Advice for financially illiterate and poor parents entering retirement age.

[hoosier]

My parents have never saved money, never taken part in employee sponsored 401k's, have basically no retirement savings like most Americans.

They plan on living off of social security in the next few years when they retired. My father has about 2 more years of working time left, my mother about a year. During a conversation with them today I found out that my mom has squirreled away about 20,000 dollars. She has been letting it secretly sit in a checking account making 0.01% interest for the last several years

Do I just have her put this money in an Ally Account and ride out the 11 month CD rate of 1.6% for a few years, or should I have them both open Roth IRA's and put the money in the market. They are both risk averse with poor spending habits.

They are aged 67 and 65. Any other advice woudl be greatly appreciated.

 

Thank you

 

[ENT Doc]

Sounds like a tough situation. Are they asking for advice? Would they not appreciate advice? I'd start with the basics - emergency fund, budgeting/expense reduction - before anything else. Then, yes, contribute to funds in the recommended order - 401k to the match, HSA, 401k remaining, IRA, then taxable. They'll be able to contribute more to the above given their age, but if they don't get their spending habits under control they won't be able to do anything. Are they going to be able to live off social security? Have they done estimates for what they will receive?

[hoosier]

They were wiped out by medical dept at the age of 55k when my mother got breast CA while my father was inbetween jobs. I think seeing their life savings dissapear left them feeling hopeless. That medical debt left them with about 50k in credit card debt which they have just paid off. No other debts besides a mortgage which they will likely never pay off at about $700.00 a month.

Estimated SS will be about 38,000 per year. They are going to have to do a major downsize, likely selling the home and moving to a small apartment.

 

I just want to make sure I can help them make the most out of the money they do have.

[MPMD]

God that sucks.

That 20k isn't going to do much for them. It's a small e-fund I would just leave it where it is. No chance that investing it is going to make a difference overall.

They aren't going to be able to do much besides budget carefully for life on SS.

If I were their son I would figure out if you're willing to help them and if so set aside $20-40k of my own money (maybe invested but definitely earmarked) for the stuff they are going to need help with. They aren't likely to remain solvent.

[Hatton]

I think the 20k in an fund at Ally is a good thought.  This is terrible.  Could they reverse mortgage the house?

[hoosier]

They don't own the home so no reverse mortgage option. My wife has 2.5 years of residency left and we have our first child on the way so we aren't exactly rolling in cash to help them at the moment. I'm focusing on teaching them to live a downsized, simpler, cheaper life.

In the next 5 years Im hoping to be able to buy them a small condo near us that my very handy dad can slowly remodel as they live there. Seems like a win-win for both situations.

They are extremely hard working, put my brother and myself through private school because they thought that was the best thing for us. It's a shame we live in a country where two hard working, tax paying middle class people can have their financial independence stripped from them due to a cancer diagnosis during one of the few moments of their lives they had no insurance.

I'm thinking just being conservative with the CD at ally may be the simplest way to go. Open to any other opinions!

[ENT Doc]

Ok. The situation sucks. Sunk costs aside, I think you have come to the realization that they are going to need your help. No two ways around that.

The best financial decision they made was investing in you - a successful, young, physician (married to another) with a bright future, and a son who cares about his parents' well-being. If I were you, I would discuss the situation with my wife and sibling. I would lay the groundwork for taking them into my home, allowing them to defray living costs so that their social security can go further. Better money management is important here, for sure. But what you're dealing with involves an intervention of sorts.

Best of luck, and let us know how things go.

[The White Coat Investor]

hoosier wrote:

My parents have never saved money, never taken part in employee sponsored 401k’s, have basically no retirement savings like most Americans.

They plan on living off of social security in the next few years when they retired. My father has about 2 more years of working time left, my mother about a year. During a conversation with them today I found out that my mom has squirreled away about 20,000 dollars. She has been letting it secretly sit in a checking account making 0.01% interest for the last several years

Do I just have her put this money in an Ally Account and ride out the 11 month CD rate of 1.6% for a few years, or should I have them both open Roth IRA’s and put the money in the market. They are both risk averse with poor spending habits.

They are aged 67 and 65. Any other advice woudl be greatly appreciated.

 

Thank you

 

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Are we giving advice to you or your parents? It's a very different thing.

Here's the good news. They actually may be in a great place. They don't have any debt. They already qualify for SS. They actually have a positive net worth. They have a child with a 1%er income who has his or her financial head on straight. AND they can BOTH still work. They could be in a far, far worse position.

Here's some things to think about that I'd try to do:

1) Delay SS to 70

2) Work at least until then

3) Try to save as much as possible toward retirement from now until then (preferably in a tax-deferred account since there isn't much of one already). $100K is a lot more than $20K.

3) Consider a reverse mortgage on the house vs downsize. I suspect their home equity may be their most valuable asset outside of SS.

4) Consider a SPIA, particularly an inflation indexed one with a good chunk of the money

5) Rely on the rich kid as a backstop

[amphora]

Lot of good advice so far. I agree with WCI that they're not in such bad shape.

They should be able to live off 38K / year with an occasional assist from you for say a family vacation or a car. I would prioritize coming up with a budget so they're able to stay within their means. With $700 monthly rent, they don't need to move and as long as they don't have crazy hobbies, they should be fine.

[Slav4ikMD]

They sounds like a typical and average American couple nearing retirement.  Just helped to put things in perspective how most of us here are actually outliers (and perhaps don't always see it that way or appreciate it).

Otherwise agree with WCI above.  Nothing wrong with just putting that 20k into an online savings for their rainy day, honestly that 20k is not much no matter what you do or don't do with it.

You can also become your parents "bank" if you feel comfortable with that - take that money, use it to max out your 401k or essentially invest it some way long term, IF you have the cash flow to give that money back to them at some point when needed.  (I've done something similar with my mom, where we have an agreement that whatever she adds in that pool she gets guaranteed 3% interest on - it's sort of silly, but it works ok for both of us.)

 

[Hatton]

I am no reverse mortgage expert but I think you can do one if you have equity not just a paid off house.  The problem would be if they wanted to move later

[AlexxT]

If social security is their only income, that amount will be completely tax free, so that $38,000 will go somewhat farther than you may have realized.

[CM]

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[MPMD]

CM wrote:

I don’t have the data in hand, but I’ll bet that your parents are in better shape than their median peer. Their situation is not grim. It’s just not as nice as that of most posters on this forum.

They can have a very good life in retirement. They just won’t be spending a lot of money. If they want to spend more they can continue to work. (Agree with WCI’s points above.) When you are an attending you may want to help them from time to time, but they will be fine with or without that help.

My late grandfather worked for GM in a blue collar position his entire career until he was laid off/given early retirement at 55. My grandparents had to sell their modest home and move into a trailer park. I know this made my grandmother sad (though she never said so) because she was very proud of her magnificent garden. Nevertheless, they still had a good life centered around their family, the same as before.

They planned a road trip to the national parks out west when I was a young attending, but my dad bought them plane tickets instead and I was able to give them $1,000 to make the trip more comfortable. They acted like they won the lottery and it still makes me a little teary to remember that.

Anyhow, your parents will be fine.

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I don't agree with basically any of this.

his parents have a negative NW, essentially no cash, no investments, and are looking at retiring on SS only. keep in mind that several truly intelligent posters on this forum view SS as an insolvent Ponzi scheme. i don't agree, but it isn't exactly a gravy train either.

Your story is nice and good on your for helping your own grandparents, but it's a story about elderly people living in a trailer park for whom a $1k gift was life changing.

$38k/year in SS is going to keep them in housing/lights/water etc. but your throw another illness, accident, acute rehab, or major roof leak in there and you could be in serious trouble.

[CM]

MPMD wrote:

$38k/year in SS is going to keep them in housing/lights/water etc.

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