, utilities, hoa fees or a monthly expenditure contingency etc
So even though she may be approved, imo, without being able to funnel at least 800 a month right now extra into saving acct until she finds something, which could be a savings cushion or downpayment, she shouldn't even think about it.
Am I right in still assuming even with the free money, max the match?
That is still fantastic.
She is straightening out her 5k bad debt with IRS with an accountant
She is also back on the house hunt mindset.
I told her now is not a good time to buy.
She got pre-approved for 310k, which doesn't buy much
There is a state funded program that will give her 17,500 towards her down payment. Not payable back
Essentially, the rest of us tax payers are footing the bill.
Anyhow, I am looking at it this way.
Aside from higher rates, at 62, a 30yr mortgage is like a jail sentence.
It still seems to me like she should be maxing out her employer match before even thinking about a house. She cant do both
Even with the "free" 17500, if values are inflated, in theory a house could drop by that potentially a year from now rendering that 17k a waste. I have seen it in 08 with the 8k obama money. Values dropped.
I also told her a house, or ideally a condo, is likely another 800 a month more than she is paying in rent now with taxes, ins, pmi, utilities, hoa fees or a monthly expenditure contingency etc
So even though she may be approved, imo, without being able to funnel at least 800 a month right now extra into saving acct until she finds something, which could be a savings cushion or downpayment, she shouldn't even think about it.
Am I right in still assuming even with the free money, max the match?
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Freetime76
- Posts: 651
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Re: advice for mother in law
How kind of you to post on BH for her 
I’ve done that for my own mom, and she always asks what did they say?.what did they SAY? 
the miracle of Internet forums with good people.
Yes, her HR (?) department should be able to tell her what her pension is if she doesn’t know, and similarly for the Social Security Administration. She needs those numbers.
A few points:
1. Maxing her contribution to get the full match is a nice idea, but for me, that wouldn’t be realistic with rent of almost 1/3 of my income. If I was terrified or super gung ho, maybe - 2nd job likewise. If she wants to work like a crazy person, good for her! I wouldn’t. I’d find out what my SS and pension amount to and resolve to live within those means during retirement.
2. I hear you about the “jail” feeling. I’ll just state the obvious; many retirees rent and many have mortgages. She will have 2 income sources, pushy of her own nest egg.
My main concerns would be:
- extra costs that the homeowner absorbs that normally are included in rent,
- the inability to sell (if the market cools or drops), in case she decides to leave the area in a handful of years to retire
- expect property tax and homeowners to increase…mine keep going up >10%/year
- I’m surprised to not be hearing this a lot on this thread: ***overall, I wouldn’t personally be comfortable with that much house on a $60K income. No way. I was barely comfortable with a $200K house, with a down payment, in a better interest rate environment- and to be blunt, was almost sunk when propane wa soccer $5/gallon (furnace used propane). It’s too much payment, and I don’t put stock in what a bank approves her for At All.
The bank is not at the dinner table stressed out because the plumber was needed at $89/hour oh wait it’s a holiday emergency call - or the fridge went out - or the HVAC is blowing hot air in August. If she magically has a down payment of say, 30-40%, I’d maybe consider it. I apologize if that is too strong - I’ve been there and I don’t want that for anyone.
3. Please let her know that there sometimes are “other ways” to manage a retirement if she comes up short on funds. For example, move to a lower cost of living area. Sure, busy areas are great for higher pay for the same work (her pension/SS are boosted by working there for many years), but does one really need to be there forever? She might decide the answer is no.
Example: My mother did (divorced, pension and SS were her main incomes). She lived in an expensive area, and had bought a new house with a mortgage that she could afford as long as she worked (no big ticket item maintenance yet). She described it as “a sickening feeling”.
She threw caution to the wind and moved to Tennessee, cheaper, not state income tax as she tells me constantly, she loves it... Funny thing is that her many friends from the old stomping ground visit, and in any case they’ve all moved away from that area (meaning she barely knows anyone there, and the area is even more congested now).
I’d not count on an inheritance. If she truly expects to receive funds, wait until it happens and then reassess.
I’ve done that for my own mom, and she always asks what did they say?.what did they SAY? the miracle of Internet forums with good people. Yes, her HR (?) department should be able to tell her what her pension is if she doesn’t know, and similarly for the Social Security Administration. She needs those numbers.
A few points:
1. Maxing her contribution to get the full match is a nice idea, but for me, that wouldn’t be realistic with rent of almost 1/3 of my income. If I was terrified or super gung ho, maybe - 2nd job likewise. If she wants to work like a crazy person, good for her! I wouldn’t. I’d find out what my SS and pension amount to and resolve to live within those means during retirement.
2. I hear you about the “jail” feeling. I’ll just state the obvious; many retirees rent and many have mortgages. She will have 2 income sources, pushy of her own nest egg.
My main concerns would be:
- extra costs that the homeowner absorbs that normally are included in rent,
- the inability to sell (if the market cools or drops), in case she decides to leave the area in a handful of years to retire
- expect property tax and homeowners to increase…mine keep going up >10%/year
- I’m surprised to not be hearing this a lot on this thread: ***overall, I wouldn’t personally be comfortable with that much house on a $60K income. No way. I was barely comfortable with a $200K house, with a down payment, in a better interest rate environment- and to be blunt, was almost sunk when propane wa soccer $5/gallon (furnace used propane). It’s too much payment, and I don’t put stock in what a bank approves her for At All.
The bank is not at the dinner table stressed out because the plumber was needed at $89/hour oh wait it’s a holiday emergency call - or the fridge went out - or the HVAC is blowing hot air in August. If she magically has a down payment of say, 30-40%, I’d maybe consider it. I apologize if that is too strong - I’ve been there and I don’t want that for anyone.3. Please let her know that there sometimes are “other ways” to manage a retirement if she comes up short on funds. For example, move to a lower cost of living area. Sure, busy areas are great for higher pay for the same work (her pension/SS are boosted by working there for many years), but does one really need to be there forever? She might decide the answer is no.
Example: My mother did (divorced, pension and SS were her main incomes). She lived in an expensive area, and had bought a new house with a mortgage that she could afford as long as she worked (no big ticket item maintenance yet). She described it as “a sickening feeling”.
She threw caution to the wind and moved to Tennessee, cheaper, not state income tax as she tells me constantly, she loves it... Funny thing is that her many friends from the old stomping ground visit, and in any case they’ve all moved away from that area (meaning she barely knows anyone there, and the area is even more congested now). I’d not count on an inheritance. If she truly expects to receive funds, wait until it happens and then reassess.
Please spell out new acronyms. Thank you.
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Freetime76
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- Joined: Wed Jun 26, 2019 8:26 pm
Re: advice for mother in law
I wanted to add: $10,000 savings is ok for renting, for home ownership, I’d call it slim.
For perspective (yours): unless she is very recently divorced with a lot of attached expenses, this person has managed to save about $10,000, has a car purchased using a loan, and earned a pension. She is not used to saving a lot of her income for future needs, and she seems to be living within her means at best (no judgement, only an observation from the little you’ve said).
Sure, homeownership is automatic savings in the form of paying down equity and (eventually, hopefully) market appreciation… If it doesn’t sink you. LOL, if she’s already talking with a realtor, it might be a done deal, unfortunately. I truly hope not. $10K savings for a $300K house is peanuts.
I feel like you’re taking a casual Saturday afternoon at the park walker and asking her to run a half-marathon tomorrow, by maxing on another retirement fund. I’d prefer her to pay off her debts, increase her savings for a year at least. Practice living on less than the income.
What the “minimum” house in the area is doesn’t matter, by the way. And thinking ahead: if she does inherit her dad’s house please just clean it out and sell it As-Is. Do not sink money into a dilapidated property - she can’t afford it.
For perspective (yours): unless she is very recently divorced with a lot of attached expenses, this person has managed to save about $10,000, has a car purchased using a loan, and earned a pension. She is not used to saving a lot of her income for future needs, and she seems to be living within her means at best (no judgement, only an observation from the little you’ve said).
Sure, homeownership is automatic savings in the form of paying down equity and (eventually, hopefully) market appreciation… If it doesn’t sink you. LOL, if she’s already talking with a realtor, it might be a done deal, unfortunately. I truly hope not. $10K savings for a $300K house is peanuts.
I feel like you’re taking a casual Saturday afternoon at the park walker and asking her to run a half-marathon tomorrow, by maxing on another retirement fund. I’d prefer her to pay off her debts, increase her savings for a year at least. Practice living on less than the income.
What the “minimum” house in the area is doesn’t matter, by the way. And thinking ahead: if she does inherit her dad’s house please just clean it out and sell it As-Is. Do not sink money into a dilapidated property - she can’t afford it.
Please spell out new acronyms. Thank you.
Re: advice for mother in law
I have helped a mother-in-law through more difficult circumstances. She needs a much better handle on how much she can expect from the pension and Social Security before making decisions about housing or additional retirement contributions. Given the income, assets, and family history of longevity, working as long as possible is likely the best mindset. If she has an expected retirement age, then she can look for a housing situation that will be sustainable with her expected income.
Look into state/county/city resources on aging. There are often good age-restricted or subsidized housing options. At 62, she may already qualify for some of these. If she can identify a few that she would be interested in and qualify for, get on the waiting list as soon as possible. What state is she in?
At 92, her father's circumstances could change rapidly. Depending on his other resources, the house equity may be needed to pay for his care. If she inherits, the house can be sold with a stepped-up basis so there should be no capital gains tax. If he needs to sell it while living, at the house value you have stated there is unlikely to be any capital gains tax due to his $250k exclusion (assuming that he meets the 2 of 5 year rule).
The retirement match appears to be a very good deal that she should try to take advantage of if possible, but she needs a more complete vision of her housing situation and likely retirement income before making a plan.
Hope that helps.
Look into state/county/city resources on aging. There are often good age-restricted or subsidized housing options. At 62, she may already qualify for some of these. If she can identify a few that she would be interested in and qualify for, get on the waiting list as soon as possible. What state is she in?
At 92, her father's circumstances could change rapidly. Depending on his other resources, the house equity may be needed to pay for his care. If she inherits, the house can be sold with a stepped-up basis so there should be no capital gains tax. If he needs to sell it while living, at the house value you have stated there is unlikely to be any capital gains tax due to his $250k exclusion (assuming that he meets the 2 of 5 year rule).
The retirement match appears to be a very good deal that she should try to take advantage of if possible, but she needs a more complete vision of her housing situation and likely retirement income before making a plan.
Hope that helps.
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Bikes4life
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- Joined: Wed Dec 28, 2022 4:51 am
Re: advice for mother in law
Thanks everyone, I have explained a lot of this to her, so she had a better understanding. Not sure what will stick!
I agree that I am probably giving her too much to absorb.
Unfortunately, she will probably end up doing what she wants to do, against good advice.
IMO she cannot afford to buy, at all.
She is listening to what she wanrs to hear from the lenders, not what she should hear.
I should add that the $10k she has was only from an unexpected windfall, not any frugal habits.
Not sure she has ever saved more than $1000 at any given time since she started renting. It comes in and goes out
She either has walked away or taken baths on previous homes she could not afford. She just doesn't learn.
I ran quick numbers and at her income, I would peg her affordability on paper if I had to at around $200-250k range tops depending on the other costs, taxes etc
However for reasons discussed, I am trying to talk her out of it.
I asked how the lender came up with her affordability ratios and if she was finding other money to increase the downpayment because the numbers don't make sense.
Unfortunately, she just told me she plans to borrow from her 401k to put a larger downpayment down. I pleaded with her.
There is only so much I can do. Not sure she wants to listen
She is trying to see how she can get approved for $350k. I have a feeling if she goes forward, it will only be a matter of time.
I have tried many times.
Even her last car. I told her she could get the 1 year newer car with less miles, more warranty, less payment, with more monthly savings and broke down an excel spreadsheet on the different comparisons and lifetime savings, but she had to get the 1 year older one with leather and bells. Of course, she cried when her car just got out of warranty and spent a good amt to fix it. I bit my tongue knowing if she bought the newer one it would have been covered.
The affordable housing is what I am trying to push her way. I have been for years. I have developed some in the past and my family works on projects for other developers with hundreds of affordable units per year, so I have the ins before most projects are even proposed to the towns. Problem is she has $800k tastes on a $200k budget.
End rant. I have informed her nicely over and over.
I may keep trying every now and then because It drives me nuts seeing her ruin herself but my wife is probably right. I said my part, try to let it go.
Appreciate the responses though! Maybe something will click someday
I agree that I am probably giving her too much to absorb.
Unfortunately, she will probably end up doing what she wants to do, against good advice.
IMO she cannot afford to buy, at all.
She is listening to what she wanrs to hear from the lenders, not what she should hear.
I should add that the $10k she has was only from an unexpected windfall, not any frugal habits.
Not sure she has ever saved more than $1000 at any given time since she started renting. It comes in and goes out
She either has walked away or taken baths on previous homes she could not afford. She just doesn't learn.
I ran quick numbers and at her income, I would peg her affordability on paper if I had to at around $200-250k range tops depending on the other costs, taxes etc
However for reasons discussed, I am trying to talk her out of it.
I asked how the lender came up with her affordability ratios and if she was finding other money to increase the downpayment because the numbers don't make sense.
Unfortunately, she just told me she plans to borrow from her 401k to put a larger downpayment down. I pleaded with her.
There is only so much I can do. Not sure she wants to listen
She is trying to see how she can get approved for $350k. I have a feeling if she goes forward, it will only be a matter of time.
I have tried many times.
Even her last car. I told her she could get the 1 year newer car with less miles, more warranty, less payment, with more monthly savings and broke down an excel spreadsheet on the different comparisons and lifetime savings, but she had to get the 1 year older one with leather and bells. Of course, she cried when her car just got out of warranty and spent a good amt to fix it. I bit my tongue knowing if she bought the newer one it would have been covered.
The affordable housing is what I am trying to push her way. I have been for years. I have developed some in the past and my family works on projects for other developers with hundreds of affordable units per year, so I have the ins before most projects are even proposed to the towns. Problem is she has $800k tastes on a $200k budget.
End rant. I have informed her nicely over and over.
I may keep trying every now and then because It drives me nuts seeing her ruin herself but my wife is probably right. I said my part, try to let it go.
Appreciate the responses though! Maybe something will click someday
Re: advice for mother in law
Take 9k of the 10k and pay off the IRS and almost the car, she'd only have 1k left on that. Then if there's a match on the 401k, make sure that's matched. I did the math on a 225k house with a dp of 20%. To not be house poor, I wouldn't suggest a mortgage on a 30 year term, with taxes and insurance to be no more then 25% of her net pay. She would be at 32%, so the house is a little high for her income. Hope this helps.