Quick background for anyone who hasn't been following this series:
Yikes, family health crisis!
More info on the crisis and what I needed to do
Organizing my father's finances
Attempts at estate planning
How Mom felt about all this
Now for the details on my father's actual financial situation:
I had no idea what to expect when I started diving into my dad's finances. I figured he'd always made a good income working for a large company, but I knew his salary was never huge. Given how he'd always talked about money, I knew he made efforts to save for the future. I also knew that he had inherited a share of the proceeds of selling my grandmother's house after she died a few years ago, which I figured had to be close to $100,000.
But on the other hand, I knew my mother had blown a lot of cash in recent years. And I knew that he was always complaining about how much money she spent in general. He was always worried about surviving after retirement-- he had put off retiring for as long as he could, and was still working part time to try to bring in extra cash. I also knew that he'd had to take out a second mortgage on the house when my sister and I were going to college, and had no idea whether that was still being paid.
So which was it? Was my dad well-off, or was he broke? It was a total mystery. But here's what I figured out:
Home Equity: my father had paid off the primary and secondary mortgages on his house, and owns it free and clear. He estimated its value at about $400,000-- it's in a desirable community with very good public schools, but the house itself could use some renovations, and is very small, though it has a decent-sized yard. FYI, my father, at least, has no interest in living anywhere other than in this house, so the only way to get any money out of the home would be a HELOC or a reverse mortgage. If he died, my mother might consider moving to a condo but she might also want to stay in the house for as long as possible.
401k: he has about $180,000 in a 401k account. This doesn't seem like much, but keep in mind that he also has a defined-benefit pension plan.
Bank #1: a credit union associated with his employer, where he has a checking account, about $30,000 in a CD, and about $50,000 in a money market fund earning less than 2% interest. (We'll be doing something about that!)
Bank #2: another local credit union, where he has about $80,000 in various CDs.
That's it. He has no life insurance policy, so there would be no additional cash upon his death. But his total net worth is about $740,000.
As for his income, his pension nets out at about $2,750 a month. That's after some taxes and health insurance premiums are deducted. He also gets a Social Security payment of about $1,250 a month. Then his various accounts are earning some interest, say maybe $2,000 or so a year. So his total yearly income is about $50,000 net-- not bad at all. Unfortunately, if he died my mother would only get half of his pension, and I'm not sure how much Social Security she'd get.
So how would their income and assets cover their spending? Here's a budget I drew up:
|Mom and Dad||Mom only|
|Pension (net)||$ 33,024||$ 16,512|
|SocSec (net)||$ 15,024||$ 7,512|
|Interest||$ 2,000||$ 2,000|
|Income not counting withdrawal from savings||$ 50,048||$ 26,024|
|Withdrawal from 401K||$ 10,000||$ 10,000|
|Withdrawal from Other Savings*||$ (1,438)||$ 8,686|
|Car Lease 05 Subaru**||$ 3,800||$ -|
|Car Lease 08 Subaru||$ 3,300||$ 3,300|
|Car Insurance||$ 1,400||$ 700|
|Property Taxes||$ 4,000||$ 4,000|
|Income Taxes||$ 3,000||$ 3,000|
|Heating Oil||$ 5,000||$ 5,000|
|Water & Sewer||$ 800||$ 800|
|Electricity||$ 1,000||$ 1,000|
|Home Phone||$ 800||$ 800|
|Cell Phone Mom||$ 1,050||$ 1,050|
|Cell Phone Dad (prepaid plan) ||$ 100||$ -|
|Internet||$ 360||$ 360|
|Cable TV||$ 900||$ 900|
|Landscaping||$ 5,000||$ 5,000|
|Property Insurance||$ 1,100||$ 1,100|
|Health Insurance***||$ -||$ -|
|Food: eating out||$ 600||$ 600|
|Food: groceries||$ 7,500||$ 5,000|
|Food: wine||$ 1,200||$ 200|
|Gas||$ 2,000||$ 1,200|
|Medical: Co-pays for visits||$ 500||$ 250|
|Medical: Medicines||$ 500||$ 250|
|Dental||$ 500||$ 250|
|Clothing||$ 1,500||$ 1,000|
|Entertainment||$ 500||$ 300|
|Books||$ 500||$ 100|
|Music||$ 1,000||$ 200|
|Gifts||$ 3,000||$ 2,000|
|Hair/grooming||$ 1,500||$ 1,000|
|Home Repairs||$ 2,000||$ 2,000|
|Household supplies||$ 300||$ 300|
|Laundry/drycleaning||$ 400||$ 150|
|Magazines, newspapers||$ 1,000||$ 400|
|Travel||$ 1,500||$ 1,500|
|Miscellaneous other||$ 1,000||$ 1,000|
|TOTAL EXPENSES||$ 58,610||$ 44,710|
In general, all the stuff in italics is just my estimation, not really based on detailed analysis of my parents' actual spending
*The "withdraw from savings" field was a calculation, to see how much would be needed after spending all the income. With Dad's full pension and these budgeted expenses, the number is negative because he actually wouldn't need to withdraw any more from savings beyond the $10,000 from the 401k. The $10,000 is just my estimate of what he'd have to take as a required minimum distribution each year anyway.
**While my mother has been away, my sister and her husband have been using her car. If one of my parents was to die, I assume we'd just give up that car, or my sister would start paying for it herself.
***Right now, my mother's insurance is deducted from the gross amount of my father's pension. She'll be eligible for Medicare next year, so the costs would probably change anyway, if my dad's retiree coverage can get her some kind of supplemental insurance.
Based on this budget, if both my parents are living, they should be able to survive just fine to a good old age. There are bound to be additional large expenses like major dental work, renovations to the house, etc., but some of the variable expenses will decrease as they get older too. (And really, a 74 year old man with diabetes shouldn't be drinking $100 worth of wine every month!!)
But if my father was to die, my mother would have to be quite cautious about her expenses to make sure her money would last. On her lower income, she'd have to draw more from savings, and on this budget, the savings could be depleted in 20 years or so. My mother is only 64, and though her family doesn't have as much longevity as my father's, hopefully she will live past 84. Again, her spending habits may change over time. And none of what I've calculated here even considers the possibility of paying for a nursing home or assisted living facility. But I guess that is where the house comes in-- that $400,000 equity could be tapped to cover further expenses.
At first, I was worried that my parents didn't have enough money, but I feel better about it now. If my mother is let loose on the bank accounts, her spending habits could lead to problems, but otherwise, my parents have a comfortable but not extravagant lifestyle. They aren't into traveling or any expensive hobbies, really, and they should have sufficient assets to live simply for many years to come. But again, many of these calculations are based on my own guesswork-- I'll be doing more research into their actual spending history to make sure this budget is realistic, and I'll talk to both my parents about whatever I find out.