Operation Bail The Parents Out Planning

[TopHatFox]

Working with the parents to bail them out of not saving much over the remaining 5 yrs of working they have left. Let's see what I can do:

AGE AND INCOME

Let's say, 59 and 61
Earn a combined 50K/yr w/ HS diplomas
Expect to work until 65
5-10 miles commutes

ASSETS

80K Home Equity (I think the home is 250K and their mortgage = 170K)
10K Savings/Checking
5K third car to sell

LIABILITIES

20K debt in work van + commercial insurance (biggest fucking waste of $)
6K hernia surgery that needs to get done
5K leased SUV until March 2019
Probably income taxes since they don't defer

OPPORTUNITIES

Renting out top-half of house for 14K/yr
Replacing 20K van with 5K van, owned
Replacing leased SUV with 5K hatchback, owned
Working until 70 to maximize SS

RISKS

They don't really like their jobs/get treated okay & very badly there
Medical issues worsening for hernia
Tenants being a PITA

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Goal is to get them to have at least 250K by 65. If they're at 90K with home equity, bringing in 50K, and spending 20K after the new renting arrangement is in place, that's 30K per year saved, or around 300K by the time they're around 65, or around 600K by 70. Which is actually a nice amount for my bro & I after they're dead and stuff

But more importantly, they can go travel and actually enjoy something after decades of hard work. They're both on-board with the plan, so that's good. Just hope they can hold out in health and energy for 5-10 more years.

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Thoughts?

[C40]

idk, but good luck.

[TopHatFox]

It's either I deal with this stuff now as I'm living w/ em and they're still working, or later when they're super old and unable to work/senile.

[thegreatvoid]

Are your parents on board with making changes to their lifestyle ?

Out of love , I've also been trying to change my parents , who should also be in much better shape financially than they are , mindsets .
They could actually retire if they wanted to , but keep telling me that everybody works till 65 and what else should they do with their time .

It hurts to have this "secret" knowledge, that you can't share and seeing loved ones wasting their finite time on earth , buying useless things.
But unless they are willing to change, it's impossible to change their minds .

Wish you good luck

[TopHatFox]

Yeah, they are. One parent does whatever I say as long as I provide a reasonable argument and help them find resources/do the work. The other just kinda goes along with whatever as long as the house is clean and they have space to bake pastries and go to their job on Monday. Naturally, I tend to take control of everything and put it on a spreadsheet, so I have a tendency to overstep in the name of financial solvency. >:D

My reasons to help are somewhat selfish. I don't want to have to deal with two broke parents when I'm 30 or 40, and an inheritance sounds nice. Selfless in the sense that my parents would like to travel/not worry about money when they're in their 70's.

[The Old Man]

(1) You should investigate what they will receive in social security benefits at age 62, 65, and age 70. Knowing this fact will have a large impact on the best age to retire. Also, be aware that social security benefits don't need to be taken immediately, they can be deferred.
(2) Actions should be taken to mitigate the risks as much as feasible.
(3) Should review the adequacy of the current health insurance and review planning for Medicare and supplemental insurance.
(4) If they don't like their jobs, then a priority should be placed on exiting from their current jobs.
(5) Rather than thinking about the money as an inheritance, you should consider the money as a war chest for dealing with declining health issues whether it be physical or mental.
(6) While it is early to begin you should be aware that in old age (>80+) it is common for people to spend at least some time in a nursing home. You should begin planning on what to do. Is there a family member that would be willing to take them in? Would a financial consideration for the family member be warranted?

[prognastat]

I would say they need to downsize their house or rent some of it out if it is bigger than needed for the two of them which it probably is.

Definitely get rid of the Leased SUV and get something affordable.

The van is a little harder to say because it's a work van and we don't know if there is a good reason for it to be a little more expensive than a cheaper used van would be. If there is no reason then selling the current one and getting the cheaper one might be a better idea.

The question they will need to ask themselves most though is would I rather cut down on lifestyle or work longer. Depending on what they'd rather do that will inform them about what they need to do moving forward.

[daylen]

If they are willing to downsize, then do not forget the ERE 21 day makeover.

[Jean]

Can't they remodel and live in the workvan and sell the housse? I wouldn't feel confident with property in soon to be flooded Florida.

[TopHatFox]

@Jean, hahahaha, I'm not sure how telling my parents they should sell the house and live in the van would go.

There's no reason for the 20K work van besides a dream to sell empanadas to the masses that hasn't come to fruition over the past 20 yrs. Dunno how to overcome the attachment for it though to get the cheaper iteration, or just another hatchback.

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The soon-to-be-flooded piece is interesting. When do you guys think that'll happen? I'll at least need 5 yrs for this plan to work, and I doubt it'll happen in such a short time.

[jacob]

Climate gentrification is already a thing. It's getting harder to sell real estate that faces significant risk of flooding/mandatory flood insurance/no ability to get flood insurance. Also, over the coming years (already started), Miami will see increasingly more money being directed towards climate mitigation such as raising roads and reconfiguring the water and sewerage system. This means increasingly higher RE taxes as people are leaving permanently. Of course there's always the errant hurricane (see Houston or New Orleans) but that's already priced in.

This is highly relevant to how much equity will eventually be left in the house.

As for the imminent (non-Hurricane) flooding (i.e. death by nature) that's only something they should worry about if they live in Miami Beach. Is there water coming up the sewer system during king tides where they live? There's still lots of construction going on in the city. Developers don't really care insofar they can hand the risk off to suckers after it's constructed. Not much different from subprime CDOs in the investment banking industry 10 years ago.

It's a question of elevation of the home AND the elevation of access roads. Doesn't matter if you're at 15ft if the only road to the house passes through 2 ft elev near the beach, then you'll have a problem soon enough. IIRC the most conservative (minimum) estimates for sea level rise in the year 2100 is 3-6 ft. However, they could be MUCH higher (3-4x). Note that sea rise rate is accelerating (ice melts faster the hotter it gets), so much of this rise will happen later rather than sooner. Due to the exponential nature it also means that precise timing is harder but when it finally happens, it happens fast.

TL;DR - The impact on the prices is happening now. The physical impact is a much slower crawl on the order of decades and will not impact everybody uniformly.

[EdithKeeler]

As someone who is “helping out” her 81 yo Mom, I’d say it’s good that you are thinking about this now.

However, if your experience is like mine (it may not be!), your parents will 1) do what they want (as is their right) and 2) will reject much of your advice/planning because you’re the kid and they are the parent. (Again: my experience only).

My mom thought Social Security would be plenty to live on because it was plenty for her (very frugal) parents (who also happened to live on a pretty self-sufficient farm. Mom lives in the ‘burbs). Frankly, SS probably would be enough to live on IF she’d paid off her house and not done a couple of dumb things. Then she got Parkinson’s and it went down from there.

My advice:
1) make sure your brother is on board with any plan. You don’t want to be at cross purposes.
2) encourage them to get the house paid off.
3) find out what they’ll likely get for SS.
4) once they’re on Medicare, make sure they have a good supplement. They are expensive, but my mom’s has paid for itself many times over thru the years.
5) encourage them to work at something, at least part time, a little longer.
6) make your own plans around them. In other words, build up some reserve for yourself so you’ll have it if/when you need to help them.
7) don’t get in the habit of helping unless they REALLY need it. (Learn from my mistake. If I hadn’t been so ready to help, in the earlier days anyway, my mom would have figured things out for herself. Now it’s too late... and I’ve been helping a lot longer than I probably really needed to).
8) consider having the house put in your and your brother’s name at some point. Medicaid has a five year look back period, so if they have to go on Medicaid, if you’ve rearranged assets within 5 years to protect them, your parents could be disqualified for Medicaid. I wish I’d done this sooner to protect the house for my brother; now I’m afraid to do it BC it’s much more likely she’ll need to go on Medicaid for nursing home care. Lots of resources on this—read up.
9) be prepared when they resist your help, and don’t push them to do things they don’t want to. Things may be clear to you, but they may have their reasons, and it’s not worth jeopardizing your relationship with them. They are still your parents.

[Laura Ingalls]

I would have low expectations of change in this situation. I would have even lower expectations of getting any inheritance.

I think that some development of a tentative retirement budget and figuring out if/what shortfall they will have? Let the number put some fire in their retirement plan.

[Scott 2]

So you already have a higher income and net worth than your parent's combined household?

Even with radical change on their part, IMO this situation will result in you providing financial assistance. You are sitting on the education and earning potential to fully insulate their golden years. They are going to be near destitute otherwise.

As others have said, good luck. I'd suggest reconsidering the ERE plan.

[Sclass]

8) consider having the house put in your and your brother’s name at some point. Medicaid has a five year look back period, so if they have to go on Medicaid, if you’ve rearranged assets within 5 years to protect them, your parents could be disqualified for Medicaid. I wish I’d done this sooner to protect the house for my brother; now I’m afraid to do it BC it’s much more likely she’ll need to go on Medicaid for nursing home care. Lots of resources on this—read up.
9) be prepared when they resist your help, and don’t push them to do things they don’t want to. Things may be clear to you, but they may have their reasons, and it’s not worth jeopardizing your relationship with them. They are still your parents.

The house isn’t worth as much as nursing care for two people. It’s kind of a bargain letting the US govt clawback $80k after your parents death for taking care of them. It’s another story when a child makes it a job to care for a parent and doesn’t have a place to live after Medicaid does their clawback. Tough call here. Doesn’t the govt need money to do this?

So my problem with 9) is few people will opt for the right path. It’s just too scary and hard. My folks didn’t want to leave their homes. But they also wanted a higher level of care than they could afford. I’ve said before my mom is costing $20,000 a month. I’m bound to doing this legally. My only other choice is to walk off to Pattaya and disconnect my phone. So what I’m getting at is leaving these kind of decisions up to the care recipient may not be wise.

In my situation, I was pressed to offer a level of care that is more expensive than what was to be paid out. So as I got into it, I realized the shortfall was me contributing my time for free as a geriatric care manager. I did some calling around and found out I could extricate myself from this labor of love by paying another $100,000 a year to a manager. We can not afford that. So I make up the shortfall being content that I just make lots of calls, make sure people work, and cut checks. I’m expected to by my family because I’m “so rich” I don’t work. I’ve “chosen not to work”. Nice.

This may sound irrelevant but just scale things down a few orders of magnitude and I think the same obligations apply to you Z. Your parents have made mistakes. Now you are looking at closing the gap because you love them. You have resources like human capital and money that can be contributed to maintaining a life for them that they have not planned for...or saved for, or earned, or whatever you want to call it. You are to fill the deficit. How much will be something for you to think long and hard about.

I often ask myself how things would have happened had I not existed. Like I never came back from Siberia. Or I’d fallen off my motorcycle young. Well, life would have gone on, just differently. My folks would have found another way. My dad is just very good at extracting resources out of just about anything so if it isn’t me (an under utilized resource due to ERE lifestyle) it would have been somebody else or worse care for the same money.

I’m not for paying others debts. But even for my wealthy folks, I’m balancing their deficit with my retirement. It isn’t cool and it isn’t really fair in my specific case. I am a big believer in people paying up and owning their mistakes.

At the end of the day it’s really all about love. The money is just a scale factor. If love goes to zero the entire thing goes to zero. Emotional management is key here.

Good luck. It’s a hard road.

[prognastat]

I wouldn't be accepting of using my time and money to provide my parents a more expensive life than I am willing to provide for myself.

[Sclass]

I wouldn't be accepting of using my time and money to provide my parents a more expensive life than I am willing to provide for myself.

I think I was a little harsh in my last post. Regarding using your own resources and decision making, what I was trying to get across was more like this.

In many of these cases mistakes were made by the parents. Poor planning. While trying to undo this kind of thing it is probably wise not to let the same people make any decisions going forward. I know it sounds harsh. But, they got you to this place with their thinking and actions so why continue to let the same people drive?

In any business when an executive messes up and puts the business in a bad spot, they lose some or all executive power to the investors. As cold as it sounds I think parents have to be treated the same way during a bailout. Or, you may just get more of the same with the same type of behavior that got you here in the first place.

My folks have saved up a lot of money. However, as their default program has always been to get more than they pay for, they continue to demand a higher level of care than they can really afford. And my dad expects me to negotiate, advocate, fight and work to get the best possible deal for mom’s care which is a stressful job in itself. I close the gap by wrangling the whole process. So to let them have it their way takes a big chunk of human capital out of me. Human capital that is treated like some kind of birthright that is free for the taking because I am early retired. Totally uncool but the sky is the limit when you deal with humans and selfishness.

This is personally pretty painful because I hate working for people. It took a lot of planning, sacrifice and work to get to the level of freedom that I have. Then somehow through a combination of love, obligation and duty I get a boss I don’t want. I get a job I don’t want nor need. This one I cannot say FU to the power at be and walk out of. It’s different. And here I am.

I never thought my parents would be okay with running a wrecking ball into my life like this. They sacrificed so much to build me into a strong independent person. But when I look at the thing with open eyes I realize they are now helpless, scared and selfish. As I negotiate with my dad these days I see the fear behind his steely eyes that today will be the day I say “no”. I will undoubtedly find myself with these feelings at some point. Hopefully I’ll have a good plan in place that balances fairly.

[Seppia]

You are a great person sclass. I'm always in awe when you write on this subject.
I hope I'll be able to behave the same way you do when the time inevitably comes.

[suomalainen]

You are a great person sclass. I'm always in awe when you write on this subject.
I hope I'll be able to behave the same way you do when the time inevitably comes.

+1 I can't even imagine that I would begin to have the level of patience and care that @sclass' reflections show. And best of luck to you @thf. I can't provide any wiser insight than @sclass has.

[Campitor]

I can sympathize with sclass. Being South American immigrants, the expectation in our family is that the children take care of the parents when they are old. The justification for this is twofold: this is the way it's always been and it's repayment for the efforts and headaches of raising a child.

I told my mother that I don't see it that way. The primary reason is modern healthcare. Elderly life can be maintained much longer than it could previously. If you wind back the clock 100 years, an elderly person expired shortly after getting a terminal illness. Today that same person can be alive 5 years or more and require round the clock care. And the cost of that care can bankrupt a son's/daughter's future and leave them in a less than optimal place for their retirement. By the time my mother needs care, I will be in my mid to late 60s and will not be in a position to take care of her to the level she expects. I told her to prepare her assets accordingly. I don't look at my children as a piggy bank for my retirement nor do I expect them to be my primary caretaker. I plan to move into a retirement home/community, if needed, and I've planned my finances with this in mind.

I love my mother but I can't deliver on her expectations. I've expressed this to her in a very clear and unambiguous way. She keeps insisting that she doesn't want to be in an elderly home or in a hospital when she is old. I told her that she will not have a choice because I can't bankrupt my future or emotional wellbeing trying to safeguard her elderly lifestyle. Compromises will need to be made. Life is finite and to ask anyone to squander any of theirs to gain a marginal benefit is extremely selfish. PS - I love my mother greatly and I'm not indifferent to her wishes - I'm just being practical and adjusting her expectations.

“Think of the life you have lived until now as over and, as a dead man, see what’s left as a bonus and live it according to Nature. Love the hand that fate deals you and play it as your own, for what could be more fitting?” – Marcus Aurelius