Help for In laws

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Coming here for advice regarding my in laws.  Looking for advice on how to handle their finances.

Situation:
- Mid 70s in age
- MIL never worked, no clear marketable skills
- FIL tried to keep working but was basically cut out 6-7 years ago by his industry due to age
- Both in decent health for their age but get tired quickly, not great hearing/eyesight, FIL has sciatic nerve issue, etc.
- Have ~160k in IRA
- Have ~20k in brokerage account
- Own ~350k house in TX, no mortgage
- Hold a ~175k promissory note on house they owned and sold to SIL.  Terms state it is worth ~1k/mo for next 15 years but SIL has poor history of actually making payments
- Own ~5k and ~10k cars, no loan
- Draw ~1200/mo in combined SS
- Currently spend ~35-45k/yr 

My immediate thoughts are:
- Downsize house (seems overall better than some kind of reverse mortgage)
- Go to cash/envelope system to try to limit spending
- Get SIL to make large payment towards promissory note and then invest those funds
- Evaluate investment choices

I expect that many initial questions will be about their current investment choices, detailed spending patterns, etc., but unfortunately this will be hard to get.  I have been sensing trouble for a few years now and pressed for details but only now been provided with this much insight into their finances.  Also apparently my MIL has a habit of opening up retail lines of credit which, short of seeing a credit report, who knows what's really there...

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I have nothing useful to contribute here...but MIL sounds like a crazy, selfish, effing baby.  Reminds me of my MIL.

Actu... (more)

CrAsian (Jan. 16, 2017 @ 9:10a) |

Don't do it. It's their house, their money, their mess. You can show them the numbers, give them advice, and perhaps pro... (more)

imbatman (Jan. 17, 2017 @ 7:38a) |

Agreed. You could be giving what you think is helpful advice/guidance, but SIL could take it as antagonistic. By getting... (more)

BostonOne (Jan. 17, 2017 @ 9:52a) |

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To state the obvious: 35-45k in annual spending (with a paid off house) is very high for a couple in TX. They need to cut that down considerably.

fwuser12 said:   To state the obvious: 35-45k in annual spending (with a paid off house) is very high for a couple in TX. They need to cut that down considerably.
  
Yes their spending is way too high and needs to be cut significantly.  I have no idea how they outlay that much without any debt, but apparently it has gotten better (it had been more like 50-60k/yr).

ETA: I suspect a fair amount of the costs have historically been used for financially aiding their children.  

"Spending" is listed as 35-45k, but what's income? Don't they get SS that offsets some of it?

Draining 10k/yr (example) from listed assets will last a much longer time vs draining 35-45k/yr.
fwuser12 said:   To state the obvious: 35-45k in annual spending (with a paid off house) is very high for a couple in TX. They need to cut that down considerably.
  property taxes alone on 350k house might ~$10k/yr in TX.  (I don't have specifics of age cutoffs for our property tax rules, I think it's 65+ the appraisal portion will not raise on TX homestead.  But that's only 5 years ago, so it depends what it was valued at ~5years ago then for tax appraisal.  My house at 195k has almost exactly $5k/yr property tax).  350k can also be a large house (depending on where it's located), so utilities might average to ~$3k+/yr, before lawn care and maintenance.  So, that's possibly already at ~half of total listed spending on just the house.
 Add on cheap cars with high maintenance and gas if they drive a lot.  It's high but IDK about "very high" and probably not very high if just looking at the sub-group of people with $350k+ houses.

Bend3r said:   "Spending" is listed as 35-45k, but what's income? Don't they get SS that offsets some of it?

Draining 10k/yr (example) from listed assets will last a much longer time vs draining 35-45k/yr.

  
Only known income is ~1200/mo in combined SS.  I believe they have spent through all liquid assets, and now faced with reality of having to liquidate investments, my FIL is seeking guidance.

Bend3r said:    property taxes alone on 350k house is ~$10k/yr in TX.  (I don't have specifics of age cutoffs for our property tax rules, I think it's 65+ the appraisal portion will not raise on TX homestead.  But that's only 5 years ago, so it depends what it was valued at ~5years ago then for tax appraisal).  350k can also be a large house (depending on where it's located), so utilities might average to ~$3k+/yr, before lawn care and maintenance.  So, that's possibly already at ~half of total listed spending on just the house.
 Add on cheap cars with high maintenance and gas if they drive a lot.  It's high but IDK about "very high" and probably not very high if just looking at the sub-group of people with $350k+ houses.

  
Looks like their tax bill is about 2500/yr.  He doesn't have property insurance (wanted to save another 2500/yr or so).  Utilities are likely 300-400/mo with another 100/mo in lawn maintenance.  Don't think a lot is spent on gas, but maybe 1-2k/yr in auto maintenance/repairs (honda accord and honda crv).

Yes downsizing the house is important. As Bend3r pointed out, taxes are high in TX and 350k would be a mcmansion in most parts of TX. Perhaps buy a modest 2BR house for ~100k. Saves taxes, utilities, maintenance etc.

That will leave them a kitty of 250k (net proceeds house) + 180k (other investments) = 430k. At their age (mid 70s), I am guessing a 5% annual withdrawal rate should be fine. That plus SS gives them ~3k per month or about 36k per year. If they cut down their expenses to 30k, it gives them some cushion.

This is not even counting the promissory note.

Before we continue, let us clarify: do the in-laws themselves want to make ends meet (i.e. cut spending to match income)? If they are not serious about this but only the OP is, OP is wasting everybody's time here.

If the answer to the above is yes, OP needs to do some homework first. Where did all that money go month to month? Based on info so far, I could only count $650/month in spending:

$350 utilities (based on $300-400 figure OP provided)
$200 or so in taxes ($2500/year, same source)
$100 lawn care
--------
$650 total

Substract that from $3,000-$3750/month spending ($30k-45k/year, same source), at least $2,350/month expense is unaccounted for.
I suggest we wait for OP's answers before trying to help more.

misterblacktx said:   
Looks like their tax bill is about 2500/yr.  He doesn't have property insurance (wanted to save another 2500/yr or so).  Utilities are likely 300-400/mo with another 100/mo in lawn maintenance.  Don't think a lot is spent on gas, but maybe 1-2k/yr in auto maintenance/repairs (honda accord and honda crv).

Low tax bill. I am only guessing that maybe their house is just appraised much lower than market (If so, this second would likely not carry to a new house. A new house that is only $100k-$150k might have nearly the same taxes.   I think for 65 and over there's just an extra $10k homestead exemption and school taxes are frozen from the year they turned 65, neither of which would cut taxes by 2/3.)

Property insurance would likely still be a good idea to protect assets (with a high deductible, premiums should not be that high.  I only have medium deductible 1-2% home value and for me it's only ~$1000/yr for ~$250k rebuild cost).  Don't want to lose everything in a house fire....

So, adding up listed, $2500+$4800+$2000 = $9000 for house/car repairs. That leaves $20k-$35k additional current spending, or about $60-$100/day.
 

Costcoer said:   Before we continue, let us clarify: do the in-laws themselves want to make ends meet (i.e. cut spending to match income)? If they are not serious about this but only the OP is, OP is wasting everybody's time here.
  
Fair point.  I hate requests for help that lead no where.  To explain further, my FIL is starting to feel concerned about their 5-10 year outlook.  He wants to make changes but needs help.  MIL is the bigger issue, she doesn't realize that at this rate, 5 years and their investments will be gone.

Trying to dig through some spotty records, here is what I am seeing.  I plugged a "misc" account to take it to 36k based on FIL's hand written notes.  He likes to pay cash for auto and home repairs or anything else he can get an extra discount on.
  Mt Yr
  3,000.00 36,000.00
     
discover 650.00 7,800.00
electricity 150.00 1,800.00
water 150.00 1,800.00
WalMart  225.00 2,700.00
cap1 500.00 6,000.00
Macys  225.00 2,700.00
cell 150.00 1,800.00
internet 70.00 840.00
car ins 133.33 1,600.00
prop taxes 208.33 2,500.00
lawn 100.00 1,200.00
misc 438.33 5,260.00

 

Bend3r said:   
misterblacktx said:   
Looks like their tax bill is about 2500/yr.  He doesn't have property insurance (wanted to save another 2500/yr or so).  Utilities are likely 300-400/mo with another 100/mo in lawn maintenance.  Don't think a lot is spent on gas, but maybe 1-2k/yr in auto maintenance/repairs (honda accord and honda crv).

Low tax bill. I am only guessing that maybe their house is just appraised much lower than market (If so, this second would likely not carry to a new house. A new hous70e that is only $100k-$150k might have nearly the same taxes.   I think for 65 and over there's just an extra $10k homestead exemption and school taxes are frozen from the year they turned 65, neither of which would cut taxes by 2/3.)

Property insurance would likely still be a good idea to protect assets (with a high deductible, premiums should not be that high.  I only have medium deductible 1-2% home value and for me it's only ~$1000/yr for ~$250k rebuild cost).  Don't want to lose everything in a house fire....

So, adding up listed, $2500+$4800+$2000 = $9000 for house/car repairs. That leaves $20k-$35k additional current spending, or about $60-$100/day.

  
It looks like they are only paying taxes on ~25% of the FMV due to a combination of exemptions and YoY caps on taxable value.  I'd say in the last 4 years FMV has gone from 200k to 350k.

As far as spending, they made good money for 20+ years, never had a budget and still don't. MIL especially likes eating out, hosting parties, lots of presents for grandkids, etc.  FIL had a couple of minor surgeries in the past 18 months.  They also took an overseas trip a few months ago.  

misterblacktx said:   As far as spending, they made good money for 20+ years, ...
 

  If they had good earnings over the years, how come their SS income is only 1.2k combined (presumably $800 + $400).

fwuser12 said:   
misterblacktx said:   As far as spending, they made good money for 20+ years, ...
  If they had good earnings over the years, how come their SS income is only 1.2k combined (presumably $800 + $400).

  
And how come they don't have much in savings either?

My guess on SS being low is most of earnings was self employed, working overseas most of the time, and very aggressive tax strategies.

As far as no savings, they have some 700k in assets which is nothing to sneeze at, it's just not well positioned. The rest was just spent. For years and years they used to spend 5-7k/mo even with no debt. Also fair amount bailing out kids. Easily 6 figures worth spent in last 15 years. Paid for all of all kids college in full. Owned some condos that just sat empty for months on end, etc.

For all these reasons I am not optimistic about a total change in spending habits. Really want confirmation that they need to downsize house or they will burn through all their assets in 10 or at most 15 years. Sooner should they have any serious house repair or health issues.

I read the OP 3 times and it doesn't make sense. Please start with their actual income. The only income you list is $1200 in SS.

I would be more concerned with getting their income vs. monthly expenses straight before talking about any investments.

misterblacktx said:   - MIL never worked, no clear marketable skills
  Minimum wage going up in most places, some up to $15/hour. She could go to McDonalds and bring home $30K year. Problem solved. Plus she wouldn't have as much time to go shopping. WIN WIN.

prosperity said:   I read the OP 3 times and it doesn't make sense. Please start with their actual income. The only income you list is $1200 in SS.

I would be more concerned with getting their income vs. monthly expenses straight before talking about any investments.


SS is only known income. Roughly 5k/yr RMD on IRA. Basically have burned through their liquid assets since retiring 7 years ago and now down to some investments and house and promissory note.

misterblacktx said:   
  Mt Yr
  3,000.00 36,000.00
     
discover 650.00 7,800.00
electricity 150.00 1,800.00
water 150.00 1,800.00
WalMart  225.00 2,700.00
cap1 500.00 6,000.00
Macys  225.00 2,700.00
cell 150.00 1,800.00
internet 70.00 840.00
car ins 133.33 1,600.00
prop taxes 208.33 2,500.00
lawn 100.00 1,200.00
misc 438.33 5,260.00


Don't list credit card payments as "expenses."  If it is "clothing" or "groceries" or "fuel" or other categories, list those out individually for them.  You've got $1,600 there that is unaccounted for.

Make up a basic table for them to list expenses for a couple of months so that they can really see where they are spending their money.  Then it will be easier to say, "hey dad, you're spending $600 a month to have that second car in the driveway.  You could really make a difference by cutting back to just one car," or "hey dad, this big house is costing you two thousand bucks a month in maintenance and utilities.  Why don't you and mom start thinking about someplace that would better suit your long term needs?"

dcwilbur said:   Don't list credit card payments as "expenses."  If it is "clothing" or "groceries" or "fuel" or other categories, list those out individually for them.  You've got $1,600 there that is unaccounted for.

Make up a basic table for them to list expenses for a couple of months so that they can really see where they are spending their money.  Then it will be easier to say, "hey dad, you're spending $600 a month to have that second car in the driveway.  You could really make a difference by cutting back to just one car," or "hey dad, this big house is costing you two thousand bucks a month in maintenance and utilities.  Why don't you and mom start thinking about someplace that would better suit your long term needs?"

  
Agreed with that approach.  He gave me a folder with some random statements and closest thing I could find regarding monthly expenses was a statement from a now depleted checking account with those cc payments.  He has talked about downsizing for a while, MIL is the block.  So trying to show her that it is time for some drastic changes, esp. around cost cutting.  

dcwilbur said:   
misterblacktx said:   
  Mt Yr
  3,000.00 36,000.00
     
discover 650.00 7,800.00
electricity 150.00 1,800.00
water 150.00 1,800.00
WalMart  225.00 2,700.00
cap1 500.00 6,000.00
Macys  225.00 2,700.00
cell 150.00 1,800.00
internet 70.00 840.00
car ins 133.33 1,600.00
prop taxes 208.33 2,500.00
lawn 100.00 1,200.00
misc 438.33 5,260.00


Don't list credit card payments as "expenses."  If it is "clothing" or "groceries" or "fuel" or other categories, list those out individually for them.  You've got $1,600 there that is unaccounted for.

Make up a basic table for them to list expenses for a couple of months so that they can really see where they are spending their money.  Then it will be easier to say, "hey dad, you're spending $600 a month to have that second car in the driveway.  You could really make a difference by cutting back to just one car," or "hey dad, this big house is costing you two thousand bucks a month in maintenance and utilities.  Why don't you and mom start thinking about someplace that would better suit your long term needs?"

  
I agree.  If they are serious about this you need to get ahold of the actual CC bills so you can see what they are spending that money on.  Also if they pay for things in cash you need to get them to keep receipts/records of what that cash was used for.  You need to be able to go to your FIL/MIL and show them, hey your spending hundreds of dollars a month eating out, and thousands of dollars a year.   

Also for two people that cell phone bill is huge.  If you can move them to something like cricket you could easily bring that down to $70/month.

atikovi said:     Minimum wage going up in most places, some up to $15/hour. She could go to McDonalds and bring home $30K year. Problem solved. Plus she wouldn't have as much time to go shopping. WIN WIN.
  
Yes adding income would be fantastic, but honest question how many minimum wake jobs are there for an inexperienced 75 year old?  Only consistent slot I've seen staffed at that age would be the WalMart greeter but they just announced another round of layoffs..

misterblacktx said:     
Agreed with that approach.  He gave me a folder with some random statements and closest thing I could find regarding monthly expenses was a statement from a now depleted checking account with those cc payments.  He has talked about downsizing for a while, MIL is the block.  So trying to show her that it is time for some drastic changes, esp. around cost cutting.  

Since Dad already seems on board from a financial standpoint, with Mom, you have to make it all about lifestyle - how much more comfortable they will be with a carefree house, walking distance to shopping so they won't need two cars, etc.  Don't make it about her needing to cut back her spending or you'll just become the bad guy.  

Force the hand on SIL paying the money owed. If she doesn't, then reclaim the property and sell it.
I have a sibling that would do that, it's totally disrespectful, she's taking advantage of her parents.

that will increase monthly income from 1200 to 2200.
If SIL doesn't pay what she's supposed to pay, then that would hopefully add ~175k to pool for assets.

Also, who says they need to own a house? What about renting an apartment? that will save at least $300/month (property taxes and lawn) and they won't have to worry about unexpected costs of homeownership. My in-laws are getting killed right now because of what seems to be annual issues with their HVAC. It's getting pricey, especially since they can't do any of the work on their own.

$150/month for cell phone?  You can easily cut that in half if not one quarter.

dcwilbur said:   
misterblacktx said:     
Agreed with that approach.  He gave me a folder with some random statements and closest thing I could find regarding monthly expenses was a statement from a now depleted checking account with those cc payments.  He has talked about downsizing for a while, MIL is the block.  So trying to show her that it is time for some drastic changes, esp. around cost cutting.  

Since Dad already seems on board from a financial standpoint, with Mom, you have to make it all about lifestyle - how much more comfortable they will be with a carefree house, walking distance to shopping so they won't need two cars, etc.  Don't make it about her needing to cut back her spending or you'll just become the bad guy.  

  
Having a hard time there because she likes the big house to entertain in, a big yard to garden in, 3k sq ft house is full of stuff so she'd have to get rid of a lot.  But yes need to frame it as a benefit to her for sure.  Will think further on that.  Situation is tough though as my wife is the only one of several siblings who has a good income vs expense ratio, savings, etc. so I am working against a lot of bad habits all around.  Makes me wonder if the idea of their downsizing is too lofty and I need to started researching how they can tap the equity in their primary house...

NoMoneyInMyWallet said:   $150/month for cell phone?  You can easily cut that in half if not one quarter.
  
Pretty sure one of their other kids is on that plan (so 3 lines, unlimited talk/text/data).  But I will push him to go cheaper there.

imbatman said:   Force the hand on SIL paying the money owed. If she doesn't, then reclaim the property and sell it.
I have a sibling that would do that, it's totally disrespectful, she's taking advantage of her parents.

that will increase monthly income from 1200 to 2200.
If SIL doesn't pay what she's supposed to pay, then that would hopefully add ~175k to pool for assets.

Also, who says they need to own a house? What about renting an apartment? that will save at least $300/month (property taxes and lawn) and they won't have to worry about unexpected costs of homeownership. My in-laws are getting killed right now because of what seems to be annual issues with their HVAC. It's getting pricey, especially since they can't do any of the work on their own.

  
All good points.  For several years I told him very firmly and directly he needed to force a sale.  They always made mortgage payments when a bank held the note but never to their father.  Their credit and income vs expenses are poor, lots of sob stories, soft spot, etc., so for whatever reason he never forced them.  But yes this is an area for more pressure.

Also the renting idea is interesting, just assumed a downsize purchase.  Big home repairs are another concern, the roof is >20 years old, apparently there is some rotting wood in the garage, etc.  There is a condo complex close by that he likes, which I don't like condos, but at least all the major systems would be covered under HOA...

misterblacktx said:   
NoMoneyInMyWallet said:   $150/month for cell phone?  You can easily cut that in half if not one quarter.
  
Pretty sure one of their other kids is on that plan (so 3 lines, unlimited talk/text/data).  But I will push him to go cheaper there.

  I have a 5 line Cricket plan for $100.  Unlimited talk/text/2.5gb fastdata

NoMoneyInMyWallet said:   $150/month for cell phone?  You can easily cut that in half if not one quarter.
  THIS^ I have two phones and pay around $30 a month. I thought old people weren't into tech.

Evict Sister in law or sell off the note, tough love but if you start an eviction once and have the process down the should get the idea this is a serious debt that needs to be paid, Perhaps insist that she setup a reoccuring bank transfer monthly of the $1000.  Also are they getting any interest from the loan?  If not 175k today is not 175k in 175 months its a lot less and they are losing value on their money.  Maybe they have it in contract if so INSIST that a auto ACH transfer be setup to get them the $1000 every month at a set interval.
Make sure those brokerage funds are tax efficient - not in bonds or securities (you can re-balance in the IRA if needed)
Downsizing the house to a simple 3/2 rambler in the 200k range is a good idea
convert cell service to a prepaid service for 1/2 the cost
dump traditional cable and get netflix, sling/direct TV streaming
INSURE the home, they could lose a lot if someone is injured on their property and sues them 
Tell them that the budget needs to start today and they should be OK, if they keep bleeding out they will have to maybe move to an apartment and really subtract a lot of luxuries vs some tough love and belt tightening today that will still keep them comfy.

DamnoIT said:   Evict Sister in law or sell off the note, tough love but if you start an eviction once and have the process down the should get the idea this is a serious debt that needs to be paid, Perhaps insist that she setup a reoccuring bank transfer monthly of the $1000.  Also are they getting any interest from the loan?  If not 175k today is not 175k in 175 months its a lot less and they are losing value on their money.  Maybe they have it in contract if so INSIST that a auto ACH transfer be setup to get them the $1000 every month at a set interval.
Make sure those brokerage funds are tax efficient - not in bonds or securities (you can re-balance in the IRA if needed)
Downsizing the house to a simple 3/2 rambler in the 200k range is a good idea
convert cell service to a prepaid service for 1/2 the cost
dump traditional cable and get netflix, sling/direct TV streaming
INSURE the home, they could lose a lot if someone is injured on their property and sues them 
Tell them that the budget needs to start today and they should be OK, if they keep bleeding out they will have to maybe move to an apartment and really subtract a lot of luxuries vs some tough love and belt tightening today that will still keep them comfy.

  
I found out their actual financial details barely 12 hours ago, and made this thread immediately and have been a bit rambly.  But this post is on point with my initial/current assessment.  They need to seriously cut costs and protect themselves.  

Regarding the SIL loan, he made out a contract a few weeks ago, charging them a whopping 1% interest.  But he basically assumes it has a value of zero so anything more than that is gravy.  For that reason I don't think he can manage this contract (i.e., he simply can't enforce consequences on his daughter and grandkids).  Will likely have to work this from the other side, i.e., get the SIL feeling guilty about taking advantage of them such that they cash FIL out.  Definitely an uphill battle though...

misterblacktx said:   
Costcoer said:   Before we continue, let us clarify: do the in-laws themselves want to make ends meet (i.e. cut spending to match income)? If they are not serious about this but only the OP is, OP is wasting everybody's time here.
  
Fair point.  I hate requests for help that lead no where.  To explain further, my FIL is starting to feel concerned about their 5-10 year outlook.  He wants to make changes but needs help.  MIL is the bigger issue, she doesn't realize that at this rate, 5 years and their investments will be gone.

Trying to dig through some spotty records, here is what I am seeing.  I plugged a "misc" account to take it to 36k based on FIL's hand written notes.  He likes to pay cash for auto and home repairs or anything else he can get an extra discount on.

  Mt Yr
  3,000.00 36,000.00
     
discover 650.00 7,800.00
electricity 150.00 1,800.00
water 150.00 1,800.00
WalMart  225.00 2,700.00
cap1 500.00 6,000.00
Macys  225.00 2,700.00
cell 150.00 1,800.00
internet 70.00 840.00
car ins 133.33 1,600.00
prop taxes 208.33 2,500.00
lawn 100.00 1,200.00
misc 438.33 5,260.00


  What are the balances on the credit cards? They are paying $1600 a month on just cards. Are they still using them? time to stop if they are. They credit payments are more than they receive on SS. Time to start living within their means, they are not rich and they are far from poor unless they keep spending like they have in the past. 

I handled all aspects of financial transactions for my parents, here's my 2 cents.

- As been mentioned, the biggest issue is the spending. Focus on recurring expenses and also on food. It cost very little to buy fresh ingredients vs prepared or semi-prepared food.
- Their assets aren't bad and should be able to support them once spending is under control.
- Downsizing house might make sense but I'll make it a lower priority. They might be eligible for property tax and utilities reduction based on income.
- Take a look at prior tax returns to get a better picture of income.

misterblacktx said:   
dcwilbur said:   
misterblacktx said:     
Agreed with that approach.  He gave me a folder with some random statements and closest thing I could find regarding monthly expenses was a statement from a now depleted checking account with those cc payments.  He has talked about downsizing for a while, MIL is the block.  So trying to show her that it is time for some drastic changes, esp. around cost cutting.  

Since Dad already seems on board from a financial standpoint, with Mom, you have to make it all about lifestyle - how much more comfortable they will be with a carefree house, walking distance to shopping so they won't need two cars, etc.  Don't make it about her needing to cut back her spending or you'll just become the bad guy.  

  
Having a hard time there because she likes the big house to entertain in, a big yard to garden in, 3k sq ft house is full of stuff so she'd have to get rid of a lot.  But yes need to frame it as a benefit to her for sure.  Will think further on that.  Situation is tough though as my wife is the only one of several siblings who has a good income vs expense ratio, savings, etc. so I am working against a lot of bad habits all around.  Makes me wonder if the idea of their downsizing is too lofty and I need to started researching how they can tap the equity in their primary house...

  Then you just have to hit her with reality.   Plot out the spending trajectory and give her the choice.  Plan A is you can live your current lifestyle for the next five years and put your head in the sand.  Live it up, spend large and ignore reality.  Then, at the end of the 5 years, you get to sell off just about everything and live in a 1 BR apartment for the rest of your life on a small fixed income.   Option B is to adjust your spending now and live more modestly for a longer period of time.  Without talking to her and breaking down the cold hard facts, you don't know her point of view.  She may be perfectly happy living with plan A until it crashes.   You can't make someone make smart choices, or the choices you would make.  You can only tell her the truth and hope she gets on board.   If dad controls the money, I guess he can make the choices and hand her an envelope of cash each month with her allowance.  Of course, doing so is probably going to make both Dad and the OP the enemy at that point and there will likely be hell to pay from Mom.
 

drodge said:   
misterblacktx said:   
dcwilbur said:   
misterblacktx said:     
Agreed with that approach.  He gave me a folder with some random statements and closest thing I could find regarding monthly expenses was a statement from a now depleted checking account with those cc payments.  He has talked about downsizing for a while, MIL is the block.  So trying to show her that it is time for some drastic changes, esp. around cost cutting.  

Since Dad already seems on board from a financial standpoint, with Mom, you have to make it all about lifestyle - how much more comfortable they will be with a carefree house, walking distance to shopping so they won't need two cars, etc.  Don't make it about her needing to cut back her spending or you'll just become the bad guy.  

  
Having a hard time there because she likes the big house to entertain in, a big yard to garden in, 3k sq ft house is full of stuff so she'd have to get rid of a lot.  But yes need to frame it as a benefit to her for sure.  Will think further on that.  Situation is tough though as my wife is the only one of several siblings who has a good income vs expense ratio, savings, etc. so I am working against a lot of bad habits all around.  Makes me wonder if the idea of their downsizing is too lofty and I need to started researching how they can tap the equity in their primary house...

  Then you just have to hit her with reality.   Plot out the spending trajectory and give her the choice.  Plan A is you can live your current lifestyle for the next five years and put your head in the sand.  Live it up, spend large and ignore reality.  Then, at the end of the 5 years, you get to sell off just about everything and live in a 1 BR apartment for the rest of your life on a small fixed income.

This is a gross exaggeration. 5 years of spending ~$30k more than social security income will not burn through $545k+ (This is assuming the family loan is a value of $0, and that the house really has a present value of $350k as-is.) They have no requirement or obligation to leave $X00k estate when they die unless that's important to them and they're already pretty old and may even be very unlikely to live past 80 (depending on current health/issues and ages their parents/grandparents died) $30k more spending than income could last almost 20 years.  Yes, their house is not liquid and I am also assuming the equity is pulled out of the house.

On that last topic,
It would be really abnormal if that loan was callable unless payments are missed and required notifications are made. It's not even clear if it's a mortgage or just an unsecured promisorry note. If it's unsecured, there's zero avenue for foreclosing and only thing is going to collections which is unlikely to be beneficial in any way to any of the parties involved (Depending on other circumstances, assuming the SIL does not have easy assets to go after). Seems wierd to suggest foreclosing whenit wasn't even referred to as a mortgage by OP only as a promisorry note. If it is actually recorded as a mortgage, then it may be a possibility.

As far as the urgency of the situation, I don't think it's dire. But I think they need to make some pretty big adjustments to maintain a nice SOL or else in 10 years there will be a big big drop off.

My family neither expects nor needs a large estate left. I'm more concerned with 10 years from now, say FIL has passed and MIL needs to replace the roof, how far back would such a thing set her?

In terms of life expectancy, no way of knowing of course but MILs mother went well into her 90s, so could very well need to cover at least MIL for 15-20 years.

Based on some comments, I understand the loan to be an unsecured promissory note not connected to the property so don't foresee any legal recourse, even beyond the unwillingness to pursue. I suspect the intent was to make SIL look good on paper so they could cash out equity and pay the note down. Very ill advised IMO but it's done, just trying to determine best path forward.

I wouldn't count it as part of their assets if the kids are unlikely to pay it  back

they probably just need some discipline. Cut the credit cards and spend no more than the incoming SS payment and 3% of the IRA annually. That, or hit the bricks and go back to work, They do have the spendthrift daughter as their backup plan. "Young lady, I have 100,000 reasons why you're going to have to take care of me!"

By no means am I an expert on SS, but $1200/month seems really low. Even if the MIL never worked, she should receive 1/2 of his amount. So that means his check is only $800/month, which would mean a really low lifetime earnings or they started collecting really early

At their current rate they will run out of cash in around 6 years and end up with a house they cant afford and nothing to live off but $1200/mo of SS.

If they're in their mid seventies then its likely that at least one of them will live another 10 to 20 years.

They should of course cut their spending and downsize. They should have enough assets to live comfortably if their spending was lower and they got some equity out of the house.
But its probably not going to be easy for them to sell the house and slash spending as much as they really ought to.

First I'd see how much you can convince them to cut the spending and see how far that gets them. Its possible they could get it under control if they treat it seriously. If you can get them down to the point of spending maybe $25k a year then its more sustainable. They'd be at a rate to spend down their retirement / brokerage accounts in more like 15 years or so which might just last them.

Would they prefer to cut spending or sell the house? If they would rather sell the house then that would let them downsize and cash out a lot of that equity. I assume they can rent or buy something relatively cheaply in TX? Say they can pull $200k out of the house use 150k to buy something else that gets them another 200k to use. That might sustain spending closer to $35k /yr.

If they really won't budge much on cutting spending OR selling the house then an option of last resort is to get a reverse mortgage on the house and then buy joint life annuities with all their money. They could then end up with a fixed income of around $3k a moth and keep the house the rest of their lives. THis would also limit their ability to spend more than they should because they wouldn't have a pile of cash to squander but only the monthly checks. It would also remove the risk of outliving their assets.

Skipping 41 Messages...
imbatman said:   
misterblacktx said:    Said it isn't right for SIL to be leaching off their retirement like that and wants me to help them talk to them about how they need their money out of that house.
  Don't do it. It's their house, their money, their mess. You can show them the numbers, give them advice, and perhaps provide them with cogent discussion points to demonstrate why things have to change, but they need to fix it. That's kind of like saying, "I need to lose some weight, will you talk to my grocer so he doesn't sell me so much food?" If they want someone to help facilitate the discussion, it should be a neutral party, like church counselor or something like that.

Agreed. You could be giving what you think is helpful advice/guidance, but SIL could take it as antagonistic. By getting in the middle, the likelihood that SIL thinks it is your idea to turn the screws is high.

Fun story - My parents were contemplating giving a large cash gift to one of my siblings to help get them (and their SO) on their feet and asked me about it. I told them they should either give the gift or not give the gift, but if they decide to give it, they shouldn't hold it over sibling's head. Somehow this got twisted into me advocating against the gift and sibling and sibling-in-law were extremely upset and berated me over it.



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