Help with idea for an older couple

[mrpaseo]

Hit something while writing the title in and it posted... Oh well.

"I'm looking for ideas for this older couple."

Hey folks, I am working with an older couple that are approaching their Golden Years. I wanted to run their situation by you (With their permission) to see what you feel their best course of action will be.

They are 65 (Him) 60 (Her) and they have three children that are doing well (Meaning they do not need any inheritance). That said, what they have or will have is theirs to enjoy.

They are interested in working until he is 70 to maximize their Social Security payments and to set themselves up to live happily ever after. At that age, they are interested in traveling. They are talking about buying/renting a recreational vehicle and driving around the USA to see what we have to offer. (They currently do not own an RV).

Their current financial footprint looks like this:

INCOME:

1st: His pension: $1,967 take home
15th and 30th: His income: $600/$600 take home
Weekly: Her: $180 (About $750 per month) take home

Overall monthly income is about: $4,000

Emergency fund: $1,047

Savings:
Vacation fund: $384
Savings account: $577


Bills:
Home: Value $160,000 owes $98,000
Car: $8,900
VISA: $4,388 renovating kitchen
AMEX $1,200 (Will be paid off by the end of the month.

They do not usually carry a balance on their CC’s, they paid them in full unless they have a project going on. Currently they are renovating the kitchen (A piece at a time to spread out the cost).

Monthly household bills:
Mortgage: $795.89
Life ins: $44 and $38.27 (Whole life, cost will never change)
Auto insurance: $130
Food: $900
$250 into savings 1st
$250 into Savings 15th
$250 into emergency fund

Vehicle payment: $246.81
Cable TV/Internet/House phone: $176.00
Cell Phone $94
Electric: $81
Water: $32
Gas: $11
Medical Ins $30
Hair: $30
Med Savings: $100
Christmas: $100


$500 Visa (Changes with the balance of the CC)
Veh Tags: $65 (Annual)
AMEX: PIF Monthly $1,200 (Changes with the balance of the CC)
Mid Month Visa: $500 (Changes with the balance of the CC)

Balance on the CC is from Kitchen remodel and a Vacation
Spending money: $200 each ($400)
Medicare: $104.90 (Will go away at age 65)
Misc spending: $300 month

Investments:
They cashed out their 401k’s a few years ago to pay off debt. Currently, they have no retirement investments.

Due to the economy and their age, they are afraid of investing into the market. They do have a small amount of Precious Metals of which they like because they have physical control of the asset.

They did some research and found that he can start drawing Social Security next AUG (age 66) and will receive approx $1,000 a month. Each year, the amount goes up by $200 until he maxes at age 70 with $1,800 a month.

They are currently thinking about selling their home when he reaches 70 (Nothing set in stone yet) and traveling for a few years. The thought of maintaining a home/house (Maintenance/lawn etc.) after the age of 70 is not appealing so this is what got them to think about selling the home.

They talked about using the Social Security checks to pay down their home but to me, that seemed a waste since they are planning on selling in 5 years. Which brings me to the reason I am writing here.

I am looking for some ideas as to if they should pay off their home, if they should invest the money instead and where they should invest the money knowing they will need some of it in five years.

Thank you for your time.

[Petunia 100]

If they aren't comfortable investing in stocks, then they shouldn't, IMO.

After consumer debt is paid in full and savings accounts are fatter, I think prepaying the mortgage would make sense. Yes, they will sell the house anyway. In the meantime, they will save interest at a greater rate than any "safe" investment will offer. When they sell, they will recoup and receive a larger check at closing.

I assume the home equity will be buying the RV? Have they investigated the cost of buying an RV, and the costs of living in one? I think they should start investigating that lifestyle now.

I also think they should consider trimming their budget; I see a lot of fat. They should try to build up some assets while they still have a little time. While their pension and SS benefits will provide adequate income, they have little in the way of other assets. If it were me, I would want to accumulate what I could to cover large irregular expenses from savings rather than from taking on debt.

[HereForTheCheese]

I would definitely suggest eliminating their debt as the first plan of action, considering their passive income is ony due to increase. Relocating to new home sounds like a good idea as long as it is not underwater, and their still coming out on top at the end of the month. their emergency savings scares me though, which is why I would recommend the igloo method to pay down their loans rather than the snowball/avalanche. Waiting on SS is the best bet for them right now as well, as a passive income increase of 200/year is fantastic.

[BuckyBadger]

Am I reading it correctly that they have $2,000 in all savings accounts combined and no other savings or investments? $2,000 is the sum total of all of their assets other than equity in their home?

[mrpaseo]

Am I reading it correctly that they have $2,000 in all savings accounts combined and no other savings or investments? $2,000 is the sum total of all of their assets other than equity in their home?

You are correct.

[Blessed]

I think they should invest put half of extra money towards the car and 1/2 towards the EF until the car is paid off and they have some more cushion in their EF. That is a frighteningly low amount to me personally. Especially at their age.

I would not be counting on income from working at their age until they are 70 because one never knows what will happen. I mean we all hope we can stay healthy and active but preparing for it to be otherwise seems wise. Sheesh, sorry if that sounds all doom and gloom. Hope for the best but be planning for the worst case scenario. I would be trimming the fat out of that budget pronto and working on saving and the debt. I would also be stopping any remodeling until things were more secure. Same with vacations etc.

Once the car loan is gone and the EF fattened up I would work on paying down the house if they are not comfortable investing. OR~ Depending on the area they live in I personally might be tempted to actually sell the house now if they can get the full value in their market and move in to a very inexpensive mobile home bought with cash. That way they have time for the equity they can get out of their home too be able to grow a few years before they are ready to RV. I'm kind of extreme though.

[mrpaseo]

I think they should invest put half of extra money towards the car and 1/2 towards the EF until the car is paid off and they have some more cushion in their EF. That is a frighteningly low amount to me personally. Especially at their age.

I would not be counting on income from working at their age until they are 70 because one never knows what will happen. I mean we all hope we can stay healthy and active but preparing for it to be otherwise seems wise. Sheesh, sorry if that sounds all doom and gloom. Hope for the best but be planning for the worst case scenario. I would be trimming the fat out of that budget pronto and working on saving and the debt. I would also be stopping any remodeling until things were more secure. Same with vacations etc.

Once the car loan is gone and the EF fattened up I would work on paying down the house if they are not comfortable investing. OR~ Depending on the area they live in I personally might be tempted to actually sell the house now if they can get the full value in their market and move in to a very inexpensive mobile home bought with cash. That way they have time for the equity they can get out of their home too be able to grow a few years before they are ready to RV. I'm kind of extreme though.

Paying off the vehicle is one of their priorities, she also mentioned fully funding the Emergency fund.

As for selling the house now, that's probably not an option. They have lived in the home for about 15-20 years and have done a lot of work. He is very good with woodworking and has customized the inside a lot. I do not believe a mobile home will be an option for this couple.

Thank you all for your input, we are still open to others opinions (I sent them a link to this discussion so they can read your input).

[bigdaddybus]

What is the cash value of those whole life policies? I would consider casting them out if....pension payments continue if one passes......and the cash out value would significantly increase there savings.

What is the purpose of whole life at that age? Just burial cost? Money to leave the kids?

No one in my family carries life insurance after the kids are out of the house, so I don't fully understand the reasoning there.

[jIM_Ohio]

not enough info
what is period on mortgage?
what is interest rate on mortgage?
why are you giving them advice?

[mrpaseo]

not enough info
what is period on mortgage?
what is interest rate on mortgage?
why are you giving them advice?

Jim,

They have a 15 year fixed at 2.875% done in the last two years I believe. They are long time family friends. It came up in conversation and they asked my opinion on their situation. I told them I would post here to get more opinions from some people that have helped me.

[mrpaseo]

What is the cash value of those whole life policies? I would consider casting them out if....pension payments continue if one passes......and the cash out value would significantly increase there savings.

What is the purpose of whole life at that age? Just burial cost? Money to leave the kids?

No one in my family carries life insurance after the kids are out of the house, so I don't fully understand the reasoning there.

BigD, when I asked (Today) she did not know the value of the Life Insurance, she said she would look into it. As it stands, he has a pension, she does not. The life insurance would replace the loss of wages from the pension (I believe this is the plan), I'll have to ask again to see what the pay out value of the insurance is.

They also have a small plot of land (About an acre) that is paid in full but not developed, it costs them about a $100 a year.

[scfr]

Here are my suggestions for their first steps:

- Stop running balances on the credit cards to pay for renovations and vacations. Put any planned renovations and vacations on hold. Pay off the card balances. Then pay off the car loan. After the cards AND the car loan are paid off, start saving to pay for any future renovations and/or vacations in cash.

- Look for ways to trim expenses to pay off debt faster and bulk up the savings. Since Christmas is less than 3 months away and their Christmas spending ($100 x 12 months = $1,200) represents a sizable portion of their income, I suggest they start there. If they want suggestions, I'm sure the folks here would have lots. Spending can be trimmed without missing out on any of the joy of the season..

I realize this doesn't address your original question, but I think those steps should come before thinking about paying off the house early.

I wish them well.

[jIM_Ohio]

Hit something while writing the title in and it posted... Oh well.

"I'm looking for ideas for this older couple."


I am looking for some ideas as to if they should pay off their home, if they should invest the money instead and where they should invest the money knowing they will need some of it in five years.

Thank you for your time.

If money is needed in 5 years, DO NOT pay down an illiquid asset.
Investing money is OK, a conservative 25-75 portfolio might be in order

Most importantly, they need to eliminate consumer debt and clean up their income sheet and balance sheet.

[JoeP]

Their EF and liquid assets are scary low. Is there a back story on why this is the case that might be a factor in getting into better financial shape going forward?

I'd suggest trimming expenses big time for the next year in order to pay off the credit card and the car. That cable/internet/phone bill seems pretty high to me, as does the cell phone; prepaid phones and an antenna are far cheaper. Also the auto ins seems pretty high; we pay less than that for 3 vehicles...might be time for a quote from another company.

Depending upon their desire to lose debt, I'd also see about selling that house. If it was paid off in full by this point in their lives, that money could be re-targeted toward the rest of their debt and into savings so they could start enjoying life now instead of having to entertain working and looking forward to another 13 years of mortgage payments.

I'm glad they're looking for help, but am also a little concerned with their finances at this stage in their lives. I sincerely wish them the best and hope you'll keep us updated with their plans!

[mrpaseo]

Here are my suggestions for their first steps:

- Stop running balances on the credit cards to pay for renovations and vacations. Put any planned renovations and vacations on hold. Pay off the card balances. Then pay off the car loan. After the cards AND the car loan are paid off, start saving to pay for any future renovations and/or vacations in cash.

- Look for ways to trim expenses to pay off debt faster and bulk up the savings. Since Christmas is less than 3 months away and their Christmas spending ($100 x 12 months = $1,200) represents a sizable portion of their income, I suggest they start there. If they want suggestions, I'm sure the folks here would have lots. Spending can be trimmed without missing out on any of the joy of the season..

I realize this doesn't address your original question, but I think those steps should come before thinking about paying off the house early.

I wish them well.

Although their financial footprint is not ideal, I have to say she is very deep into accountability for every dollar. Each project/vacation is planned out on how it will be paid off. I suggested that she saves up the money and does the projects/vacations.

I agree and will re-enforce your advice about the Christmas money. I know she has already started shopping for Christmas so she should have a good understanding if she will have any extra money.

Thank you for your advice and kind words.