Ideas for Mum in retirement

[ScottO]

Hi,

I was hoping I could get a few ideas in regards to helping Mum in her retirement. Unfortunately, Dad unexpectedly passed away late last year and turned things upside down for Mum. Myself and my brothers are trying to work out the best strategy for Mum going forward.

Her current situation:
Quit part time work last year to care for Dad
Age:62
PPOR: $450k value
Mortgage: $50k
Savings: $80k

She is currently receiving Widows Allowance from centrelink $450 fn. Still too young for the Age Pension (approx $700 fn)- kicks in at 64.5 years old.

As you can see not much income coming in at the moment, but has some funds to get her through until we work out the best strategy.

The options we have come up with are:

1) Stay in current PPOR. This does not give her much of an income stream apart from interest on savings plus Widow allowance. Could possibly use a reverse mortgage to help with funds. Mum would more than likely want to sell as the house is a bit too big for her anyway, so this probably leaves us with the next two options.

2) Sell current PPOR and downsize. To keep her in the area she wants to live she could get a small house for approx $350k. This would free up approx $75k (sale proceeds less selling and buying fees). So she would then have approx $155k to invest, plus widow allowance (may start to reduce due to income/assets test). Once again a reverse mortgage could be used to help her with extra funds.

3) Sell current PPOR and rent from us. Would not normally be the best option, as she would not want to have to move if the landlord decides to sell, but I think we can eliminate this disadvantage by renting her the IP myself and my wife own. This would free up approx $390k after selling PPOR and paying down mortgage. We would rent to her at close to market rates, maybe slightly lower, we are not financially in a position to give it to mum at massive discount, we need to cover our costs. She would then have $470k to invest to produce an income. I do not plan to sell this IP anytime soon, if ever, so having to kick Mum out is highly unlikely. I know some of you will say its normally not a good idea to mix business with family as things can turn sour, but we are extremely close and the last thing I would ever do is sell the house from under Mum without having another plan in place to make sure she is looked after.

Myself and my brothers are in agreement that Mum should enjoy and look after herself in her later years and there is no need to leave anything to us when she goes.

I'm leaning towards option 3 as the best solution.

Advantages for Mum:
-frees up a lot of cash for mum to invest to produce an income stream and if need be she can access a lump sum to enjoy her later years (travel, new car,etc). Obviously not too much as this would effect her income stream.
-its a house that suits all her needs
Disadvantages:
-does not have the 'Aussie' dream of owning her own home
-needs to pay rent (offset by being able to produce more income from the funds released)
-if our circumstances change and we need to sell (hopefully, low risk)

Sorry for the long post, but I guess in summary given the above circumstances, what I'm trying to say is: "Is it a good idea for Mum to sell PPOR and downsize or rent to fund her retirement?"

Just after some other opinions on what others think would be the best strategy for Mum.

Cheers
ScottO

 

[marg4000]

What does your mum want to do?

At age 62 she is not much older than me, and most likely perfectly capable of managing her own affairs, so surely her wants must take priority.

You say " Mum would more than likely want to sell as the house is a bit too big for her anyway," which gives the impression you have not had discussions with her.
Marg

 

[willair]

Hi,

I was hoping I could get a few ideas in regards to helping Mum in her retirement. Unfortunately, Dad unexpectedly passed away late last year and turned things upside down for Mum. Myself and my brothers are trying to work out the best strategy for Mum going forward.

Her current situation:
Quit part time work last year to care for Dad
Age:62
PPOR: $450k value
Mortgage: $50k
Savings: $80k

She is currently receiving Widows Allowance from centrelink $450 fn. Still too young for the Age Pension (approx $700 fn)- kicks in at 64.5 years old.

As you can see not much income coming in at the moment, but has some funds to get her through until we work out the best strategy.

The options we have come up with are:

1) Stay in current PPOR. This does not give her much of an income stream apart from interest on savings plus Widow allowance. Could possibly use a reverse mortgage to help with funds. Mum would more than likely want to sell as the house is a bit too big for her anyway, so this probably leaves us with the next two options.

2) Sell current PPOR and downsize. To keep her in the area she wants to live she could get a small house for approx $350k. This would free up approx $75k (sale proceeds less selling and buying fees). So she would then have approx $155k to invest, plus widow allowance (may start to reduce due to income/assets test). Once again a reverse mortgage could be used to help her with extra funds.

3) Sell current PPOR and rent from us. Would not normally be the best option, as she would not want to have to move if the landlord decides to sell, but I think we can eliminate this disadvantage by renting her the IP myself and my wife own. This would free up approx $390k after selling PPOR and paying down mortgage. We would rent to her at close to market rates, maybe slightly lower, we are not financially in a position to give it to mum at massive discount, we need to cover our costs. She would then have $470k to invest to produce an income. I do not plan to sell this IP anytime soon, if ever, so having to kick Mum out is highly unlikely. I know some of you will say its normally not a good idea to mix business with family as things can turn sour, but we are extremely close and the last thing I would ever do is sell the house from under Mum without having another plan in place to make sure she is looked after.

Myself and my brothers are in agreement that Mum should enjoy and look after herself in her later years and there is no need to leave anything to us when she goes.

I'm leaning towards option 3 as the best solution.

Advantages for Mum:
-frees up a lot of cash for mum to invest to produce an income stream and if need be she can access a lump sum to enjoy her later years (travel, new car,etc). Obviously not too much as this would effect her income stream.
-its a house that suits all her needs
Disadvantages:
-does not have the 'Aussie' dream of owning her own home
-needs to pay rent (offset by being able to produce more income from the funds released)
-if our circumstances change and we need to sell (hopefully, low risk)

Sorry for the long post, but I guess in summary given the above circumstances, what I'm trying to say is: "Is it a good idea for Mum to sell PPOR and downsize or rent to fund her retirement?"

Just after some other opinions on what others think would be the best strategy for Mum.

Cheers
ScottO

Just keep in mind that at some stage your Mum might go in a aged care set-up,the entry costs can vary in a huge way,plus depending on the time factor your Mum has spent in the house it may be hard to move out..
good luck willair.

 

[ScottO]

Sorry Marg4000. Didn't mean to sound like I'm trying to control Mum's life for her. We certainly have talked about it, but dad's death was not too long ago so Mum is still trying to get over that before she has to make any decisions herself.

Sorry, poor choice of words "more than likely". Their original plan was to sell the house in the next year or two anyhow.

Not saying mum is incapable of making her own decisions but she is the type who needs a fair bit of guidance as Dad was the one who used make these sort of life changing decisions.

I'm just trying to get other peoples opinions before we help Mum make the decision. Ultimately, it will be her decision but she needs some guidance working out what her options are and myself and my brothers are there to do this.

Cheers

 

[marg4000]

From friends who have been sadly widowed it seems that it takes at least a year to get their heads around their changed circumstances, during which time it is not a good idea to make a life-changing decision.

If your mum can hold on, maybe after 12-18 months she may be able to think more constructively about her future directions. For the first 12 months you go through all the "first time" events without your dad - birthdays, anniversaries, Christmas etc which take their emotional toll.

Your mum is lucky to have family who care about her. Take time for yourself too, you have lost your dad which I know is a huge shock.
Marg

 

[ScottO]

Thanks Marg. Yeah definitely agree with letting Mum take her time, she's had the double whammy with losing dad and having finished work after 20 odd years, so its understandable she feels a little lost at the moment. We are doing our best to keep her busy and helping her through it.

If we do action any of these options it won't be for some time, due to the reasons you stated but its just in my nature to start planning things well in advance (a bit like Dad. He had plans for their retirement but things changed dramatically when he took ill and passed all too suddenly).

I guess I'm trying to pick up where Dad left off and do what is best for Mum (which he did for 42 years).

 

[alexlee]

Be careful, though, that what you think is best for her doesn't make her lose sleep at night.

 

[wobbycarly]

From a financial standpoint, you might want to throw together a basic spreadsheet that presents the options very simply and easy to compare.

eg. assume that funds "invested" are in, say a high-interest account or TD earning about 5%, include inflation eating away the value of the cash and potentially paying tax on the returns. Don't forget that when living in one's own house, there are rates, insurance, repairs, etc to pay, that a landlord will mainly cover if renting.

Also take into account current living expenses, and also grow these by inflation.

Besides all this - lifestyle choices will be just as important, but if Mum's ambivalent about 2 choices, the numbers may help with a decision.

Good luck - sorry about your Dad.

 

[tourist]

I am not much younger myself and if I was in that situation I would go with the order you listed them in - 1,2,3.

If she stays in her own house she could pay off her mortgage giving her an extra $70 per week without upsetting the pension. She may not earn much more if invested anyway. If she could find herself a part time job again it could give her an interest while also rebuilding her confidence. I doubt if she is old enough for a reverse mortgage if they are still around.

Option 2 is a possibility if she needs extra cash for a few years but the cash wouldn’t last. My MIL downsized a couple of times and was happy with the results.

Option 3 seems to move her dependency on her husband over to her son which I don’t think she would really want. Your intention may be to keep your IPs for the long term but she is only 62 and she can be expected to live for another 25 years. Remaining in her own property gives her independence, her asset is continually increasing, and she can change her mind anytime. There is no going back with option 3.

I am sure that knowing she has children she can discuss her plans with and who will give her assistance if she needs it will help her to make the right decisions when she is ready to.

 

[kum yin lau]

Hi, how about this for an idea?

Build her the kind of compact [independent living for seniors] home, furnish it & rent to her at market rate.

You get a long term tenant with no mgt hassles, few maintenance issues and a stack of deductibles including depreciable stuff.

-ve gearing, +cf.

It was what I thought was the most sensible thing to do when my sister's mother in law went into seniors' living quarters but my sister said she didn't want to suggest anything.

Unfortunately, we can't act rational around relatives. Too much emotional baggage.

KY

 

[weg]

Personally I think she should stay put for a year or two before making any major or hasty decisions.

In 2 1/2 years her aged pension will kick in anyway, so any calculations should be compared to this higher figure.

Your mum is still young, and should be given the time to learn the independence that will come from being on her own, allowing her to make her own decisions, that are right for her.

Perhaps she can supplement her Newstart Allowance with her savings for now, and any ideas of renting and buying IP's be carefully considered, as she may be entitled to little, if any Pension later, while earning only a little more in rental income.

 

[kathryn d]

I also suggest your mom do nothing for at least the first 12 months.
That's what we suggest when my dad died. She later downsized.
My oldest brother tried to take control of her and her finances when she was 67, and it has caused a large rift, that has never healed, in our family.
As I told my mother, you are still quite capable of making your own decisions.

 

[DRUSS]

How about discussing with her the idea of building a granny flat in her backyard with her savings. Granny flat should cost about $80k... Then rent out her PPOR.

Positives are
- New place of her own, new beginning.
- Close to her old house.
- The rent would provide her with income.
- Less maintenance of a larger house.
- She would continue to reap any benefits of CG.
- It would pay off the rest of the mortgage.

This is providing there is sufficient space on the property.

I think it would be a good investment.

Cheers
Daniel

 

[DRUSS]

To me personally, there is so much money lost in downsizing ie selling and buying...

Most probably half of her savings..not a good feeling.

I also think what you are doing is good. It shows she has people who are really interested in her wellbeing. Being a different generation, I know you are able to provide your mum, with information she is unaware of. Knowledge is power.

Good luck with it all.

Cheers
Daniel

 

[dmlucky]

balance caring (not meddling) with supporting

Difficult thing supporting aging parents - have done this several times and now thinking through retirement plans myself - hence why I read this thread.

Lots of good ideas from others and can only underline a couple of themes.

All my experiences have underlined that as you get older having control of your own life (to whatever degree you need) is important and critical to some people to keep their momentum going. As marg said rifts open up quickly where this gets to be a problem. Property can be major for some of us (a creative outlet) others arent fussed. Making sure you help your mum work that out and support her when she's ready, is a balancing act, but when a family can do it well, it can bring everyone together.

Sounds like you have some good ideas and getting the figures together will help you mum decide when she's ready.

You might be suprised that combining a pension and a modest income from an investment, sub let, granny flat, work (doing the books for the family IP empire?) or whatever can work out quite well. Provides an interest and means you have health care card, discounts etc.

I would downsize myself, if I was confident I could sell and buy well, upgrading the new place and covering changeover costs as I went. Ideally something that either had or could convert to a dual oc. Sublet the smaller granny flat til I was ready to downsize into that. Hopefully with some similar aged people nearby.

Sounds like your family will be able to help her through the short term hump til she's ready for the next step.

 

[Kristine..]

Hello Scott


Mother's Current Situation
Age:62
Recently Widowed after 42 years of Happy Marriage
PPOR: $450k value
Mortgage: $50k
Savings: $80k
Income: Widow's Allowance $450 pfn
Health: Good
Marbles: Yes


Firstly, have a look at the mortgage.

A $50,000 Interest Only mortgage at eg CBA SVR 7.11% = $296 per month
A $50,000 Principal & Interest loan (20 years) at eg CBA SVR 7.11% = $98 per week

The Bank Manager should be able to readjust the mortgage payments to reflect the current principal balance and to arrange for the loan to be extended to keep her payments down. If she puts $50,000 in the loan, or in an offset, she will be paying nothing but still have access to her money should she need it. She can always pay extra / use offset / redraw as circumstances change

Second, let her have as much time as she needs to get bored.

Boredom only happens when we are ready to move on. Moving on may be going back to work, moving house, joining the local Bowls Club, joining the Red Hat Society, getting married again, emigrating to New Zealand, taking up hot air ballooning, enrolling at University of the Third Age to study for a Botany degree, etc etc

People who have enjoyed happy marriages are very likely to get married again.

If your healthy, young Mother is living in a Granny Flat in your back yard, it will cramp her style considerably!

Statistically, your Mother will live to about 86 years old. Can you imagine 24 years in someone else's backyard?

My Brother's Father in Law took up Champion Ballroom Dancing when he was widowed at 68, and still trecks the New Zealand trail - and he is now 93!

My Brother has recently remarried 4 years after his wife died, aged 60.

I am nearly 60 - and nowhere near my dotage.

Sixty is the new Fourty!

If your Father 'took care' of everything that doesn't mean that your Mother can't take care of her own decisions. After all, she was in paid employment up until recently, so she can't be too much of a shrinking violet.

When I was working in Body Corporate, I remember one couple who lived in a smart, modern townhouse owned by their four children. Their children had given them Voting Rights and the couple paid all the outgoing of the property, which had been bought with the parent's own funds. This was a couple in their early sixties and for reasons which seemed like a good idea at the time decided to 'do it this way'.

Of course, if the property was ever sold, all four children would be up for tax on the capital gain ... something which had probably not occurred to any of them.

So, Scott, it is lovely that your Mother's Sons all love and care for her.

Apart from perhaps suggesting that the mortgage be reviewed, your Mother is a young woman who may be content to sink into obscurity but on the other hand, may decide to do a lot of things far more outrageous than colouring her hair.

I remember receiving post cards from Acapulco from my Auntie Lulla who used to hire herself out as a Ladies Companion. She travelled the world this way, well in to her nineties, as a companion to other, more wealthy ladies who wanted to travel and had no one to travel with.


Hopefully, your Mother will not need 'Care' for many years to come if at all - old age is not an illness and many people live very healthy lives all their lives, and in the meantime - as with our Children - we must let our Parents do what they want and live how they will

Best wishes
Kristine

 

[kathryn d]

I remember receiving post cards from Acapulco from my Auntie Lulla who used to hire herself out as a Ladies Companion. She travelled the world this way, well in to her nineties, as a companion to other, more wealthy ladies who wanted to travel and had no one to travel with.



Best wishes
Kristine

Interesting about your aunt.
How does one become a Ladies Companion?
Did she know these ladies before hand,or put an ad in the paper?

 

[ScottO]

Thanks everyone for their replies. Definitely gives me a bit more food for thought.

Kristine, loved your post! Especially the idea about being a Ladies Companion, will definitely have to run this past mum as a future career. You're right, who knows what mum will get up to in retirement, only she can figure that one out.

Will definitely look at her current loan and see if we can minimise her repayments for now.

We just want to get her in a position where she does not have to worry too much about the financial side of things and she can focus on what is important to her and start the next chapter of her life.

Cheers

 

[ScottO]

Gee time flies by! Can't believe it was 2.5 years ago I posted this. Thought I'd update the situation for all those interested and also look for some advice on Mum's next step. Mum is doing well, obviously missing the old man, but keeping herself busy, mainly socially busy (lunch/movies with the girls!). We have also kept her busy by giving her twin grand-daughters a few months ago, so she has been spending a bit of time here in Sydney with us (she is in Adelaide).

She has just recently reached age-pension age so is a getting the full pension instead of the lousy widow pension (don't get me started on that). She's still currently living in the PPOR that she and Dad built, but Mum feels it is finally time to move on next year and look for something more manageable. She has been looking at a couple of options:

1) The lifestyle village option (the over 55's living thing). She loves the concept but also has her reservations. Locally, she is looking at the Golden Grove lifestyle village in Adelaide or Trinity Green as Mawson Lakes. GG is approx $390k for a 2 bedder to enter into the lease arrangements these lifestyle villages have. Mawson Lakes is approx $320k.

-anyone have any thoughts or opinions on the lifestyle living arrangements?

2) Downsizing to a smaller villa/townhouse just across the road from the GG lifestyle village and a stones throw from where she lives currently. These are also around the $390k, but for a 3 bedder. An option we are looking at is that myself and brothers' purchase this property and rent it back to Mum. We can easliy fund the ongoing cost but are short of cash for the purchasing costs (ie deposit, SD, etc.) This rent back to Mum option would obviously free up a lot of cash from the sale of the existing PPOR which would make finances less of a worry.

- could Mum fund the purchasing costs and take a equity share in the property?
-or would it be more beneficial to keep Mum off the title? In this case she could loan the purchasing cost to us.
-I have done the financial sums and this is a good option for Mum as it does free up a lot of cash for her to enjoy retirement but I'm not sure what would be the best way to structure the purchase with my brothers. Any advice on bets way to structure this?

Would love anyone's thoughts or opinions on these options.

Cheers
Scott

 

[lizzie]

Make sure you take into consideration - when freeing up cash - how much subseqent pension she might lose.

And bravo to Kristine for that fabulous 2yr old post. A purple haired, frufru wearing, ladies travelling companion - bring it on!