g: 0 Posted By: Dell4600
Views: 46 Replies: 0 Hi guys, yet another post where one of us bares all (or bares enough to ask the question) and asks for financial guidance and advice.
My mother called me this weekend to lay out her current situation, asked if I was 'good at investing' and could help her. Well given that my portfolio is down about $14,000 in the last five days I can definitively say I'm not good at investing, but as a long term member of this board I know quite a few people that are
Her current situation:
Age 67. Divorced 40+ years ago, never remarried.
Her mother recently died (which is what is driving her to reconsider her current financial situation), leaving her a small inheritance. On the order of $50,000 already received, with another $100,000 to $200,000 still being sorted out.
She bought a smaller 2 bedroom condo in Chandler, AZ about 13 years ago (before the bubble), paid about $60k for it. In the time since then it doubled in value, then dropped again like everyone else's. She recently paid it off with the initial proceeds of her inheritance. She hasn't kept it current and modern and it sounds like it needs a little work, but we didn't get into details. In her mind it would sell for $35,000 to $40,000, but according to Zillow and Trulia it's worth right at $90,000.
Still working at the same job she's been working at forever (dozen years or more), recent pay raise to about $15 / hour. Raises haven't been plentiful nor numerous, and she said that over the past ten years she's been averaging between $24,000 and $28,000 per year income. I include this information to help with the Social Security calculations.
Needless to say, she's risk averse, and doesn't have the means to replace her inheritance if it vanishes. One of her concerns is that she leave me something when she eventually passes (insurance policy), but I am doing ok for myself and would rather she live a fuller life.
I asked her about the possibility of having a studious college age young woman share her condo (ie, roommate situation, not sure that's the right term when you rent to a college age kid), but she is very much against that idea.
Some of my math:
Condo breakdown : PITI - PI = ~$400 / month. Taxes = ~$40 / month. Condo fees : $170 / month. Since the condo just got paid off the $400 / month is no longer, but I mention it for baselining historical expenses vs income.
Her monthly take home has been somewhere in the $2,000 / month range, which defines her monthly outlay. She was paying all her bills from that, has no debt, but no real savings either. Thus I estimate her monthly was roughly $1900 / month including the condo $400 / month, meaning she could continue her current standard of living on roughly $1500 / month, not indexed for inflation.
Given that her mother just died, if her mother was 87'ish, I would estimate her savings would need to last her 20 years (plus or minus).
She's of the age to go onto Social Security without the 'retire early' penalties. I used the quick SS estimator to ballpark her monthly SS benefits at approximately $1150 / month. Thus she needs another $350 / month to maintain her current lifestyle, but honestly she's been living it pretty spartan and I'd like to see her have a little more to enhance her life (ie, she may not run the air conditioner in order to save money, even in the Arizona summer.)
Options include :
- The Vanguard investment fund mentioned in the last post (someone in NYC asking what to do with $250,000), so her $150,000 +/- at 4% would yield $6,000 / year ($500 / month) in passive income pretty much forever without touching the principle. Is sufficient, actually, but doesn't index for inflation so she may run thin later on in life when groceries / gas / whatever gets more expensive.
- Reverse mortgage. Requesting ideas and discussion on this one, as I'm not familiar with it from a practical perspective beyond the commercials on TV.
- I considered buying her condo from her at a price somewhere between what she thinks what it is worth and current market value, let her live in it forever (she intends on leaving it to me in her will, but if it is still in her name when she gets to means tested assistance (medicade, etc) the will likely take it from her and she won't have anything to leave behind for me, one of her concerns.) If I buy it from her now, that money can go into her investment fund (returning 4% or whatever) to increase her standard of living for the long run, and when it is finally time for her to pass I will still own it, 10-20 years from now, as it was mine, not hers for the government to liquidate before they provide her with means tested assistance. I don't know how all that works (arms length transaction is the phrase that comes to mind, but if I buy it for fair market value we weren't trying to hide it or anything.) If I have the means to buy it from her (without ripping her off), please compare and contrast this vs Reverse mortgage.
- Annuities - I've heard the phrase used plenty of times but generally in a news piece about an elderly person getting scammed. Requesting some real guidance and experience here to keep that from happening to her.
Finally, she could keep working a few more years, but does that really buy her anything. In other words, if she postpones retiring / going on SS for another two years, will her SS benefits be more each month, or would she get the same as if she retired today (thus she can decide whether she wants to stop going to work today and between her SS and investment income still have enough to live on.) ARG!!! According to this (http://www.ssa.gov/retire2/whileworking.htm ) she could have started receiving full benefits a year ago (when she turned 66) regardless of her income from work. Double ARG!! - she can apply for it retroactively, but they only back-pay 6 months worth. ARG!!! - Any advice here?
Actually given that I know that, I'm going to get her to start the paperwork on her SS, get her back pay and she can augment her monthly income by that $1150 / month (she will feel rich!). I figure she will work another year or two (or as long as they let her keep coming, she's a trooper!) But what about after that...
In light of all that, please help me point her in the right direction.