Author Topic: mustachianism and caring for relatives who have not saved for retirement  (Read 13473 times)

Aigeus

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I just emailed the following to MMM to see if he would do a case study on it.  But I'm curious to see what the form thinks too ...

I'm a recent Mustachian convert who has been diligently reading through the website, trying to figure out ways to cut expenses and shorten the time that it would take for us to become financially free.  But I have an interesting situation that I think you have not covered yet.  I'd be curious to hear your advice.

We're in a relatively good situation right now.  I'm guessing that if we follow about 70% of your advice (I'm not a bike person), we could become financially free in about 6-7 years.  But there's a catch.  We have some aging family members who have not exactly lived up to the Mustachian ideal.  They are in their early sixties and have almost nothing saved up for retirement. At most, I'm guessing that they have about $100,000 in equity locked somewhere in their house--though even that might be hard to get, since houses in their market aren't selling quickly.  Savings, investments, and similar things appear to be missing in their life.  And their combined income is fairly modest (maybe $60,000), so they would have a hard time saving for retirement themselves.  Finally, we've tried getting them to save money, but they basically don't (and I don't think we would be successful in trying to prod them to take on extra work to make more money).  So they're going to be relying pretty much on social security--and even that won't be all that generous for them, since their work history over the last 35 years is somewhat spotty.

Though their financial habits are somewhat frustrating, they are nice people, and we would like to help them live at least a non-terrible lifestyle when they eventually retire.  How do you recommend that we do that while still maintaining our own quest for financial freedom?

I see three options for us:  we can work for a few more years to try to build them a modest 'stache, we can move from 70% to 95% Mustachianism, or they can move in with us.  I'm guessing the first option is going to be what we do; the second option doesn't really get us very far (maybe another $70K, which based on the 4% rule wouldn't get them very much), and the third option is probably non-ideal for us.

Can you think of anything else?

migman

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I relate to what you are saying here because I have a somewhat similar situation with relatives. I am not sure what we will do. I know that they will not starve when they reach retirement age but that is little comfort as we would want them to live well. I think probably it is best to work a little longer so that you have more room to help them out but also to be very sparing with the money you give so that they can do a little bit of belt tightening.

In our case we might encourage them to become expats to a country with a lower cost of living but I don't think most people would be satisfied with that solution. Sorry I have no better suggestions.

etselec

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That's a tough situation. I don't know the specifics of your situation and your relationship with them, but based on what you've written, I'd advise setting clear limits (for yourself and for them) on how much you'll help them and in what ways. People who are not in the habit of saving probably shouldn't be trusted to manage their own 'Stache, but you also don't want to be in an awkward situation where they need to come to you and ask for money all the time, especially if they are making some financial choices you might not approve of.

You could consider committing to pay a specific bill or bills for them, (e.g. mortgage, health insurance) and then beyond that they are on their own - or you could buy them an SPIA (single premium immediate annuity) that would just be an income stream on top of their Social Security. Basically, aim for a well-defined arrangement that is manageable for you and relatively hands-off, to be respectful of their dignity, preserve your relationship with them, and just generally keep everyone sane and happy.

happy

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As you say the BEST thing you can do for them is to teach them to live frugally and save....unfortunately not very effective so far.  I'm not sure about you, but I would have a hard time giving money to family who lived on a higher expense level than myself. So I would look at my expenses, and then look at what income  they were getting  eg from Social security, and see what the difference is. 

Firstly I would certainly not subsidise beyond my level of expenses just because they are not frugal.

Secondly as a Mustachian you probably don't seem well-off : I would avoid disclosing net worth, not even making statements about FI or ER etc in order to raise expectations that you are the family ATM. Maybe you could be "taking a break etc".

I would then look at what they are getting and decide in relation to your expenses/stash how much you think you wish to subsidise. And draw some firm boundaries when you talk to them about it. Personally I would go for the option of working a bit longer in order to generate a bit extra stash to support them. I wouldn't give them control of the stash and I wouldn't tell them you have a ministash for them. I'd either pay specific essential bills or say something like "if we are careful we can spare $x a week to help you, but we won't have any more than that if you have an emergency".. 

If they are "nice people" they may not want to accept any of your money. They might be horrified at the thought.  Most responsible adults would be. When they are struggling might be the time they are more receptive to frugality and savings, so stay open to providing education/advice/tips etc.

Equally, if you decide to embark on this process, try to work out how you will feel about having to say no, if they are not behaving honourably.

Aigeus

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Thanks all for the advice.  To respond to some of the comments, at this point in their lives they live fairly frugally.  At one point, that definitely was not the case, as others were giving them tons of money and they spent it wastefully, but now that money has ran out, and they are frugal by necessity.  However, the example of what happened before when they had access to large amounts of money does make clear to us that we would have to be careful about how we help, as many of you have suggested.  We likely would do something along the lines of buying an annuity (and maybe long-term care insurance) and then make clear that we really aren't going to go beyond that absent an emergency.  But if we could muster, say $150,000, that would be a $7,000 annuity, which would at least give them a little more comfort.

nktokyo

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This is on my horizon also. At least you don't have people with gambling habits to take care of...

mm1970

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"I see three options for us:  we can work for a few more years to try to build them a modest 'stache, we can move from 70% to 95% Mustachianism, or they can move in with us.  I'm guessing the first option is going to be what we do; the second option doesn't really get us very far (maybe another $70K, which based on the 4% rule wouldn't get them very much), and the third option is probably non-ideal for us. "

It sounds a bit like economic outpatient care.  I think your best bet is the annuity, but be aware that they may continue to come for more money if they know you have it.

jrhampt

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Same situation here, minus them having any home equity, and much lower income.  If you figure it out, let me know. 

A_Rock

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So if you're boyfriend is not currently generating any income, why is he only sort of on board?  At the very least, it would seem like he should be on board with replacing the pool guy with himself.

KatieSSS

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Similar situation here and would love an answer if anyone finds it.

My plan is to move closer and help take care of them when they get sick. I also foresee that I'll have to start a separate account in a few years where I save money just for them. I'll start doing this once I get some of my priorities out of the way (i.e. paying off student debt). In my situation, I'm the only one who can help them, so if their money runs out they will literally have no one else to turn to.

I've been trying to educate them for years, and some of it is paying off. They are determined to pay off their house now, even though they have refinanced it three times. We are also working on setting up an LLC with other family members for the family farm, which will generate income for all the shareholders later in life when they rent the land for others to farm.

The key for me is trying not to feel resentful that I'll have to make life sacrifices because of their poor choices. But not helping them would make me feel worse, so no-win situation.

Zaga

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We're having this issue with my mother.  Between my one brother and I (other brother is unemployed, but helps out in other ways) we're paying her utilities, which is just enough with her social security and pension to keep her afloat.  Now, don't think that my mother is a spendthrift, combined her pension and SS are ~1,100 a month.  It's just too tight, so we're helping out to the tune of about $150/month each.

Also, she's living in my brother's old house, he tried to sell but was unable to.  Now it's a huge benefit to have a little ranch style house in the town we grew up in (and so she has friends there) to keep mother.

So depending on the overall situation, paying a few bills may be a viable option to help them out.

BPA

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Not sure where you live, but my mother lives quite well on the Canadian equivalent of Social Security.  I think she gets about $14,000 a year, lives in a nice apartment which she rents, and eats quite well.  She is very frugal.  Is that an option for your relatives?  I used to worry that she would be relying on me, but the reality is not so much.  Good luck.

the fixer

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Options 1 and 2 from your original post are not mutually exclusive. The more frugal you live, the less you have to work.

From a purely financial standpoint, it seems to me like you'd be better off keeping the $150k invested and just paying your family members $7k/year (4.6% withdrawal rate) instead of buying an annuity with it. It's very unlikely you'd run out of money from that pool in the 20-30 years you'd need to keep paying, and there's a good chance you'll never touch principal. See FIRECalc. If you buy an annuity, on the other hand, that money is gone.

This is of course complicated by the fact that you're providing ongoing support to your family, they could try to convince you to start giving them more or less over time, etc.

What about using that money to buy a rental property, and you give them the cashflow? That way what they get is tied to the gains of an asset so it should be less subject to renegotiation.

ace1224

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let me know when you figure it out.  i just got a call from my brother, they can't afford to buy my nephew's antibiotics that he needs, could i "loan" them the money until payday..... i told him i'd pick it up after work and not to worry about it. 
seems to be the story of my life, but what are you gonna do?

totoro

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I'm unsure about the US situation.  There have been a number of posts on this if you search.

In Canada we have a fairly good social safety net which includes paid-for health care for those on low incomes.  Advocacy for services and assistance with setting up budgets is all that is required here financially to have basic living costs covered even if you did not save for retirement. 

You will not be rich (ie. 1200/month), but you are eligible to apply for publicly funded assisted living which is 70% of the after tax income and includes:

A private lockable unfurnished suite that you furnish with your own belongings
Common dining room and social spaces
Two nutritious meals a day (lunch and dinner) in a common dining room
Weekly light housekeeping of your suite
Weekly laundering of your linens (sheets and towels)
Recreational activity programs
24-hour emergency response system
Scheduled personal care assistance appropriate to your needs which may include help with bathing, grooming, dressing, and medication management, as discussed with your Case Manager

If you have something similar in the states this might be an option?

bogart

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In Canada we have a fairly good social safety net which includes paid-for health care for those on low incomes.  Advocacy for services and assistance with setting up budgets is all that is required here financially to have basic living costs covered even if you did not save for retirement. 

...

If you have something similar in the states this might be an option?

Oh, hahahaha.  That is a good one.

Here in the US, my dad, whose finances I manage (he has dementia) "gets" to keep the roughly $300 per month it costs him out of his social security check to pay his Medicare premium (about $100/month) and Medigap premium (about $200/month, actually slightly less -- $180) -- that covers his otherwise out-of-pocket medical costs, i.e. copays and % not covered by Medicare.  So he pays $300/month for health insurance (as he would also do as a senior citizen living independently), plus another small amount, separately, for drug coverage through Medicare, and then as Medicaid recipient he gets to keep a remaining $20 per month for his own expenses (phone service, clothes, snacks, haircuts -- whatever), pay the balance to the nursing home, and then Medicaid covers the rest of the cost of the nursing home, which does of course provide for his needs  (Medicare is for old folks, medicaid is for some poor folks -- basically kids, parents of dependent kids, and the disabled including the elderly disabled).

Before he needed the skilled nursing care we paid for the assisted living place out of pocket; there was no assistance available.  You crazy Canadians!

madgeylou

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Here in the US, my dad, whose finances I manage (he has dementia) "gets" to keep the roughly $300 per month it costs him out of his social security check to pay his Medicare premium (about $100/month) and Medigap premium (about $200/month, actually slightly less -- $180) -- that covers his otherwise out-of-pocket medical costs, i.e. copays and % not covered by Medicare.  So he pays $300/month for health insurance (as he would also do as a senior citizen living independently), plus another small amount, separately, for drug coverage through Medicare, and then as Medicaid recipient he gets to keep a remaining $20 per month for his own expenses (phone service, clothes, snacks, haircuts -- whatever), pay the balance to the nursing home, and then Medicaid covers the rest of the cost of the nursing home, which does of course provide for his needs  (Medicare is for old folks, medicaid is for some poor folks -- basically kids, parents of dependent kids, and the disabled including the elderly disabled).

Before he needed the skilled nursing care we paid for the assisted living place out of pocket; there was no assistance available.  You crazy Canadians!

this might depend on which state you are in. my grandma had 8 hours a day of help when she was home for the last 2 years, paid for by pennsylvania's department of aging / keep people out of nursing homes program. she also had a nurse come to her home once a week, and her apartment is only about $200 a month after subsidies. she gets about $900/month social security, so she was able to make it work.

now she's in a medicare/medicaid facility, and she "gets" to keep $45 of her social security check. the rest goes to the nursing home.

so ... she's OK, but just barely. i'm not super impressed with the facility she's in -- there's just not enough aides to meet everyone's needs in a reasonable amount of time -- but to move her at this point would be fairly traumatic, i think.

anyhow ... the support for oldsters in pennsylvania seems to be much better than in other states. might be worth looking into what your state provides.

bogart

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this might depend on which state you are in.


That is definitely true.  Medicaid (but not Medicare) benefits vary state-by-state (Medicare is a federal program; Medicaid is a program offered through states with a federal subsidy and associated regulations -- so there is a "minimum" Medicaid standard, but many states exceed it).  I live in the US South, which trends toward the low end in these things, though within the South, my state is probably toward the high end (we're at the top of the bottom of the barrel, woohoo!).  Even as an employee (i.e., participant rather than beneficiary) the health insurance I had access to when I worked in PA was much better than anything I've ever had access to in the US South.  Turns out a history (or not) of unionization does make a difference.  Who knew?

So, yes, things might be better where you are, but (unless you live in Canada!  Or Europe...), it is unlikely they resemble what Torotoro describes being available in Canada.  Here's a table that may have some useful information for US residents:  http://www.payingforseniorcare.com/medicaid-waivers/assisted-living.html .  And like madgeylou, my experience of what it's like where my dad is living is not positive.  OTOH while there are some (?) in-home services that he might qualify for as a Medicaid recipient, his refusal to consider or plan for this possibility until it happened (until he fell and couldn't get up, and I don't mean that figuratively) meant that he did not have a place of residence that was in any way suitable for his needs as they got more intense. 

In terms of those thinking about care for other relatives, addressing issues like having a place to live that is accessible to those who cannot climb stairs or walk, before they become issues, might help -- that is, above and beyond the financial planning stuff, there are other kinds of planning that can be important.

jrhampt

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Yes, my husband's father lives in CT.  Here there is low-income housing available for the elderly, and when he needed assisted living we were able to move him to a facility on the state's version of Title 19.  Most of his needs are covered, but he does have copays for medication, and dental work is not covered.  My husband pays for his phone bill and gives him a small monthly allowance for incidentals.  I don't know yet what state my parents will end up in...they are considering a move right now.

champion

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Many mustachians will face this situation.  We're the minority.  Mustachians save, most people don't.

What follows has two purposes:  1) I want to suggest a bit of a harsher approach.  Money is not infinite, and if mustachians all have to support non-mustachian relatives, no-one will be able to retire early.  I think it's fair for people to make different choices with their money but then live with the consequences.  As someone said, liability and control belong together.  You can't take on the liability for someone else's retirement if they have the power to squander every dollar they make.  2) I would love some feedback on this harsher approach.  I haven't done this yet, haven't had the below discussions with my wife.  Does this plan sound like it could work?  Or not?  Here goes:

In my case, it feels even trickier than people worrying about their own parents, because the problem people are not my parents, but my in-laws (who are divorced).  And my wife owes so much in student loans that without me she would have no chance of paying the loans, paying her living expenses, building up her own stash, AND helping her parents out. 

So I'm looking at a situation where I would be shelling out my saved-up life energy to retroactively subsidize the leased cars, big screen TVs, and stupid decisions of my in-laws.  This is particularly annoying given that they have both been in the top 20% of U.S. incomes  for their entire careers--they are just big spenders.  Their attitude seems to be that spending everything they earn, spending down inheritances, and running up debts on top is "normal."  After all, the alternative would be smaller houses and used cars, and their egos wouldn't allow that. 

Like many Baby Boomers, they justify their lack of savings with a plan to "just work forever" like this one guy they know who worked until he was 90.  Rather than seeing him as the outlier he is, they see him as an example loophole that justifies not saving a penny for the future.  Since working until age 90 is exceedingly rare, even among people who actually WANT to, they will likely find themselves without an income and without savings at some point.  Their big-spending habits will make that transition feel like a shock, an unexpected hardship that surely deserves a bailout from family members.   

I'm happy helping my wife pay off her loans and build a life with me, but I'm not so excited about her parents coming to me to get bailed out of their self-imposed problems. 

Therefore, here's the plan (a bit of a harsher option than what I've seen in the thread so far):

1) Get aligned with my wife.  Make sure she understands that people who make $100,000 a year do not HAVE to face financial hardship.  Even standard 15% savings rates could have protected them from financial crisis in the case of job loss, etc.  Financial hardship for people like this comes from borrowing and spending.  Make sure she's aware of the risks her parents are facing, let her decide how hard (or not) she wants to push them to change their ways now while there's still (a little) time.  (They are in their 60s, still making (and squandering) six figures a year.) 

2) Agree with my wife on a fairly "austere" form of help for ANY family members, hopefully along these lines: 
* no-one goes homeless and no-one goes hungry.  If someone needs a bed or a meal, we can offer it. 
* if someone needs to move in with us on a longer-term basis, they contribute.  If we provide long-term room and board, a chunk of any social security check comes to us to offset the expenses of a bigger house and a bigger grocery bill--Social Security won't be their fun money after enjoying free room and board at our expense.
* we're offering something bare bones--they are not our financial partners and they are not our children.  They aren't necessarily invited along on every vacation at our expense.  We're helping out a family member who fell on hard times, not helping someone preserve the lifestyle they're used to
* we agree not to give or lend money.  We could provide some groceries at their place instead of meals at ours, but we will not be in the business of, for example, making mortgage payments "so I don't lose the house."  If banks lent too much to these irresponsible people, the banks can eat it.  It won't be our job to help pay off creditors of anti-mustachian family members. 

3) In an ideal world, this would somehow be communicated to her parents.  The message would be:  a) you have been very lucky and made a lot of money.  Your future financial needs, including post-work financial needs, which are an expected part of life, are your responsibility, and we hope you're planning for them.  That's all up to you--you have to make the tradeoffs yourself between a new car now or a cash cushion later.  b) We will not let anyone starve or go homeless.  c) But we will not be a source of loans or cash.  We will help people in crisis avoid total disaster, but we will not provide broke people with a middle-class income just because they're used to it. 

On the positive side, this would at least set expectations.  On the negative side, this tough message would strain relations--between me and the in-laws, between my wife and her parents, and between me and my wife.  So maybe it's not even worth saying.  They likely can't change anyway.  Their debts are too big to pay off and also build a stash given that they are already in their 60s. 

4) If my wife hates this idea and thinks that family needs to help each other financially in bigger ways, no matter what, then I will suggest that my wife and I have separate accounts.  I simply can't spend my life saving up for *their* retirement.  If my wife wants to contribute to their fancy lifestyle in old age, then I guess that's up to her, but I just can't do it.  So I'd look into a scenario where my wife and I split our living expenses (with me paying proportionately more), but then we have separate savings.  If on the other hand my wife is on board with my plan to limit support to emergency room and board, then we can keep our money together. 

What I feel like I can't do is be full sharing financial partners with my wife if she is simultaneously full "what's mine is yours" financial partners with her irresponsible parents.  Then, by the transitive property, they will effectively get to consume my stash.  And I don't think that is right or fair. 

Anyway, I would love any feedback on this.  It's the same problem we're all talking about, but with a couple twists--including my wife's student loans, the fact that it's in-laws not parents, etc. 

The problem is, I think clear expectations are important with these looming future liabilities.  Clear expectations between spouses/partners, and ideally clear expectations between mustachians and those who will hit them up for financial help in the future!

For all of us on this thread, two extra things make these situations tricky.  1) The financial problems non-mustachians have are often self-imposed.  If someone wants to spend 80% of their income and work until 65, fine.  But if someone wants to live high on the hog and borrow lots of money, etc., I think it's painful and hard to justify for mustachians to just transfer savings over to those people.  2) A serious complicating factor is aging.  It would be quite easy to say to a broke sibling--"I can't give you money--you either have to go get a job or you have to move to a smaller place and cut spending."  But broke elderly people can't just go "get a job."  Even if their suffering is their own fault, it's too late for them to do anything about it. 

Thoughts?

madgeylou

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It would be quite easy to say to a broke sibling--"I can't give you money--you either have to go get a job or you have to move to a smaller place and cut spending."  But broke elderly people can't just go "get a job."  Even if their suffering is their own fault, it's too late for them to do anything about it. 

this is the crux of the matter. in my case, my grandma and grandpa lived quite high on the hog while he was alive, because he made great money. but they didn't set anything aside for the future -- like, nothing. so i ended up paying my grandma's rent for a while. once she got established in subsidized housing, her SS was enough to cover her bare minimum needs ... but when she's needed extras, that's been on me. i mean, like, either she goes without a hearing aid, or i shell out $1000 to get her one, you know?

it's tough, because there's not much she can do about it now. but it's hard to be the only one on the hook. i guess it's mostly just made me more determined than ever to do smart things with my money so i don't end up in the same boat.

so, your plan sounds like a good and well-reasoned one ... but i guess i'd just be prepared for it to be harder to enforce as the in-laws get older. i mean, you can tell a healthy 70 year old that, no, you aren't buying them cable. but can you tell an 85 year old that, no, you're not buying them a wheelchair / hearing aid / etc.?

acroy

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I’d suggest a rather definitive stance – they made their bed, they sleep in it. Don’t let them die of exposure, but don’t subsidize luxuries either. Let them feel the pain a bit. Do not subsidize or enable poor behavior. This teaches there is not consequence for behavior.

1)They may be able to work, at least part time, for a long time. If they need the money, and they are able, they should.
2)Show them MMM and other sites
3)Suggest relocation to Costa Rica or similar. Very low expenses.

best of luck!

KatieSSS

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Many mustachians will face this situation.  We're the minority.  Mustachians save, most people don't.

For all of us on this thread, two extra things make these situations tricky.  1) The financial problems non-mustachians have are often self-imposed.  If someone wants to spend 80% of their income and work until 65, fine.  But if someone wants to live high on the hog and borrow lots of money, etc., I think it's painful and hard to justify for mustachians to just transfer savings over to those people.  2) A serious complicating factor is aging.  It would be quite easy to say to a broke sibling--"I can't give you money--you either have to go get a job or you have to move to a smaller place and cut spending."  But broke elderly people can't just go "get a job."  Even if their suffering is their own fault, it's too late for them to do anything about it. 

Thoughts?

You've summed the dilemma up quite well. I feel #2 especially since my parents are both laborers. Their bodies are already giving out and their jobs depend on functioning bodies. They'll likely have to stop working before others due to this issue.

While I don't know if what you are suggesting will work with you and your wife, I do admire the sheer honesty of it all. If you succeed in having a conversation with your wife or in-laws about your financial boundaries, then hats off to you, good sir!

What I struggle with is even if I am extremely blunt with my parents about finances, they cannot respond to such conversation. They operate in that passive-aggressive realm where they say "it will all work out" to any suggestion I have. I have been living by example for years now and bring up financial conversations as much as I can. So far, I've only inspired my mother to get out of debt on their house. But her solution is selling some land, not reigning in spending. A short term solution and a good one to get out of current debt, but not good for staying out of debt.

I think I'll have to come up with a similar list of boundaries for them as you have, but mine will probably involve more monetary help. Like perhaps a stipend from me or something.

the fixer

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Philosophically, I believe the proper approach is similar to what IMF and the ECB are doing in Europe: if you need my financial assistance, I'm going to inject myself in your internal affairs and clean up your act. That should discourage asking for help somewhat, but if they truly need it they end up better off as opposed to me just subsidizing a lifestyle of consumption.

Whether or not it actually works out in practice is another question entirely...

Spork

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[really long and well put plan here deleted for brevity]


I have ZERO problems with this.

I know: parents are a special bond... and we do want to take some care for them (as they did us).  But I don't really think this is too harsh.  In fact, I think some of the best parenting is the parenting that teaches how to be responsible and grown up -- and that can have it's harsh moments as well.

John74

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My in-laws divorced in their 60's and basically MIL landed one day on our front steps with about $400K in her pocket, no job, and a lifetime of overspending habits (high income, low savings rate situation). During the first year after the divorce, she multiplied the bad decisions - using half her stash to buy a home way too large for her needs, spending money like it grew on trees (vacations, restaurants, entertainment), refusing to get a job ("not fair!"), and basically refusing to take my advice... When FIL was laid off and the alimony payments suddenly stopped, she found herself in big trouble, with no source of income to speak of while her meager portfolio was melting down with the rest of the market. One day, she abruptly announced that she expected us to step in and help her financially because that's what kids are for. Ah! We refused to write her a check every month because she was spending more on herself than DW and I were spending on the two of us. Then she thought that we should buy her house and let her live in it for free. Oh sure. No, the only solution was for her to learn how to live within her much reduced means. She wasn't happy about it but she had no choice (although she ramped up her search for a new husband at that time - just in case she could find an old loaded guy ready to bail her out). After much bitching and moaning, we were able to cut her spending from $70K+ a year to just below $30K. In the mean time, we had her apply for SS. Then we suggested that her large home should be sold, since she could buy a very nice, low-maintenance condo down the street from us for a lot less. She refused (wah wah). So the only option left was to do a reverse mortgage on the house. Finally, when her portfolio recovered, she had it annuitized (with COLA). Today, she finally manages to live within her means and she's gotten quite proficient at keeping her costs low (and even saving part of her income!). My wife and I help on occasion - paying for an airplane ticket for her to come visit or getting her a gift card so that she can enjoy a rare indulgence.

I am glad that we were able to avoid a situation where she'd be dependent on us for cash flow. But if that had been unavoidable, I would have preferred buying her a COLA'd annuity. At least it would have removed MIL's longevity risk from our own balance sheet.

« Last Edit: May 07, 2013, 03:54:48 PM by John74 »

Rural

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I guess I'm fortunate. There won't be any question of helping my parents, who are FI and happily retired and would have done it years earlier if not for my mother's health issues, which they (rightly) concluded would price them out of independent health care for several years. They did retire a few year before she qualified for Medicare.

My in-laws may need some help. His father and wife are getting by in retirement, though, and they are certainly used to living frugally. I check the government website each year to be sure their property taxes are paid, and if ever they're not, we'll probably pay them without saying anything. His mother and husband, well, let's just say it's a good thing she has that husband. He's careful and manages her well enough that they will likely be okay. He has two pensions coming, which will help. If he goes first, she will likely get herself into trouble with overspending. We won't bail that out, but we'll see to it that she eats. I won't live with her, though, not if I have to work an extra twenty years...

CU Tiger

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We're in a relatively good situation right now.  I'm guessing that if we follow about 70% of your advice (I'm not a bike person), we could become financially free in about 6-7 years.  But there's a catch.  We have some aging family members who have not exactly lived up to the Mustachian ideal.  They are in their early sixties and have almost nothing saved up for

Though their financial habits are somewhat frustrating, they are nice people, and we would like to help them live at least a non-terrible lifestyle when they eventually retire.  How do you recommend that we do that while still maintaining our own quest for financial freedom?

I see three options for us:  we can work for a few more years to try to build them a modest 'stache, we can move from 70% to 95% Mustachianism, or they can move in with us.  I'm guessing the first option is going to be what we do; the second option doesn't really get us very far (maybe another $70K, which based on the 4% rule wouldn't get them very much), and the third option is probably non-ideal for us.

What is the relationship? Parents or in-laws, at least I can see why you feel some sense of duty to them. But, If they are competent adults (not developmentally challenged) why do you have a responsibility to care for them? I tend to take the position that your job is to work and save to take care of yourself -and to launch your children, if you have them -and not to be a burden on anyone. How do you achieve that if you are supporting these other people?

You know how on airplanes they tell you to put the oxygen mask on yourself before attempting to help anyone else? Same goes for finances. Get your own finances in order and your future self taken care of before you try to put the financial oxygen mask on these family members.

starbuck

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If real estate investing is any part of your plan, I would consider buying a small multiplex, something in good repair and with not too many units, and offering to let them live in one of the units in exchange for on-site management services.

This is something I've just started thinking about in anticipation of helping out my own parents in the next 5-10 years. They're relying mostly on social security for retirement, and currently live in the midwest far from family. They're very frugal and live a simple lifestyle, and moved to the midwest for a lower cost of living from the expensive northeast. But as they age, I'm hoping to convince them to move back to MA to be closer to family and grandkids, and make it easier to care for them in their later years.

My parents are proud people, and I think one of the only ways they would accept help from their kids is if they view it as an equitable trade. Occasional child care, on-site apt management, etc. So this is the plan I'm toying with since I'm hoping to expand into real estate in the next 5 years or so.

Anyone have any experience with this route?

Aigeus

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Wow, thanks for all the responses.  There are a lot of good ideas in here.

To the people advocating a "harsh" response, I'd say this.  We actually have been a little harsh over the years.  About two months after I started at my first normal-salary job, we got a call asking for money.  We said no.  Much arguing ensued.  In the three years since then, we've given them money a couple of times, and also denied requests a couple of times.  Our basic message has been that we will help out in an "emergency" (recognizing that some of the "emergencies" really don't look all that bad when compared to the stuff that people go through in other parts of the world); we will not give them extra spending money.  We actually seem to be in a good place now, as they appear to understand our position and don't really ask for money any more.

Now that we've gone through that additional adjustment period, they have learned a little to cut their spending.  Not enough to actually save for retirement, but at least enough to be self-sufficient absent some sort of external shock.  And they appear to understand that they will be working until 70, at least.  But at that point, if we are able to, I would want to help them.  With social security alone, they will be looking at a fairly austere lifestyle.  If we are able to give them a few thousand every year, at least that will take a little bit of stress off of them--and maybe it will let them do a few things that they enjoy, too.

A big part of this is that they've had a somewhat hard life.  I won't go into all of it, but they've had a bunch of stressful things happen to them--most of which have been outside of their control.  In a perfect world, they would have saved more and would not be in a tough financial situation. But that ship has sailed, and I feel like it would be a good thing to at least give them a little bit of an extra financial cushion so that their retirement is a little less gloomy than it otherwise would have been--and maybe a little less gloomy than their last 20 or so years.

Another part of it:  how can I justify retiring at 35-40 when they are barely scraping by?  Retiring that young is a luxury, just like buying fancy cars or big houses is a luxury.  If I am going to do something like that for myself, I also want to provide at least a little bit of support to the relatives.

All that said, there's only so much we can do.  We won't turn them into millionaires, and if we don't have the money, we won't be able to help.  But a few thousand per year--if we can afford it--seems reasonable to me.

Aigeus

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Overall, I think my basic plan will be this:

(1) Over the next few years, use my newfound mustachian house-fixing skills (which at this point are fairly hypothetical) to fix up their house so that they can sell it, pay off their mortgage, and buy a smaller house/condo/apartment for cash, eliminating their monthly housing payment.  That won't cost me anything, aside from the time spent helping to fix the house, and maybe small amounts of money buying tools, etc.

(2) If possible, work a few extra years at my current job, so that I can save up a stache for them of about 200-300K.  That would give them an extra 8K-12K per year.  Without that money, they'd be looking at something like $15K-17K/year from social security.  Even if they don't have a housing payment, that's not a lot of money (it's less than the 24K that the MMM lives on).  But with the extra money that I'd propose to give them, they'd have somewhere between $23K and 29K, which is still a pretty modest income.  But at least it won't be quite as bad.  And if other relatives kick in money, too, then they'd be in an even better place. (Of course, all this presumes that I can stay in my current job for those extra years--as I mention in my other post, I'm in one of those professions with an "up-or-out" system, and I'm not sure how much longer I will avoid the "out" part.  But we'll see.) 

 

Matt F

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I think if your parents sacrificed for you growing up and you feel you owe them for your help, it would be nice to offer to pay a few bills for them as others have suggested.  I would tend to stay away from utilities because that will aggravate you if they keep the house super cold in summer and hot in winter.  Maybe send them a credit card with a small limit for groceries each month that you then pay.

However, make it clear that you are happy to help with this, but it is all you can probably do for now.  If they come back looking for more money, say then they have work with you to setup a budget and that you have to agree if they need more money (i.e. they have to cut cable, smart phones, huge going out habits, etc before you give them additional money).  I would also suggest that for family members who say they "need" money for their kids etc, offer to give it to them, but only if they go through their budget with you first so that you can "help them find savings".  Often they "need" your money because they spent theirs on an ATV or something.

champion

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Saving up an extra stash for your parents may be a reasonable plan for some people, if that's how they choose to prioritize. 

But I still wonder about the big picture of this question for all mustachians. 

I think this is actually a common, tricky, and very important question.  PLEASE COMMENT!

To what extent is it our responsibility to use our 'staches to bail out the non-savers in our lives? 

Yes, we don't want to see people suffer.  And yes, some people do get into trouble due to bad luck.  And yes, a lot of marketing dollars have been spent trying to convince people that they have to borrow and spend to be happy. 

But.  Saving for the future is not a new concept.  Even the standard recommended 15% savings rate during a working career would provide ample financial security for someone retiring on-time instead of early.  Being unable to work past a certain age is the norm.  Late in life medical bills are the norm.  Social security payments are not that high (at least by non-mustachian standards).  They are not designed to provide a retirement income, they are designed as a supplement.  Most people ARE in fact aware that they should be saving for the future; they just don't do it.  By choice.  They decide that a nice car takes preference over future security. 

In many cases, and certainly in mine, this is just a grasshopper/ant problem.  The grasshoppers don't feel like "sacrificing" or saving, so they don't.  But when winter/old age comes, they will not view being broke as the inevitable consequence of their previous profligacy, they will view it as a painful surprise, as bad luck, and they will expect to be bailed out, because "families should all stick together."

But as mustachians, we are a bit better at anticipating the future.  And it's quite easy for us to project forward and understand that people who don't save any money...won't have any savings. 

So in many family situations, we're in a trap.  No-one talks about pooling funds when times are good.  Spendthrift family members aren't buying cars for us, just for themselves.  And if we mustachians confront our spendthrift parents and in-laws about their dangerous foolishness, they'd be offended. "It's none of your business," they'd say.  "But you'll run out of money," mustachians say.  And then the spendthrift parents and in-laws understand the worry and get offended:  "You mean you wouldn't help us out in a jam?  How selfish!"

So we don’t say anything.  And then we arrive at the (entirely predictable) reduction of income in old age.  And then it’s “emergency” time.  WHO could have known?  WHY is my social security check so small? Poor poor me, how will I ever pay the mortgage?  How will I ever pay the gas bill? 

So the savers and planners are disadvantaged.  The grasshoppers spend money now without worrying.  The ants scrimp and save and plan, but then forfeit a big chunk of the savings to the grasshoppers in their time of need.

When Aegis says "I can save up a stache for them of about 200-300K," that's no small commitment.  And that may be fine for him, but I'm trying to explore the general problem many of us face.

For a mustachian with an average income, $200-300k could be more than a decade of extra work.  And other ways of helping that seem more modest actually represent similarly huge commitments.  For example, providing $660/month of support requires a $200,000 stache at a 4% withdrawal rate.  Buying an apartment and then putting a relative in it instead of renting it out also represents a multi-hundred-thousand dollar commitment to extra saving. 

If mustachians do this kind of thing for able-bodied people who COULD have saved 10-15% of their income easily, then we have in effect subsidized their frivolous spending habits.  It’s not really any different than if they had saved some money for retirement instead but WE bought them the nice new cars as gifts along the way. 

Think of it this way:  most people earn money and spend money over a lifetime.  If, hypothetically, everyone had to manage this as an individual, with no prospects for being bailed out by anyone, then the money spent couldn’t exceed the money earned over a lifetime.  All the incentives would be in place for people to live within their means and save a little for the future so they’d be okay after their income from work ended.   And if they blew it, they’d fall as far as the government/charity safety net but get no additional help from anyone else.

But the real world for many mustachians is that they will feel a lot of pressure to bail out family spendthrifts to some extent in old age.  After all, we couldn’t stand to see them on welfare.  Even though we NEVER would have bought them a new car, we will feel pressure to do the equivalent.  The actual outlays may be for room and board, but in effect they are bailouts resulting from car purchases crowding out retirement savings in prior years. 

The whole thing gets emotional when we’re talking about elderly loved ones.  Normally hyper-rational mustachians who calculate ‘stache sizes and withdrawal rates get a bit vague when talking about how they’d want to help their parents and in-laws financially if they needed it.  But the costs of supporting someone who has no income and no savings can be quite substantial.  And it’s quantifiable.  Saving up an EXTRA ‘stache to partially replace the 40 years of retirement saving that someone chose to skip is also no small feat. Taking on a broke in-law could cost about the same per year as having another kid.  And speaking of kids, will we raid the kids’ college funds to make grandpa’s life less austere?

On this topic of future financial support for family members, we fall prey to the same sort of time-shifting vagueness that the spendthrifts do.  We’d never buy them a new car, but when the bill comes due for their lack of savings, we’ll want to help them, and we’ll feel like "family obligations are more important than money," etc.
 
So we have to ask ourselves some questions:

1) How many extra YEARS of working and saving would be necessary to support a relative with no income and no savings? 
2) How comfortable are we with this—how many years or working and saving do we think are appropriate to donate to a bailout like this?
3) If we want to minimize this future liability, what type of communication are we willing to do (and what kind of relationship consequences are we willing to bear?)
- Will we say to a proud family member, “I disapprove of your spending behavior.”?
- Will we try to create the incentive to save by telling them “don’t expect me to pay for you in your old age”?
4) And if that type of communication in advance wouldn't work anyway (straining relationships without changing behaviour enough to make any difference), should we just say nothing?
5) Are we prepared to let them deal with the consequences of their own actions?  Can we enjoy early retirement while they eke out a crappy living on social security alone?

6) And how should we manage spousal planning on this?  Spouses may disagree on how to handle communication/intervention and on what level of support would be appropriate.  Spouses may also react differently during planning vs. when the liability actually becomes real.  And spouses may also disagree based on which set of parents it is!

If spouses disagree on something like this, does that argue for keeping money separate?  If one spouse "would do anything" to support his or her spendthrift parents, a shared stash may be at risk.  How can it be protected?


totoro

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Well, I have this situation potentially with a family member in future, and her life has never been one of sound finances.

It is super frustrating because she really does not understand that she has created her own hardship and needs to change things signficantly to get out of it. There are a thousand very good reasons why in her mind she is where she is and almost all of them are external forces or rationalized as reasonable expenses. 

When you are deep in debt I don't understand how you can go on a trip to Vegas or or keep expensive cable.  For her, the Vegas trip was "super-cheap" (discount hotel and flight) and they needed it to relieve stress.  The full cable is also needed because they don't have money to go out.  Meanwhile, their toilet has not been repaired due to lack of funds and they are worrying about damage to the ceiling...

What do I do now?  I assist her with her debt management ie. talking to creditors and organizing services she is eligible for.  I suggest some things that can be changed, but they are always rejected for various reasons and I just drop it - she is an adult.  Later in life I will help her more if she needs it, but she will have to take steps too.  Would be more stressful for me not to help.

It is sad that there are no emergency savings and debt is paid off with minimum payments. Honestly, I fully expect she will not change.  This current crisis will pass and she is already looking ahead to another trip because they are stressed.

psychomoustache

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Similar situation here and would love an answer if anyone finds it.
The key for me is trying not to feel resentful that I'll have to make life sacrifices because of their poor choices. But not helping them would make me feel worse, so no-win situation.

I had a thread a few months back on my poor irresponsible mother... we are helping her pay her long term care insurance, while she continues to spend on hair color, manicures, theatre tickets... and YES I feel terribly resentful. The only thing I could do is make it very clear to her that this LTC insurance is the ONLY thing we are going to be able to provide. We have three kids who are at home still and need an education, plus our own retirement.

Dave Ramsey actually says to get hyper-involved with anyone you are helping with money - like going over their budget with them, etc.... "teaching them to win". Well this sounds great but it's really, really unrealistic, in our case anyway. He says that if people don't or won't agree to one's terms re: giving money, even if they're your parents, well too bad. I find this a bit harsh - but I think he has a point too. I have tried soooooo hard to explain money management to my mom - and she just gets angry at me - so it's like talking to a wall. Useless. So I told her, this is the end of our help in terms of money. If she is in dire need, she can come and live with us here in France if need be. But we can't send her more.

I think that setting clear limits is important and necessary. I know for me personally, it helps a lot with my resentment for her irresponsibility. My husband and I have defined for ourselves what we will and won't do, and that's it...

KatieSSS

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entire post

I think for those of us in our 20s and 30s, the issue we have dealing with our parents is that they are a product of their generational ideals. Now middle-class baby boomers were born to those who lived through the depression, and often were deprived of material things growing up in post-WWII because either a) their parents wouldn't spend money on frivolous things because they saw the need to save or b) the cost of items like TVs, cars, were out of their range and they didn't have a "purchase with a credit card option."

Now, when the baby boomers entered adulthood in the late 60s-early 80s, they didn't want to be like their parents. They wanted "more" for their families and that often included stuff. Because now, in the 70s, 80s, and 90s, it is possible to buy all those luxury items on credit! I can have that new car for only $200 a month! Interest rates were irrelevant to them. Having the item/keeping up with Joneses/buying things to make you happy is what mattered. Then the boom of the 90s hit and they all thought life was grand. Our parents bought us stuff, went on vacations, all on a small salary. They weren't saving for retirement because "they have social security." Then the dot.com bust happened, then 9/11, then the housing bubble, then 2008. Their homes lost value and their 401ks and IRAs tanked (if they had them).

While this is all happening, they don't understand that if they would just change their lifestyle to one without instant gratification and buying things to make them "happy," they wouldn't be so affected by economic factors such as financial crashes. Their parents, our grandparents, understood this because they lived through the depression and WWII. For the most part, they saved. And when our grandparents' parents entered their 70s and 80s in the 1960s and 1970s, medicine could not yet keep people alive to the extent that it can now, meaning that if a person was ill, they couldn't last much longer than a year or two. Unlike now, where someone can live in a nursing home for 10 or more years. So our parents, the baby boomers, did not understand the concept of old age when their parents reached it. They thought it would be like when their grandparents died - they get ill and go in a year's time. They didn't factor in things like rising medical costs and longer life expectancies.

So now, when the baby boomers try to handle all of this, they are more likely to blame "society" and not themselves for making poor choices with regards to saving while they could. Could they have avoided it? Yes, definitely. But some of them, and I'm speaking of my parents here, weren't self-aware enough or educated enough to understand that things don't always work out and that they should have done more. So do I abandon them because they made mistakes? No, I don't. But, I've been attempting the difficult conversations with them and can see they are learning some things from me, like the concept that debt isn't something you have to always have.

These are my two cents on how our parents ended up this way, anyway. This doesn't apply to all families, of course, but I think it is a decent way of generalizing the experiences of the middle class.
« Last Edit: May 09, 2013, 11:18:52 AM by KatieSSS »