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Seeking Input Elderly Parents Finances

317 42 January 4, 2018 at 01:40 PM
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So my parents have put themselves in a somewhat tight spot. They, unfortunately, didn't plan well for retirement and are now trying to scrape by with what they have left. They're in the process of selling their home and downsizing to a condo. I'm looking for input on their best options and how best to proceed.

They are selling their current home and walking away with ~210k after paying off their HELOC and other debts. They're in the process of buying a condo for $156k, about the cheapest option in the area.

Monthly social security income - $1,000
Monthly living expenses (including insurances) - $2,100

Like I said, they've really got a mess. Their current plan is to pay for the condo with the proceeds of the sale of their house (won't they get taxed heavily on this sale? I've never sold a home so unsure of tax implications there). They also have a $30k inheritance coming in the next few months. There plan is to live off that 30k and the ~40k of the sale of the house. At this burn rate they'll be broke 5 years.

Obviously, there's no magic pill to fix this but looking for advice or different ideas on how to prolong their burn rate. Would it help me cosigning a mortgage on the condo and investing the house proceeds to generate a small return? Their house is sold so there's no changing that and they're about to be in contract on this new location. Obviously late to the game to make any large changes. I was kept in the dark on how bad the situation so hadn't been able to help previously.

Any insight would be greatly appreciated.

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#2
Sorry to hear about this situation. How old are your parents? How is their health? Where can they trim their living expenses?

Why do they want to *buy* a condo? Why not rent an inexpensive apartment? I retired in my 50s, sold our house and have rented ever since. With proper budgeting the proceeds from their house sale could last a long time.
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#3
Rent, most definitley. Especially if they can get a place that combines in extras like yard care, water and other utilities, a pool and gym, etc. My parents are in their mid 70's and their lawyer once advised that purchasing a home later in life is really more of a headache than anything else. To be blunt, they will likely not live long enough to see return on their investment.
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#4
Quote from jdougal09
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Their current plan is to pay for the condo with the proceeds of the sale of their house (won't they get taxed heavily on this sale? I've never sold a home so unsure of tax implications there).
They won't pay tax on the profit from selling their house. There's a huge exemption on each sale of a primary residence (I think 250k of gain per person) so no problem at your parents' levels. It used to be trickier before 1997 when you could only do that once.

(I am no tax professional... have them ask their realtor or at least Google it yourself if you're worried).
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Can they work, even part time? An extra $1000 a month would make a huge difference...
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#6
That Social Security income sounds really low to me for two people but maybe there is a reason for it.
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#7
I'm NOT certain of the best answer. The phrase, "house rich but cash poor" comes to mind. These are only ideas to consider. There may be better options. You'll have to look at the math of their specific situation before making a choice.
1) Rent, as already suggested.
2) Get a mortgage on the new house. The shorter their life expectancy, the better this option is. The longer their life expectancy, the worse this option is. That is, it frees up cash in the short run. But in the long run costs more.
3) Buy the condo, get a reverse mortgage.

Your calculations must include how responsible they will be with a stack of cash from either the mortgage option or the reverse mortgage option.

It may be that none of these options are the best choice.

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#8
Quote from UncaMikey
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Sorry to hear about this situation. How old are your parents? How is their health? Where can they trim their living expenses?

Why do they want to *buy* a condo? Why not rent an inexpensive apartment? I retired in my 50s, sold our house and have rented ever since. With proper budgeting the proceeds from their house sale could last a long time.
They're in their 70s/80s. Their health is ok. They've had a history of issues, but as we speak they're "healthy". I asked about trimming expenses, I didn't get full details, but they said they have. Most of the cost is apparently insurances.

Quote from finzz2dlft
:
Rent, most definitley. Especially if they can get a place that combines in extras like yard care, water and other utilities, a pool and gym, etc. My parents are in their mid 70's and their lawyer once advised that purchasing a home later in life is really more of a headache than anything else. To be blunt, they will likely not live long enough to see return on their investment.
I definitely see the point of renting. Most places in our area, that would fit their space needs, would be $1300-1500/month. I'm going to talk to them today about this but I'm not sure if they're in a contract on the new condo.


Quote from dukeblue219
:
They won't pay tax on the profit from selling their house. There's a huge exemption on each sale of a primary residence (I think 250k of gain per person) so no problem at your parents' levels. It used to be trickier before 1997 when you could only do that once.

(I am no tax professional... have them ask their realtor or at least Google it yourself if you're worried).
Well there's one good thing.

Quote from dukeblue219
:
Can they work, even part time? An extra $1000 a month would make a huge difference...
No unfortunately, they're life is mostly spent going to doctors appointments daily.


Quote from Iaaaiws
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That Social Security income sounds really low to me for two people but maybe there is a reason for it.
My Mom never worked/paid into it. My Dad owned a business my entire life where he must have been making min ss payments.
Quote from lsoh
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I'm NOT certain of the best answer. The phrase, "house rich but cash poor" comes to mind. These are only ideas to consider. There may be better options. You'll have to look at the math of their specific situation before making a choice.
1) Rent, as already suggested.
2) Get a mortgage on the new house. The shorter their life expectancy, the better this option is. The longer their life expectancy, the worse this option is. That is, it frees up cash in the short run. But in the long run costs more.
3) Buy the condo, get a reverse mortgage.

Your calculations must include how responsible they will be with a stack of cash from either the mortgage option or the reverse mortgage option.

It may be that none of these options are the best choice.
Someone PMed and suggested the reverse on the new place. I had never thought of that. They looked into it for their current place, but it was just too large for them to take care of. I will have to research the possabilities of this.
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Quote from dukeblue219
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They won't pay tax on the profit from selling their house. There's a huge exemption on each sale of a primary residence (I think 250k of gain per person) so no problem at your parents' levels. It used to be trickier before 1997 when you could only do that once.

(I am no tax professional... have them ask their realtor or at least Google it yourself if you're worried).

I believe the capital gains exemption requires the purchase of a new primary residence.

What about renting the current home and an apartment? The home rent should net them quite a bit of cash beyond the apartment cost and allows for market gains on the house.
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Quote from uniquename
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I believe the capital gains exemption requires the purchase of a new primary residence.
Definitely not true. There is no requirement to buy another residence. Easily verifiable online and by my own personal experience.
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Quote from jdougal09
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I definitely see the point of renting. Most places in our area, that would fit their space needs, would be $1300-1500/month. I'm going to talk to them today about this but I'm not sure if they're in a contract on the new condo.
What they need is a pile of cash, which they can get by selling their house and renting an apt. Even if they have a contract for the condo, it may be worthwhile for them to break it and lose a little -- given their ages and health, buying a condo makes no sense.

Regardless of their 'needs', find a smaller/cheaper apt. Tough choices ahead -- I'm afraid that it appears that sooner or later one or both of your parents will end up in a Medicaid nursing home.
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#12
wondering what $2100/mo is in insurances. May be spot-on, I'm just not versed in medicare and such.

If they are capable to do SOME work, I'd suggest that route, and it's healthy for them too. I am thinking WM greeter type stuff.
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Quote from UncaMikey
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Definitely not true. There is no requirement to buy another residence. Easily verifiable online and by my own personal experience.
Good news, I could have sworn it was...maybe used to be.
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#14
can you move into a two-family house / mother-daughter type house, and have them live in the other unit?
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#15
Healthy, but spend all their time going to doctor appointments ...sigh

If they are spending all their money on health care, you need to find out for what and why. Might need to call some senior places for directions.

As far as the house, no age requirement, main home at least 2 of the last 5 years. 250k/500k
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