Helping parents with retirement

[twbird18]

My mother-in-law wants to retire. She has been out of work due to back issues for a little while and is not certain that she will be able to return to work full time without undergoing back surgery. She has never been good with money and has a financial adviser. She has asked us(me) to come to her next meeting and help her figure out what is going on and whether she can stop working or not. Obviously there are a lot of things we need to know in order to help her make this decision. We live quite a distance away so there are a lot of things about her life that we just don't know.

What I do know is that it depends on how serious she is about this.

She still owes about $50K on her mortgage, but could sell it and buy a small condo with cash or just rent with the funds from the sale. She would be willing to move to a cheaper location.

She doesn't have a budget so clearly that will be a necessity.

She pays her financial adviser (she thinks) $2-3K/yr, so clearly this could go if we are able to help her with this.

She canceled her Long Term Care Insurance 2 years ago, so she should get that back. She does have an up to date will, but I would want to know about her healthcare/funeral plans. She does currently have insurance through her employer and has already investigated outside insurance options until Medicare kicks in. I believe she is 61.

She is able to collect SS survivors benefits, but obviously should avoid doing this if at all possible until a later age.

She has some amount of money in retirement/investment accounts, but didn't know how much. Guessed it to be around $300K. At one point there was quite a bit of money from the death of her husband, but I believe that it is all gone. She has been drawing for an undetermined amount of time $1500/month from investments. I am guessing that this comes partly out of principle because her adviser told her she would run out of money by age 80 if she doesn't cut back her spending. I know this came up last year when she took out $10K for a new roof.


My questions are what other things should I be trying to find out in order to give her the best possible advice. She will be willing to share practically anything so at least that is useful. I need to be able to get as much information as possible in a 2-3 day visit in order to help her with her decisions.  How do you help someone who has no financial knowledge & doesn't really want to gain any? Ideally, we would roll all of her money over to Vanguard & away from the adviser to limit fees, but then we would have to help her with accessing the money as she needed it. any advice on a best strategy for this. I haven't done much research in the best asset allocation & withdrawal method for people actually at retirement age as it is 30 years way for us & I know I have 10 years before I have to worry about my own parents.

[Gin1984]

Her child should be the bad guy here and not you, trust me.  Do not put yourself in this.

[twbird18]

Her child should be the bad guy here and not you, trust me.  Do not put yourself in this.

I'm actually not sure how this is supposed to be helpful. Either we fix the problem now or we pay for the problem later. She called us asking for help & me specifically because we are on good terms and she knows I'm the one with the financial knowledge. Forcing DH or his brother to deal with this & then run everything by me for reassurance would just drag things out.  The only question is how to best proceed for all parties involved.

[Gin1984]

Her child should be the bad guy here and not you, trust me.  Do not put yourself in this.

I'm actually not sure how this is supposed to be helpful. Either we fix the problem now or we pay for the problem later. She called us asking for help & me specifically because we are on good terms and she knows I'm the one with the financial knowledge. Forcing DH or his brother to deal with this & then run everything by me for reassurance would just drag things out.  The only question is how to best proceed for all parties involved.

I am the financial one for our family and have had this specific issue and I really am recommending you at least have your DH go.  It seems to me that parents take the bad news better from their child then the child in law.  This is just my experience, but really I am trying to be helpful, I wish someone would have told me this a couple years back.

[Cpa Cat]

It sounds like she's already taken the "bad news" from her advisor.

I think you've got a good set of questions. It sounds like she kind of just wants you to handle it for her. You should set all of her credit cards/bank accounts up with online access so that you can download everything into Quicken or similar software. Then just have a meeting with her every once in awhile based on the info.

I do think you should start shopping for a new place for her to live. Unexpected home maintenance expenses will kill her budget.

As for asset allocation - she's counting on this money, so be careful. Don't be afraid to have a chat with her advisor. She's already paid the fees for his advice. Mine him for information before you dump him.

[rubybeth]

I think you have good questions/concerns, and if she knows you have the knowledge and has asked specifically for your help, you should help. I agree it would be good to have the buffer of her own offspring, but maybe not. Maybe she sees you as more of a disinterested party than her own children and so thinks you'd give better/more truthful advice. And if she's willing to lay it all on the table, that's very helpful. I think meeting with her AND the financial advisor at least once sounds great, so you can get info. from the advisor as well as from her, and also have that third party there to help as a buffer.

Yes, this could get totally messy really fast, and could ruin your relationship with her, but if her money runs out at age 80 and you suddenly need to house/feed/clothe her, you're likely going to wish you had more influence over the big financial decisions that led her to that point.

[the fixer]

For a contrarian experience, my in-laws seem more interested in listening to me about money than they do my wife. Not much more, but some.

How sure are you that this advisor isn't worth the money? If he/she is keeping all that money in low-cost index funds, then your MIL is paying about market rate for a money manager doing a good job. If that's the case you should seriously consider whether or not she's better off with an advisor, because without one you basically fill the role yourself and will have to constantly tell her to be controlling her spending, etc. and deal with her ignoring you (probably). One option is to use Vanguard's free annual financial reviews if you switch her to them, but these are a pretty bare-bones benefit (see the recent review of this service at thefinancebuff.com).

If you still want to jump in, I'd get more info on the other assets she has (including the house), what types of accounts they're in, what her income projections from claiming social security/survivor's benefits are, and any pensions. At $1500/month she's doing a 6% withdrawal rate from the $300k, and that may not count the advisor's fees. This figure makes me extremely uncomfortable without knowing more about other sources of retirement income she has available.

Also look for anything valuable that's just sitting around the house and could be sold, like an old car that never gets driven.

[Frankies Girl]

I honestly don't see how she'll manage to retire completely on just 300K. If she sold the house for maybe 200K profit to her once her loans are paid off, maybe she'd be able to squeak by tho. Doing a 4% SWR, if she had 500K invested, she'd get 20K a year until she got SS, so she would definitely need to stick to a budget and be careful about frivolous expenditures.

So big thing is figuring out her current spending, and setting up a budget.

Instead of buying a small condo, she might want to consider selling the current house and finding a nice (and less expensive) apartment to rent - maybe closer to where you live so you can help her out? Then she doesn't have to worry about property taxes, homeowners insurance (but check out renter's insurance), maintenance and repairs, and she'll be near family so you can touch base with her much more often to make sure she's okay. She also might be able to downsize her furniture and other stuff and make a little profit depending on if she's got anything nice to sell. A smaller place also means she should be paying less in monthly utilities as well.

I'd also help her do some research on disability benefits that might help out (if she is unable to work at all) until she hits SS age.

I'd definitely roll her over to Vanguard or even Fidelity. (I love their website and they have great customer service, and as long as you're staying in their low expense funds like the Spartan series, they are VERY competitive with Vanguard). I know I actually manage my husband's IRAs - he knows how to log in and look at them, but he lets me figure out what to put it in and move it around... as long as she is comfortable with you dealing with that part, you could just manage her account for her and make the investments and transfer money to her bank account when she requests it.

As far as the portfolio setup, I am still a noob at all of that, so take whatever I'm suggesting with a VERY large grain of salt, but I remember reading about Vanguard's Wellington Fund on one or two other blogger sites as the fund they're going all in on when they're in retirement. It is a balanced mix slightly weighted towards stocks, but a really good fund that should weather the ups and downs well for someone with a long-term retirement. But it would be a bit more of a bumpy ride and not as conservative as mostly bonds (the mix is like 65% stocks, 33% bonds and the rest in short term/cash). Maybe not as the total holdings in her investment account, but could make up a large portion of it and then get some straight-up bonds for the rest. It does say that the Wellington Fund is tilted towards dividend-paying stocks of established companies along with income-producing bonds - so this would be a decent fund to just go all in on if you're not wanting to have to actively rebalance.
https://personal.vanguard.com/us/funds/snapshot?FundId=0521&FundIntExt=INT#tab=0

And of course, there's you and your husband - how much help (money or otherwise) are you willing and able to give her? If she's able to get around 500K in a decent investment setup and cut her budget down to around $1500 a month (that's slightly under the SWR for an investment amount of 500K), could you help her out in the event that she has a financial emergency? Something else to think about.

[Catbert]

Investigate SS a bit more.  If she retired (earning less than 14K or so a year) she can collect a survivor benefit at 60.  She can let her own benefit alone to grow until she is 70 and then switch over.  Whether this makes sense depends on the relative size of her and her late husband's benefit.  The closer they are in size, the more sense it makes.  It also depends on how bad she needs the money now and, of course, how long she'll live.

[twbird18]

For a contrarian experience, my in-laws seem more interested in listening to me about money than they do my wife. Not much more, but some.

How sure are you that this advisor isn't worth the money? If he/she is keeping all that money in low-cost index funds, then your MIL is paying about market rate for a money manager doing a good job. If that's the case you should seriously consider whether or not she's better off with an advisor, because without one you basically fill the role yourself and will have to constantly tell her to be controlling her spending, etc. and deal with her ignoring you (probably). One option is to use Vanguard's free annual financial reviews if you switch her to them, but these are a pretty bare-bones benefit (see the recent review of this service at thefinancebuff.com).

I won't know until we go to the meeting in a month or 2 depending on when she's scheduled for her annual review. My only reason for thinking that they may not be giving her the best advice is that they told her to cancel Long Term Care insurance which was <$40/month when she was already in her late 50's, which I believe is the time you should be purchasing it. She'll be sending us a copy of her portfolio, but we probably won't get it until next week.

If you still want to jump in, I'd get more info on the other assets she has (including the house), what types of accounts they're in, what her income projections from claiming social security/survivor's benefits are, and any pensions. At $1500/month she's doing a 6% withdrawal rate from the $300k, and that may not count the advisor's fees. This figure makes me extremely uncomfortable without knowing more about other sources of retirement income she has available.

Also look for anything valuable that's just sitting around the house and could be sold, like an old car that never gets driven.

It's not completely clear that $300K is the amount we have to work with. I'd like to think that as she has been taking $1500/month for at least the past few years, perhaps it is the SWR the adviser thought was good for the amount she actually has. There are definitely more assets that could be sold. DH's father was a major collector of things like sports memorabilia, comics, coins, etc...but items that are actually worth something not the bulk crap from the last 30 years. Obviously now is the time to sell anything that is a sentimental item, particularly since I know it the good stuff is in a safety deposit box & never looked at (+that would get rid of the box expense).

Investigate SS a bit more.  If she retired (earning less than 14K or so a year) she can collect a survivor benefit at 60.  She can let her own benefit alone to grow until she is 70 and then switch over.  Whether this makes sense depends on the relative size of her and her late husband's benefit.  The closer they are in size, the more sense it makes.  It also depends on how bad she needs the money now and, of course, how long she'll live.

Ideally she could continue to work for 1-2 more years, collect her own SS benefit at 62 & his at 70. She says his benefit right now would be $1400/month. 1 - I think that sounds a couple hundred low even for the early access. He was a lawyer who owned multiple properties. I have no reason to think his benefit wouldn't be similar to my own, so if she could take her own smaller one  & maybe a slightly higher withdrawal until 70 she could probably live off what was available to her then. Again, I have to get all the information to really know what's best here, but thanks for the advice.

So big thing is figuring out her current spending, and setting up a budget.

Instead of buying a small condo, she might want to consider selling the current house and finding a nice (and less expensive) apartment to rent - maybe closer to where you live so you can help her out? Then she doesn't have to worry about property taxes, homeowners insurance (but check out renter's insurance), maintenance and repairs, and she'll be near family so you can touch base with her much more often to make sure she's okay. She also might be able to downsize her furniture and other stuff and make a little profit depending on if she's got anything nice to sell. A smaller place also means she should be paying less in monthly utilities as well.

We will not be in our current location long term & even if we were, Mass is a fairly expensive place to live. I have already floated the idea of her moving closer to my only family in southern VA which is significantly cheaper COL & my sisters would keep an eye on her if anything popped up that we couldn't attend to, but I'd prefer ( & I think so would she) not to move so far away from her younger son who is still in college & can help out a little. He just has to be told what to do being a young guy who just doesn't think much about things yet. Obviously he'll be more useful as he grows up & learns about life. I do think selling is something she absolutely must do & she wanted to do it last year, but I think she just doesn't want to deal with figuring out a sell & moving on her own. That's no big deal, younger brother can handle that with some assistance from us.

Thanks for your responses. I just wanted to be sure there wasn't some major concern I wasn't thinking of. I'm not as concerned about our relationship as I am about 20 years from now having to find a way to support her. We are looking toward our on FI in 10-15 years, depending on whether we wait for pensions & I don't want to be bogged down by some completely unexpected thing that could have probably been prevented like having MIL move in with us because she has run out of money.