my parents' very messy financial situation- what do you think?

[almostalumping]

Hi Everyone,

I'm so glad that I found this forum- you all give great advice! I took over my parents' finances, and I'd love any suggestions as to how I can get them out of debt because I'm running out of ideas.

My mom is 55 and my dad, who is disabled, is 62. I'm on my own, but they still support my 21 year old sister who is a senior in college (she already has $45,000 worth of student loans) and my 19 year old brother who is a sophomore in college (no loans yet, and he lives at home).

Total Monthly Income: $4,415

Dad's retirement fund (they haven't touched it yet): $335,000
Mom's retirement fund: $4,000

Debt:
equity loan (6.24% fixed): $42,761
equity credit line (8.25% variable): $23,110
life insurance policy for my dad in default $6,800 (if we don't pay it back before he turns 65, we lose most of it)
dentist bill: $1,600 (he's really nice and says we can pay it whenever we have it before the end of the year- no interest)

Monthly Bills:
Dad's insurance premium: $231.52
Phone/internet: $135
oil/heat: $250
Water: $60
Cell Phones (family plan): $120
minimum equity loan payment: $385.70
minimum equity credit line payment: $299.52
food/medical/gas/supplies/other: sometimes as high as $1,000

Annual Bills (this was all due in August, so I'm going to be paying these off through Dec- I did have a plan in place to save ahead of time for these, but my mom hurt her back and was out of work for three months and we had to pay for outside health insurance during that time, so I don't have enough right now)
Car insurance: $4,242
homeowner's insurance: $1,400
property taxes: $4,250
brother's fall tuition: $1380
sister's fall tuition: $2121

I have every dollar of their income accounted for to keep pay the monthly bills and to finish paying off the annual bills by then end of December, but when January comes I'm going to start putting every available dollar towards their loans.

I live across the country and take home about $25,400 a year (first job out of college, and I'm planning on applying to medical school next year, which will cost about $4,000). I've already used about $3,000 of my money to help pay for some of their bills, but I think that I need to stop doing that and start saving for myself so that I don't end up in the same situation that they are in. I don't expect to get that money back.

Does anyone have any suggestions for what I can do to improve things? Thanks!

[boefixepa]

For starters....do your siblings have at least part time jobs? If tution is $2100 for your sister a semester....what in all creations is she doing with 45K in student loans!!!!

You may have to take a pretty hard stand with your siblings, but honestly..your parents can NOT afford to support them completely. They are providing housing and food...which is more help then I had in college. They need to swallow a grown up pill and pull their own weight.

Your siblings should contribute enough to the household to pay for their own cell phone and car insurance, gas and as much tuition as possible. Work out a 'contract' with them. Put it on paper and make them aware of their responibilities. If they don't want to....their phone get's turned off, they get dropped from insurance. It's not that their parents don't love them...it's just NOT possible for their parents to continue to go deeper and deeper into debt at this point. Unless they plan to take care of their parents in their old age because their retirement is gone, they have to take care of themselves!

As far as their bills are concerned...the auto insurance is REALLY high. We have two cars and two drivers and pay less then $500.00 a year. Find out what's going on there.

It sounds like you have a good plan together....stick to is and make sure your siblings start to carry their part. Your parents can't do it anymore.

[almostalumping]

Thanks for your input!! My sister's tuition is ~$7,000 a semester plus $420/month for rent and parking. The $2121 is what is left to pay after her loans. I definitely agree that my siblings need to be cut off. My sister is a huge problem. She has a part time job but brings in maybe $200/month, and she often spends much more than that on food and frivolous items and ends up with not enough money in her account for rent/parking. Then my mom feels badly and begs me to give my sister money for rent instead of making an extra payment towards the loans.

My brother has just started working, so I'm hoping that that will help things.

Thanks for letting me know about the high car insurance. That's for 3 cars (mom, brother, sister). Since we just paid for this year, I'll have to look into something cheaper for next year.

[pearlieq]

Do not, and may I repeat DO NOT, contribute your own money to this situation.

You need your money to get yourself established, but, more importantly, once you start, it's very hard to stop. And the longer you do it the harder it is to stop as well. They will start looking to you as the solution to their problems instead of working to solve it themselves.

Your parents have many options for taking care of their finances other than you contributing your own money.

This is experience talking here. Don't get yourself into that situation!

[disneysteve]

I pretty much agree with everything boefixepa said, except about the auto insurance. You're lucky to be spending less than $500/year. You must live in a very low cost area. In PA, NJ, NY etc., spending a few thousand/year isn't at all unusual. My wife and I pay about $2,400/year for the 2 of us, both mature drivers with clean records. Add 2 teenagers to that and I'm sure the rates would more than double.

That said, however, I'd still take the time to get new quotes, especially from lower cost companies like Geico, Progressive, Liberty, etc. Even if you could trim 5-10%, they'd save a few hundred dollars.

Other than your dad's retirement savings, is he eligible for a pension or is that money all they've got (along with SS)?

$135 for phone/internet is much too high. Can they switch to just cell phones? If not, look into a cheaper phone/internet service like Cavalier (cavtel.com) or one of those. They charge $39.90/month for high speed internet and unlimited local calling. Then just use the cells for long distance.

Ultimately, though, I agree that the big problem is they are supporting adult children and really aren't in a position to do so to the extent they are. The kids need to start contributing with some part-time work and summer jobs, and maybe additional loans. Your parents just can't afford to keep doing what they are doing.

[disneysteve]

Originally Posted by pearlieq

Do not, and may I repeat DO NOT, contribute your own money to this situation.

I forgot that part. ABSOLUTELY AGREE!! You should NOT be spending your money to support your siblings. All that will accomplish is prolonging them taking responsibility for their own lives and burying you in the meantime.

[My English Castle]

It sure looks like your sister needs to pay her own rent and car insurance as well as take responsibility for her own educational costs. Your brother probably needs to know the situation as well, so he can prepare himself for
pulling his own weight.

I'm not sure whether your parents are on board with you, or if you're just taking on this responsibility. they (not just you) need to get everyone on board.

Everyone knows I always recommend Dave Ramsay's Total Money Makeover, but if you can get it from the library, I would.

Good luck, but I agree with the other posters about not getting too enmeshed in this problem. Help as you can, but don't throw good money after bad,

[almostalumping]

oops- the $135/month also includes cable tv

My dad gets a pension, social security, and some money from the VA since he's a vet. Out of the $4415/month income, my mom is only bringing in a little over $1,000/month (but she pays for health insurance and some dental). She works at a daycare. I've tried to convince her to look for a better job, but she's very scared to leave her current one because she doesn't really have any skills. She doesn't know how to use a computer or how to type or how to use a cash register. I've tried to work with her on the computer when I'm home, but that's not too often since I'm in CA and she's in PA.

We applied for more money from the VA when I found out that my dad is eligible for it. But, that was six months ago, and I haven't heard anything since (despite numerous attempts to get an update), so I'm trying not to count on that money coming.

[willowstudios]

Consider downloading Dave Ramsey's free Podcasts and having all your family members listen to them. He gives advice to people just like your family and it's very useful. Everyone being on the same page is the most important thing and Dave Ramsey is famous for getting people fired up to get out-of-debt and stay on track.

[Aleta]

I heard alot of things that trouble me. First of all, you said that you live way across the country. It would be very difficult to handle the situation that you describe even if you lived in the same city.

You said that their income is $4,415. a month. That's $1,103.75 a week. That's pretty good money. I don't know if that is gross or take home. You said that your pay is $25,400. That's $2,116. per month or $529 a week. How can you possibly contribute when you have your own bills?

Also, you said that you plan on going to medical school next year. Who's going to help you out with that or are you going to get your own loans. I have some experience with your situation and this responsibility isn't yours.

I don't know what kind of disability your father has and his limitations, but they are not that old. Your Mom is only 55 yrs. old. My own Mom had what is called "learned helplessness". When she would have a problem, it became everyones problem. You can't parent your parents. Like some said here, be careful of emmeshment. Your siblings need to see the way things are and pull their own load the same way you did and are now doing.

You won't be able to continue this because if you meet a nice girl, she's not going to go for set-up that you have. You shouldn't have to contribute. Some people there need to pull in their belts and live below their means. Sorry, but you're just going to have to not take on what is not yours.

[disneysteve]

Originally Posted by almostalumping

Dad's retirement fund (they haven't touched it yet): $335,000


equity loan (6.24% fixed): $42,761
equity credit line (8.25% variable): $23,110
life insurance policy for my dad in default $6,800
dentist bill: $1,600

Another thought. While it sounds nice that your dad hasn't touched his retirement fund yet, with over $74,000 in debt, I'm not sure that's the best course of action. It might make more sense in the long run to start drawing on the retirement funds and use the money toward debt repayment, especially the highest interest debt like the 8.25% HELOC.

And, as we always do, I'd suggest trimming the expenses. Your parents can't afford cable tv right now with 74K in debt to worry about. I realize it is a very small piece of the problem, but I think it is a mindset thing - they need to give up the luxuries - cable, cell phones, etc. - until they get their situation cleaned up.

[Aleta]

I also had another thought as well. You can never do for others what they are not willing to do for themselves.

[Scanner]

The information isn't copious on the situation so I'm just kind of extapolating here.

Here's my advice:

1. Agree with the posters on the adult children ponying up something.

2. Agree with DisneySteve on car ins.

3. Your father is 62 and drawing a disability check. I beleive he can actually withdraw money penalty-free from retirement funds after age 59 1/2. (please check this)

I would also imagine most of his portfolio is income and if not, it needs to be there, something like 60% bonds/40% equities or something close thereof. So, a Target 2015 fund may be a good model. On his $335,000, let's say he averages a 5% return this year - that's $16750. Without touching the principal, I'd pay down the debts with accumulated interest from this account over the next few years.

You can have earnings sent from his mutual funds right to him instead of having them re-invested.

A. Pay off the dentist bill first for karma reasons. And oh, credit reasons.

B. I'm not sure what kind of life insurance product it is but it sounds like a whole life.

Pay that off second. Or just let it go - it's probably about worthless anyway.

C. Then the HELOC.

D. Then the home equity loan since the term on that is fixed and probably the term on the HELOC is "revolving." Also, the bank could hike the interest rate on the HELOC.

Your 'rents situation isn't hopeless; they just need to take the bull by the horns. Hopefully in 3 years they are close to being debt-free as a nearly retired couple should be.

[almostalumping]

Originally Posted by Aleta

You won't be able to continue this because if you meet a nice girl, she's not going to go for set-up that you have. You shouldn't have to contribute. Some people there need to pull in their belts and live below their means. Sorry, but you're just going to have to not take on what is not yours.

I am a girl. I'm very lucky because I have met a very, very patient and understanding man who is currently in the process of shopping for an engagement ring He has been super, super tolerant of my involvement in my parents' situation and has been helping me deal with this, but I know that it bothers him. I certainly don't want to screw up a future with an amazing guy over this.

I'm going to be applying to MD/PhD programs and mostly to MSTPs, which are fully funded by the government and provide a small living stipend. I don't have any undergraduate loans because I got almost a full scholarship. I worked excessively in high school, so I had almost enough savings to pay for the remaining tuition myself.

I will definitely have my mom look into my dad's retirement policy to see what we can take out without a penalty.

The life insurance plan is awful, but they've already paid so much into that I think it's probably worth it to keep going. It's worth $150,000 when my dad dies (as awful as it feels to type that), but that's only if they keep paying the $231.52 monthly premium until he turns 65 AND pay back the $6800 before he turns 65. They were done paying the premium, but then it was reinstated when my mom borrowed money from the policy. That was probably one of the biggest mistakes made. If those two conditions are not met, the policy is only worth $30,000.

My mom is trying to get out of her situation. She still has a soft spot for trying to help my siblings, but she's made a ton of positive changes since I've started managing her money. Obviously, she still has a ton of changes to make, but she's doing much, much better than she was a year ago. My dad's short term memory comes and goes, so she's on her own (except for me) with most things. Before my dad got sick, he took care of EVERYTHING, so this was a shock for her.

I really appreciate all of your responses. This has been pretty overwhelming for me, and it really helps to read your suggestions!

[boefixepa]

Hang in there and keep fighting for your parents...and that is really what you are doing.

Look at it this way....if you don't help your mom figure this out ... who is going to take care of them when their reirement money is gone? Better to bit the bullet now and set things in order.

Your siblings are hard. I watch my parents dump good money after bad more then I care to think about....the love a parent feels for a child is hard for moms to deal with. My brothers & sister learned how to play my mother AND my grandmother for money everytime I turned around. I still shake my head. It's hard as a mother to watch your childred deal with the harsh consequences of their choices. I guess as a mother you WANT to spare them the pain, but until you let them feel that pain, they will continue to make poor choices.

Good luck to you, and hats off for your efforts, and the help and support you are giving your mother! You are a blessing to her!

[Saving in So Cal]

In case you need any more incentive to not contribute your own finances to the situation:

To the extent that you are acting as an actual or de facto conservator for your parents, you cannot co-mingle your funds. It is a big no-no and it could be grounds for one of your apparently less responsible/capable siblings to take away control over your parents finances from you. There are also income tax implications and your parents don't need any more financial trouble than they already have.

As for your siblings, it's great when parents can help kids get established once the kids become adults. But, sometimes that's not possible. Your parents did not pay for your college, nor were they obliged to. They are also not obliged to pay for your siblings. I, like many other posters on this board, paid for my own education through graduate school with a combination of work, loans, and belt-tightening. Your siblings can too. They can also pay for their own car insurance and cell phones. If they don't want to pay, cut them off. They can take public transportation and buy a prepaid phone.

I know I sound harsh, but I am convinced that we are doing young people a huge disservice by not teaching them how and encouraging them to be independent when they become adults.

When I was your age, my parents were in a similar financial situation and, at times, could not even afford to buy food. My adult siblings knew how bad the situation was (we had words), but still expected my parents to support them. My parents were too kind to kick them out of the house or force them to contribute to the household. Things didn't change until my parents sold their house and moved away without them. Afterwards, it took years (arguably decades) for my siblings to establish themselves.

I don't mean to imply that your siblings are as bad as all that. Only that it is important for them to learn to be self-sufficient as soon as possible just as you have.

[disneysteve]

Originally Posted by almostalumping

Before my dad got sick, he took care of EVERYTHING, so this was a shock for her.

Once again, we see a great example of why both spouses need to be involved, or at least aware, of family financial management. Unfortunately, one spouse, usually the guy, does all the work and the woman is clueless - doesn't know what they have, where it is, or how to manage it. Then the guy gets sick or dies and the woman is a wreck.

So men (and ladies), PLEASE, get your partners involved. I manage all the finances at our house, but several times each year, my wife and I have a "financial date". We sit down at the table and I run through my spreadsheet with her, showing her all the accounts and investments we hold. I keep one master list of every account number with contact info for the banks and fund companies, our insurance agents, etc. If anything were to happen to me, she knows where all the important papers are and how to contact each company.

Sorry to hijack the thread. It was just a point I couldn't let pass by.

[LuckyRobin]

I think this thread also supports my opinion of not just giving your kids a college education without making them earn at least half of their own way through. These lazy siblings are a perfect example of children taking their education for granted at the expense of their parents' security and ability to manage their own household.

If those kids had been made to put themselves through like the original poster did, the parents might not be in this situaion.

[ithaca]

The problems that your parents and sibling have gotten themselves into is their own problem and they need to learn how to deal with it themselves. You can help them through it with planning and advice, but don't throw your hard-earned money at it. Take care of yourself first including savings and retirement (so you won't be going through the same thing when you're their age). Best of luck.

[InDebtInDC]

I believe that parents need to let their kids deal with their life choices early so that they will learn to make better choices. Not all college majors are created equal, and if they pick the wrong one the kids will be practically unemployed when they graduate.

I think it's better to let them get a taste of poverty before they enter college.