Hi MMM Community,
I'm hoping you all can help me with a case study: my wife's mother.
She will be taking early retirement from her public school teaching job at the end of the year. Long story short, she is under a significant amount of stress due to COVID and upper management - a situation she would describe as "a living hell" - and does not want to risk/suffer waiting it out until the normal retirement age.
Unfortunately, she does not have a robust support circle and is single-income. She also has a large amount of anxiety (historically-rooted) about not being able to afford her living arrangement in twilight years. Because of that, she wants to ensure that she has a home that she enjoys living in and that is paid off. Ideally, she would like a small condo close to the city (we live in a medium sized-city that is fairly affordable).
Some hard data:Age: 57
Status: single
Monthly Expenditures: $1600
Monthly Mortgage: $900
Total owed on current house: $76,000
Equity in current house: $18,000
Market value of current house: $130,000
Current Income: approx. $85,000
Health Insurance: Active - goes away at age 65
Medicare: Active @ age 65. Approx $300/mnth
Pension:Per her pension, she has two significant options. She can either:
- Take a one-time $112k taxable allotment when she retires in June. Tax on this allotment will probably be around $20k. If she chooses this, her pension payments per month will be $1800
- NOT take the one-time $112k allotment. If she chooses this option, her pension payments per month will be $2300
Social Security:She has the option of taking Social Security at:
- 62: $1000/mth
- 65: $1500/mth
- 67: $2000/mth
Post-Retirement WorkShe has the option of taking post-retirement work. Specifically, she envisions one of the following two options:
- Target: $18,000/year
- Substitute teaching: $13,000/year
Here is where things get tricky...Like I said, she deals with a great deal of anxiety regarding her future housing situation. She imagines selling her current house and purchasing a small condo closer to us in the city. This would allow her to use public transportation and give her access to a more active social life/community.
However, to achieve this goal she wants to do the following:
- Pension: take the 112k one-time payment (more like $92k post-tax) and use it to pay off the mortgage on her current house, thereby allowing her to save the money that she would have paid in mortgage and put it towards her eventual condo down payment
- Social Security: take at age 65
- Part-time job: take a part time job while living @ her current home for 4 years and save to purchase condo
My Thoughts: Now, I don't know much about homeowning, as I'm pretty young, but it seems to me that this decision isn't in her best interest.
Firstly, I don't understand the logic behind paying off the mortgage of the current home if her goal is to sell it. Secondly, if I were her, I would try to maximize her monthly income by NOT taking the one-time payment, and by trying to hold out until 67 for social security. She's young and that extra monthly income starts to pay dividends if she lives for another 15 years.
She is VERY keen on taking the one-time payment and using it in some manner. Her thinking is that "if I don't take it now, then it will never be available to me again in this large of an amount." So, I'm trying to be sympathetic to that and to her anxiety about her living situation.
Therefore I've recommend that, if she does take the 112k one-time payment, she invests it in a low-risk fund (think BND) and lets it grow for 4 years while she works part-time and continues to pay down her
current mortgage. My thinking is that, at the end of those 4 years, when she's ready to move, not only will her investment have grown, but she will also have saved some from the part-time job AND deepened the equity in her home. Yes, her monthly pension payments will be lower (alas!), but if her primary goal is to secure a living arrangement that she feels safe and happy in, then that seems ok. She is a woman of simple needs, so if that primary one is checked off, then I think she can truly be happy.
Am I on the right track here? TBH I am feeling a bit over my head and am worried I could impact this woman's life in a negative way. I just want her to be safe and happy, but I am also trying to be sensitive to and understanding of her deep-seated fear of losing her living arrangement.
Thanks for any assistance you can provide!