Author Topic: HELOC vs. Reverse Mortgage vs. Liquidating Investments  (Read 1551 times)

Saving in Austin

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HELOC vs. Reverse Mortgage vs. Liquidating Investments
« on: July 11, 2015, 06:44:44 PM »
This is a sequel to Anti-Mustachian Mother in Law:

http://forum.mrmoneymustache.com/ask-a-mustachian/non-mustachian-mother-in-law

I'm open to suggestions on how to deal my mother-in-law. Here is my dilemma: While her net worth is about $ 1.3 million, she insists on living in a condo worth $1.25 million. She is 75 years old, has a mortgage for $275K at 4.6% and a HELOC for $25K at 4%. She has about $350K in cash, investments and retirement. Her ridiculous monthly expenses are $ 7,700 ($ 3,800 of which are her mortgage, HELOC and HOA) and she has income from SS, pensions and her work of about $ 6,500.

The consensus from the original thread is that she should deficit spend and that she will make it to the end of her life without running out of money. Here is the question: How should she deficit spend?

Should she spend her savings and retirement first? If so, how much is safe?

Is borrowing from a HELOC (Variable rate currently 4%) better than spending her savings and retirement?

Or is a reverse mortgage a better option than either of those?

The only other thing to add is that she will retire within a few years and lose about $1,300 a month of her income making her deficit closer to $2,500 a month. My wife would like her to work less and travel more while she still can. Thanks.

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Re: HELOC vs. Reverse Mortgage vs. Liquidating Investments
« Reply #1 on: July 11, 2015, 07:22:15 PM »
The consensus from the original thread is that she should deficit spend and that she will make it to the end of her life without running out of money. Here is the question: How should she deficit spend?

Minor quibble: The consensus is that it's her money and that she *could* deficit spend if she wanted to and still be financially OK at the rate she's going.

She has plenty of cash/investments/retirement to just spend from there. That's what I would do. She currently has about a 4.5% withdrawal rate. And even when she retires, the rate would only be around 8% of the current portfolio value. She's unlikely to outlive it. The interest rates on the loans are OK. And eventually if she spends down the entire $350k, she could get a reverse mortgage. Or maybe, since that will be a long time from now, she'll have decided that she wants to live somewhere cheaper and that problem gets solved.

She's really financially well off given her age and fixed income.

Saving in Austin

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Re: HELOC vs. Reverse Mortgage vs. Liquidating Investments
« Reply #2 on: July 11, 2015, 08:03:09 PM »
The consensus from the original thread is that she should deficit spend and that she will make it to the end of her life without running out of money. Here is the question: How should she deficit spend?

Minor quibble: The consensus is that it's her money and that she *could* deficit spend if she wanted to and still be financially OK at the rate she's going.

She has plenty of cash/investments/retirement to just spend from there. That's what I would do. She currently has about a 4.5% withdrawal rate. And even when she retires, the rate would only be around 8% of the current portfolio value. She's unlikely to outlive it. The interest rates on the loans are OK. And eventually if she spends down the entire $350k, she could get a reverse mortgage. Or maybe, since that will be a long time from now, she'll have decided that she wants to live somewhere cheaper and that problem gets solved.

She's really financially well off given her age and fixed income.

Thanks for all of your replies. This is really helpful. She doesn't want to cut her expenses, move or change anything. That is alright with us, it is her life and she will ultimately decide. She is asking our opinion and I just want to give her the best advice possible.