A little background before I get into the numbers. I've been interested in personal finance for my entire life - after growing up in a family where everything was 'always tight.' My father is 67 and wants to retire at 70. They approached me to share their current situation and get my advice. I have a few ideas for what I think they should do, but I know this awesome community might be able to shed some different light on the situation. So here it goes....
ps. I realize I don't have all of the information you want - but here is most of what I know.
Assets
House 1 - $725,000
House 2 - $425,000
401k - $1,100,000
Pension will be about $500/month in retirement
Social security will be about $3,500/month in retirement
Liabilities
Credit Card & Loan Debt - $59,000
(this includes 15+ different credit cards/personal loans that range from 10-29%)
Mortgage on House 1 - $256,000
Mortgage on House 2 - $244,000
Monthly Take Home Pay
$7,000 - salary
$1,500 - rent from House 2
Monthly Expenses
$2,080 - Mortgage on House 1
$2,150 - Mortgage on House 2
$700 - Grocery
$900 - Utilities
$1800 - Credit card debt minimum payment
~ $1,000 for everything else - gas, vacations, gifts, restaurants, house, car maintenance, pets, personal
Retirement Income Estimation
I estimate that their retirement income will be ~ $5,000/month with their pension, social security and using the 3% rule for his 401k. I was being conservative with that because my mom is only 54 years old. Am I completely wrong here?
My General Estimates & Initial Thoughts
Their monthly expenses are ~ $6,500 without credit card payments. So obviously their current expenses/living style doesn't match up with what they will have in retirement. I know there is a lot they can cut out (vacation, restaurants, cheaper internet, cut cable/netflix) etc. They've addicted to buying things and trying to keep up with the Joneses.
Moving Forward
They have a few options for moving forward -
1) Inheritance: They may be receiving ~$80,000 inheritance in the next year from the death of my grandfather. While I don't believe this is guaranteed, they are hoping for it. This could be used to pay off the credit card debt.
2) Sell one or both houses: To pay off the debt and even be mortgage free, they could sell House 1 and move into House 2, or sell both houses and move to a new house that's completely paid for. They would also pay off their credit card debt with the sale of these houses.
3) Get their shit together now before they retire: By cutting some expenses and increasing their monthly payment towards their credit card debt from $1,800 to $3,000 - I estimate they could pay off their credit card debt in the next 2-3 years. Then, they could use the potential inheritance & selling one or both houses to truly set themselves up in retirement without any debt or mortgage.
Last Thoughts from the Parents
My father is hesitant to sell one or both houses. He sees them as assets that 1) bring in rental income, and 2) could be sold at a later date if necessary. My mother wants to sell House 1 and move into House 2.
I tried to explain to them that having both houses would be great in retirement, but the fact is that their mortgage payments are too high, and their expected income in retirement is too low to keep them both.
Am I wrong here?
Am I missing something?
What would you do?
Thanks in advance!