I recently started a conversation with my parents about their retirement prospects and was somewhat startled at their situation. I thought they were doing much better. in the last 10 years they have cashed out their 401k and lived off it, built up sufficient in student loans to have a $600+ monthly payment, bought a new car and run up $40k $23k in credit card debt. I've asked them to get all their financial details together and we're sitting down next week (Sept 3) to figure out the nitty gritty details. I'll keep updating the info below as I learn more.
UPDATE: It's not as bad as I thought! I still don't have exact numbers for a few things, but I've added exact numbers and closer estimates below.
I'd specifically like options for reducing the interest paid on the credit card debt, is a debt consolidation/personal loan/transfer to a 0%CC even an option with their credit?
Mum: 56, Dad: 67. Married, filing together. Live in the greater NYC area.
Credit score: 620
Mum works full time for the city government: $107k
Dad runs a business as an arboricultural consultant: $20-40k Variable, seasonal work.
Neither of them have an IRA, HSA or 401k. They do own 38 shares in a company my mum used to work at (currently worth about $2200) and 600 shares of uranium, worth a grand total of $90. I think the ideal situation is to sell these and throw the proceeds at the debt?
Update: Dad refuses to sell Uranium shares at a loss, so those will just chill. The others are still under discussion ("They might be worth more in a few months, the market is pretty bumpy right now.")
Mum's job comes with a pension. She's been there less than a year, is contributing some amount and I have no idea what the employer match/fees/fund information is. Still waiting on this info.
Dad receives 410Euro a month from his Dutch pension. At the moment I believe that sits in a savings account in the Netherlands and they dip into it when their budget gets tight. I'd love to see it invested and earning something, or helping out with the debt situation. Any suggestions welcome.
Update: Dad is willing to put this into index funds, but doesn't want to move them from the Netherlands to the US, because of tax issues. Still working on this.
Dad is also eligible for his full US SS benefit (he holds a green card here) but is holding out on applying until he reaches 70, at which point he will receive 124% of the full payment. Is 24% extra starting three years from now worth paying more 22% interest on credit card debt? I'm waiting on details of how much the full benefit is. Dad is also unsure of whether there is an income cap if he receives his benefits. I have not been able to find evidence of this yet.
Update: Breakeven on using 100% SS to pay off debts now, then socking the extra funds away in a target date fund vs waiting 3 years and receiving 124% is 16-18 years. As dad is eligible for the full benefit, there is no cap on other income. He is discussing taking SS with mum now.
Mum will be eligible for SS in roughly 10 years. Also waiting on details of how much she expects to receive.
To confuse things further, they are (or will be at 65, in mums case) eligible for NZ social security payments, but there is some disagreement about whether NZ will pay them while they do not live in the country, and if they do receive the NZ money, the US may not pay, or may only pay the difference.
They own one property, a large wooden church in a small town in NZ. It's registered with the historic places trust and needs a lot of work. It is not livable (running water but no toilet or electricity, also, insufficient window area/volume ratio to be legally a dwelling)
Update:
Debt:
Car Loan: ~15,600 remaining at 2.8%
Student Loan: ~30,000. Interest rate unknown.
Credit Cards: $23,232 at ~18%
Currently, they pay a total of roughly $2350 towards debt every month. We discussed payment strategies and dad is on board with the "Avalanche" method (pay minimums on everything, plow every available dollar into the debt with the highest interest) If they continue to budget the $2350 a month, they should be debt free inside of 3 years. 2 years if dad takes SS and plows that into debt payments too.
Last year mum had a job that did not deduct income taxes. Between that and dad's company bringing in unpredictable income, they filed for an extension. Their accountant has still not provided them with the amount they owe. The extension they filed is over in October. They will have to request a payment plan or pay it with a credit card at this point.
So. Many. Face. Punches.
I've asked them to provide me with:
-a list of all debts, including minimum payment, interest rate and total balance.
-a list of all assets, across bank accounts/random old 401ks? (I have hope!)
-a list of current expenses
-a list of all income sources, and expected retirement benefits.
-the details of mum's pension plan.
Is there anything else I should get them to look into before I meet with them next week?
Thanks in advance for any help!
Update: They are flying to NZ to visit family in January. There may also be a trip to AZ next month. Any tips on helping them to see their debt as a hair on fire emergency without giving dad another heart attack? I've recommended YNAB to hopefully help them figure out where the money is going, and all those big red "Pre YNAB Debt" numbers at the top should help, right? It will certainly help with tax planning for next year!
I've also mentioned to dad the existance of IRA and SEPP accounts and suggested that once the debt is paid off he look into it in order to minimize his taxable income. He is very interested, and wishes he had known about these options before.
Thanks again to everyone who has given me feedback! I really appreciate it!