Financially supporting parent(s)?

[MochaDoc]

For the folks who plan to provide financial assistance to their parents, how will you go about doing this? If you're already doing so, I would like to hear about this, as well.

This topic has been touched upon in a variety of blog comments and forum threads however, I thought it'd be nice to have a dedicated thread for inspiration and support.

Personally, I've always envisioned a multi-generational household and am looking forward to having one someday. However, my mother seems less enthused about not living alone/independently. As a result, I've had to float a variety of more creative ideas such as a shared multiplex where she lives in a unit and winters somewhere warm. I'm currently owner-occupant of a duplex in a place with harsh winters. I've tried to talk her into moving to our home island, living in a home that I purchase while taking care of my (unborn) kids during the school year. Lots of factors into why I want this to happen. She loves our island but really hates this idea. The few ideas I've thought of would cut down on her post-retirement, financial expenditures considerably while not increasing my own exponentially. She's still 3-7 years out from retirement so I have time but I'm all about being proactive and not reactive.  For now, I simply try to unobtrusively get a clear picture of her finances so I can plan, prepare and make gentle, corrective suggestions, if needed.

 

[ajorgens]

My mother is 76 and still lives alone, but I am trying to get her to move into our house that had a level built specifically for her.   She continues to work in the office doing light bookkeeping with the additional benefit of having a "purpose" each morning and social interaction with the office team and us.

Projecting myself into the future, while I know (at least I hope) my kids would want the best for me - I would not like to be treated like a child and "told" what I must do...so I try to provide my mother with options that would be beneficial (for her and me) but ultimately leave the final decision to her.    I will continue to support her wherever she is most comfortable living - but I will also continue to put my thumb on the scale towards arrangements that are best (in my opinion) for everyone.

[jfoxcpacfp]

MochaDoc, at 3 - 7 years away from retirement, it is probably difficult for her to envision losing what she would consider loss of independence. I know it certainly would be for me. What the biggest factor for aging parents, at least in my experience, is not financial as much as social interaction and community. Not sure how far your mom lives from you but I presume you are both in Hawaii but on different islands. If she has lived in or near the same neighborhood for all or most of her life, it may be very difficult to give that up and move to a place where she is a stranger but for her own family.

I don't really have a solution for that except to suggest that perhaps you keep your thoughts a little more private for now and have a backup plan for when she is no longer able to manage on her own. That may never even happen, who knows? Sounds like you are already doing that somewhat.

[Farfetched]

I have other questions regarding this issue.

I voluntarily give my parents 1/10 of my post tax paycheck despite they not needing it now and hopefully never. Is there any way to better execute this? I tried claiming them as dependents for tax deduction (is is possible?) because my contribution is more than half of their annual spending, but they do not have SSN so seems not doable. I also wonder if that money ever comes back to me in the far future, will I get taxed AGAIN?

I feel I am doing the right thing for personal reasons, but I want to know if there is a right way to do this. If any forum members share similar experience, please advice. Thank you,

[jfoxcpacfp]

Farfetched - you are making a tax-free gift to your parents. You can give each of them up to $14k per year without having to file a gift tax return to report your gifts. If you are married, your spouse can "join in" to the gift and the eligibility for you as a couple to give doubles to $28k per year per person.

If you are truly supporting your parent then, yes, you can claim them as dependents if other tests are met (note that the 2016 income threshold is $4,050). As your parents, they are not required to live with you to be eligible dependents.

You will not owe taxes if they decide to give the money back to you. Yes, there may be a better way to execute this, but I do not have enough information about the purpose of your gifts to them, your goals, etc.

[MochaDoc]

Thanks for your reply, jfoxcpacfp. The information I provided may have been a little too vague or maybe my original title was misleading in regards to my personal situation. My mother is not physically infirm or decrepit and she's not particularly old. The problem is she's financially ill-prepared for retirement. She is a spendthrift and I am frugal/cheap. Some would even call me a skinflint. We've both known for sometime that her retirement prep would be inadequate. Years of financially tense discussion resulted in some improvement over the years but a late start, coupled to continued commitment to financially imprudent spending habits will result in wholly inadequate retirement funds. A SWR of 4% would cover less than 14% of her current after-tax income. If she takes out 4x more than that, she'll be more comfortable but she'll run out of money in less than 7 years and she still won't be able to cover all her current bills or reduced, post-retirement bills. Based on the above, I've accepted the fact that I am, essentially, her retirement plan; unless I want her to wind up homeless and/or subsisting on bisquick and dog food in her retirement. So there must be some balance and compromise for a better outcome for all involved. The only questions are what and how.

By the way, we're not from the Hawaiian islands. We're Caribbean Islanders.

[jfoxcpacfp]

MochaDoc wrote:

Thanks for your reply, jfoxcpacfp. The information I provided may have been a little too vague or maybe my original title was misleading in regards to my personal situation. My mother is not physically infirm or decrepit and she’s not particularly old. The problem is she’s financially ill-prepared for retirement. She is a spendthrift and I am frugal/cheap. Some would even call me a skinflint. We’ve both known for sometime that her retirement prep would be inadequate. Years of financially tense discussion resulted in some improvement over the years but a late start, coupled to continued commitment to financially imprudent spending habits will result in wholly inadequate retirement funds. A SWR of 4% would cover less than 14% of her current after-tax income. If she takes out 4x more than that, she’ll be more comfortable but she’ll run out of money in less than 7 years and she still won’t be able to cover all her current bills or reduced, post-retirement bills. Based on the above, I’ve accepted the fact that I am, essentially, her retirement plan; unless I want her to wind up homeless and/or subsisting on bisquick and dog food in her retirement. So there must be some balance and compromise for a better outcome for all involved. The only questions are what and how.

By the way, we’re not from the Hawaiian islands. We’re Caribbean Islanders.

Click to expand...

You're right, I didn't realize what you were alluding to, although I didn't think she was infirm or old, given the facts you provided. I still think this is her problem, not yours. Not sure what retirement provisions she will have from government in the Carribean, but she may have to work longer than you project. Parents are meant to prepare their children for independence, not the reverse.

[Hatton]

MochaDoc I found that my father would not accept financial or medical advice from me until the end of his life.  You may have to help your mom and you may not agree with her decisions but she is your mother not your daughter.  I guess all generations struggle with this.  My father died at 92.  He was mentally competent until perhaps 48 hours before he died.  Some decisions he made I did not agree with but they were his to make.

[MrsIMDoc]

MochaDoc, my mother was also financially not prepared for retirement.  She had worked minimum wage jobs my whole life and to make a long story short, I came from a poor family that relied at times on public assistance.  I was the first to go to college let alone medical school.  I had always planned to pay for my mother's retirement and in return my mom would watch my children (who at the time did not yet exist). I even went so far to inform every guy I dated that this was part of my plan.

This was fast forwarded when my mom got cancer and had to move in with me and my husband for treatment.  During that time we started laying the groundwork for how we would be supporting her over the rest of her life because working a minimum wage job after surgery and chemo did not seem right.   During that time my husband made the request that if we were going to support her than we needed full transparency into her finances, including access to see where she was spending her money, credit card debt, etc.  In that process we learned that my mom had for years been spending the money I sent her in medical school and residency on spa treatments over $8000 among other things.  This was the tip of the iceberg in learning her poor financial spending habits. We offered to put her on a budget/allowance that we would give her, but in exchange she had to agree to not spend frivolously and to not have credit card debt.  She ultimately got quite upset and it ended my relationship with my mom. Regarding her cancer, she did fine and is now still cancer free.

The reason I tell this story is because I am not sure if you are yet married, but planning to pay for a financially irresponsible parents retirement can wreck havoc on a marriage.  My marriage survived and we are stronger now because of this, however my relationship with my family is forever changed.  Not to mention that if you are paying for your parents retirement, your spouse's parents may expect the same.  When I was in college and medical school, knowing doctors made over $200,000 sounded like an incredible fortune and I could not imagine NOT supporting my family. I think it is a burden that people that are from lower income families that become high income physicians struggle with.

[conniebird]

IMDOC- I feel like this is a topic that WCI should talk about (doesn't apply to him obviously)...it's more common than people think. It crosses cultural/ethnic boundaries, but I do think it is more common in asian cultures to fund the parent's retirement or at least pad their banks a bit.

I am not in the same boat but my mom, like many asian moms, want me to give her money on a somewhat regular basis. She often tells me how her other friends' kids bought their parents a new car, paid for their last vacation, bought them a gucci bag, it goes on and on. I had to have a firm talk with her on this topic. Before I became an attending I would simply state, well I am a doctor (in training) and their kids are not. Now that I am newish attending, I now say, well, if I didn't have 200K in student loans then maybe I could do that stuff. That shut her up pretty much. But boy, I still feel guilty time to  time, esp when I hear my mom's friends kids (I know most of them) are buying their parents cruises and such.  At least, I feel very lucky that she is well funded for her retirement. I know many many young docs whose parents have not, and they will be responsible for not only paying back a mountain load of debt but also supporting their parents. I cannot imagine that kind of stress.

As an aside, I am "re-reading" The Millionaire Next Door on audible... it def helps set your mindset on how to reach FI. So easy to get caught up in our consumptive society.

[jfoxcpacfp]

conniebird - is it typical for kids of Asian descent to be able to afford these luxuries for their parents or is it an expectation no matter what their income level? This is something I have heard from a couple of Asian clients, but not all. Very interesting to me and possibly a question I need to be asking.

[YSH]

I have no advice.  Situation similar.  MIL has never been and will never be financially independent.  The fact that she is still very far from retirement age makes it even more difficult.  Both of her children, lucky for her, have good degrees and higher than above earning potentials, so she at least will never have the burden of a child being financially dependent on her.  A good and bad thing about this is, however, is that she is well aware of her children's ability to support her and sometimes makes inappropriate choices and demands.  Case in point, she quit a descent paying job on several occasions without considering the ramification because her boss gave her a hard time once or twice and basically said "well I don't need this, my xyz just got promoted and has a house in xyz so I can just move there and be with him/her".

I think the importance of living within her means is a lesson we continually enforce.  We do supplement her extremely modest income yearly (same amount every year) and in addition, "pay her" the current rate for all babysitting that she does when she is available.  We also pay for some of her expenses (cellphone, car expenses). We have also set aside money on behalf of "her/ grandchild".  We say to her this money is (1) to save for child later, (2) to have it for her in case of emergency, and (3) just have it out of our sight so that when emergency does hit we don't feel the pain as much since we are not seeing this money as ours anymore.

Biggest things I learn from this:

1. divorce is very, very difficult to recover from both emotionally and financially, esp with children and limited resources.

2. for my girl,  it is so so so important to teach her personal finance and the importance of saving money and making good life choices.  Dignity and self respect is difficult to hold onto with aging and even more so if aging + financially dependent on someone else.

3. for my girl, marry a guy who can stand up to his mom, especially when her choices are not appropriate and may affect your own family's situation (despite however much he loves her and feels guilt over it).

4. I have said it elsewhere, but don't depend on grandparents to be your primary childcare.  In my experience, this causes more friction on top of the already tense financial discussions.

 

[squirrel]

Different take here.  One parent deceased.  The one alive is quite frugal and likely considerable assets (though I seriously have no clue.  It could be a million or could be 10Xs that). No transparency and has been guarded about it for decades, though I know made a good living and as said, has always been, and still is, very frugal.  Bigger concern is slow, but obvious (especially to an MD) loss of cognitive function.  I worry all the time about said parent getting taken advantage of by either stranger, or worse some close or distant family.  Have tried to discuss in the past but don't get very far.  Cognitive issues are not bad enough to prove incompetence, at least not yet, but may end up there.  Believe me that issue is much more stressful.

In laws, are long divorced, one quite responsible, the other recently decided to retire at age 67 because "was tired of working with almost no assets at all to speak of and could honestly work at least another 5 years as very physically capable.  Also has a history of very poor spending habits.

I am sure will end up supporting at least one in some way.  Tough to plan for but I just accept that it may hit our own personal plan to some extent that I have yet to define.  Duty bound to do the right for ones who have done so much for you, but the older you get, the more you get concerned about your own family.  Where does one draw that line?

Not to much advice here but thanks to MochaDoc, a bit cathartic to think about and voice.

[conniebird]

I think the line is drawn his way - your first (financial) duty is to your immediate family (spouse, kids up until they are functioning adults, hopefully our kids will become financially independent!). Then one can consider helping other family. I may need to help out a family member in the future. But I will not do it at the expense of reaching my own/family's needs.

Knowing this group most of will likely be in a position to help - but I'd draw the line at basic expenses. Not to feed their bad spending habits and definitely won't be buying them a home (have seen some folks being asked to do this!). Otherwise you'll be taken advantage the rest of your life. I'm late to the game in reaching FI but will get there. But that also means I won't have a ton of extra to support anyone else.

[conniebird]

Squirrel - sorry to hear about your parent. A year ago I sat down with my mom and sibling and we went over her "estate" - it isn't much but she told us how she is giving it away. Really just her retirement accounts and checking stuff. As the MD child I got a lot less and that's ok with me. The non-MD child needs it more.