Author Topic: Advice for my parents  (Read 2924 times)

Mustache_In_Training

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Advice for my parents
« on: July 23, 2013, 12:49:28 PM »
Hello!

I just recently found this blog and I'm sure like many of you, I wish I would have found it years earlier. For the past week I've been having a Mr. Money Mustache Read-A-Thon with my wife, competing to read all the articles the quickest.

Before MMM, I've lived the first 7 years of my 20's in a pretty un-mustachian way. However, no more! My wife and I are rethinking the way we live and spend to get on track to financial independence.

However, my main question today is not about me. It's about my parents who have no idea of the Mustachian ways. As of December of last year my father retired. Recently they've made some moves which put them back into debt. They just built their dream retirement home (took on a $100k mortgage to get it) near a nice body of water, bought a brand new car ($20k car loan), and are spending quite a bit to decorate and furnish their new home.

My dad has the very unusual benefit of having a pension plan (which is a rarity nowadays) so they have a steady stream of income as long as he's alive. They also have a a decent 401k of around $500k. My question is, with a 401k and a steady income from pension plan, should they use the 401k to pay off their car and home debt? Or just use the steady income to attack the debts?

I'll list out in a tabular approach....
Income:                $4k/month
Assets:                 $500k in 401k
Debts:                  $100k mortgage
                             $20k car loan

I'm not sure of their monthly expenses, but I would imagine them being rather high due to the non-mustachian nature. I would appreciate any advice you may offer. If you need more information/financials, I can get that information.. What's the best course of action for them to get out of debt??

Thanks Mustachians!

rtrnow

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Re: Advice for my parents
« Reply #1 on: July 23, 2013, 12:58:30 PM »
Honestly, I'm not sure there is a problem. Are they actively taking on debt like credit cards, etc? I mean a mortgage and 20k car loan are not good ways to retire at 30, 35, or 40 but you say they're already retired. Assuming your parents are in their 60's, I would think the pension could easily be covering the mortgage, car payment, and all other monthly expenses. That would still leave the 401k as a safety net.

My parents worked and saved most of their lives and both retired with pensions in their 60's plus about 500K in investments. Now they definitely don't live frugally. They both bought brand new 40K+ cars, have spent tons on their house, etc, etc. I don't see that as a problem. There is basically no chance that they will outlive their wealth so who cares. It's not my path but at this point it doesn't hurt them to spend freely.

ZMonet

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Re: Advice for my parents
« Reply #2 on: July 23, 2013, 01:41:09 PM »
It does look like they have a steady stream of income coming in to cover their debts.  One concern, which hopefully they have covered, is whether your father predeceasing your mother would lower the pension payout.  Most pensions have a set payout for rights of survivorship (your mother gets paid too), but they would to have needed to elect it.  If not, they probably need some life insurance on your father to cover any deficiency.

Eric

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Re: Advice for my parents
« Reply #3 on: July 23, 2013, 02:00:19 PM »
Do they *want* to be out of debt?  It doesn't sound like they do.  Therefore, I don't think there's anything you can really do.

footenote

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Re: Advice for my parents
« Reply #4 on: July 23, 2013, 02:25:20 PM »
Does the $4k / month include Social Security btw? (Agree that you might ask if they have research pension-survivor provisions.)

Honestly, if 1) dad's pension is with an entity that's in good shape (i.e., not the city of Detroit) and 2) they got anywhere near the lowest mortgage and car rates recently on offer, they are likely in fine shape financially.

Mustache_In_Training

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Re: Advice for my parents
« Reply #5 on: July 23, 2013, 02:50:35 PM »
Thanks to all for the input so far. Good points all of you have made. I'll start by saying, my parents typically come to me for money advice, as my wife and I learn more and more about finances and money each day because we find it interesting. My parents have never been the wisest investors or savers, so I'm always on the lookout for their financial security.

It just seems anti-mustachian to me to be taking on so much new debt later in age, but as you guys/gals have pointed out, they are not hurting with their current income.

I believe they do want to be out of debt, who doesn't? It's just deciding what the best approach to get there is.. I believe his pension plan has no rights of survivorship, so my mother may be left with only the 401k if he passes. I know they did that to maximize the money they'll get for the time being. I will have to ask them about life insurance. And yes, to the best of my knowledge the $4k/mo includes social security. 

Maybe after reading so much MMM, I do think of debt as an emergency which must be stomped out with a fierce, intense desire. :) I assume everyone else should follow suit.