Help with Mothers Finances

[aprbrew244]

Hi all, I have used your knowledge in the past and need it again. Stick with me though as this could get long. I will try to explain it the best I can

My mother is 51 and makes roughly 32K a year. She doesn't plan on retirement until 67. She is in fairly good health and has health ins through her employer. She was a dairy farmer until 5 years ago so I expect SS payments to be very limited as they tried to keep reportable income very low.


ASSETS

401K $4800 (4% gross, receives company stock as match)
Deferred Annuity $32000
Dividend 1 $23400
Dividend 2 $ ?
Dividend 3 $ ?
Dividend 4 $ ?
Life INS policy $ 8600 cash value, 200K Benefit, $42 Premium
Life INS policy $ ? cash value, 50K Benefit, $22 Premium
Property 1 $88000 (farmland to be sold within 2 years)
Property 2 $320000 (farmland/hunting land)
Home Value $160000 (Built this past year)
Family Loan $76000


Liabilities

HELOC $72000 (Interest only @4.5%)

Ok, what is the best way for her to move forward and not have to eat cat food in retirement.
The plan is to sell property 1 in the near future, what should she do with the amount? Pay off the heloc? Invest it?

Should she convert the heloc into a fixed mortgage?

She should receive 26K back from the family loan. I am setting up an IRA before apr 15th in which 12K will be added.

The Dividends are distributed @ the company's discretion throughout the next 20 or so years, we are in the process of finding the remaining balances and distribution for all of these. Apparently this is nontaxable income.

What should she do with the Life INS policy's? Does she need 250K worth of coverage with no dependants?

What is the Deferred Annuity? What should be done with it?

I will try to update or explain the information as best I can into the near future. Any information regarding steps she should take would be greatly appreciated

[Gardening Grandma]

I've read your post several times, and, honestly, I can't understand it. The numbers you've listed: Are they assets? Liabilities? A combination? If they are a combination, can you designate which is which?
Also, besides your mother's age: when does she hope to retire? What kind of SS can she expect to receive? Any other retirement income? How is her health?
There are just too many unanswered questions to tackle your question right now.

[aprbrew244]

I updated the original post, I know its confusing. I still am trying to figure out what the Annuity is as well as the Dividend payments. The dividend payments as I understand it were purchased through cooperatives as my parents worked with them on the farm. I will try to get a better explanation as to what they are.

[cronewitch]

The farm/hunting land is a large asset it needs to produce a return for her. Can she lease it to a dairy farmer? She and I assume her late husband were very conservative with any investments which isn't a wonderful thing. She seems to want no risk at all and depend on one employer to take care of her. That is a major risk in sheep's clothing. She needs to take more market risk and diversify out of land.

Life insurance appears to be whole life and isn't needed unless an estate planner wanted to protect the family farm from needing sold. With her only debt the HELOC she doesn't need whole life or term life. If she leaves it to more than one person it may be sold or divided. Talk to her about her reason for wanting life insurance. She may see it as a final gift to the kids but she is paying every month or year for it and in 40 years her kids will be old with assets.

She may have shares in something to get dividends, you need to know what the asset is and if she can sell it or what return she gets on it.

Your mother is only 51 not a senior and is intelligent will want to make her own choices for another 30 years so give your help but don't take over her life.

[Peace77]

Assuming that the HELOC is an adjustable rate, I recommend replacing it with a fixed rate mortgage.

With no dependents she does not need life insurance. She could take the cash value of the whole life policy and buy a pre-paid funeral plan.

Does she have an emergency fund? I recommend that she have a goal of 9 months worth of living expenses in a high yield savings account or money market account.

Is the farm/hunting land earning any income now?
I have seen Craigslist ads from hunters looking for land that they can hunt on so that is one way to earn income from the land.

Leasing the land as farm or grazing land would yield a more consistent income.

Another possibility is to turn a portion of the land into a campground. Provide water and latrines for basic spots, add electricity and showers for higher fees.

Annuity expenses can be high. Can't tell anything from what you posted.

If she intends to stay in the home, focus on paying it off.

The IRA you are setting up could hold contributions from last year and this year.
Continue to contribute to the IRA in future years.

[aprbrew244]

Thanks for the input. I will try to answer some more of your questions.
The farmland is rented out for roughly $3000 a year. This amount will be $1500 after property 1 is sold.
Property 2 has been in my family for a century and will be passed on to my siblings and I.
The life insurance was purchased 25 years ago when she had dependants, now she wants to know what to do with it.

The current consensus we came up with
This spring my brother and I will repay her for the loans she gave us, which is $26K, 12K will go towards an IRA, 14K to EF
Use the money from the sale of Property 1 to completely pay off the HELOC this year
Keep the Life Ins as protection to prevent Property 2 from needing to be sold

Are thinking in doing this is to get a start on having investments in something other than land, eliminate the interest only HELOC and to prevent the possible liquidation of property 2. Are these good ideas?

Things we are still trying to figure out, what the dividends are, what the annuity is?

As for my input into her decisions, she had asked for my help regarding, I obliged and found a stack of papers on a desk. I in turn am trying to put the stack of papers on here and am asking for your help

[The J]

If she's only getting $26k back on the family loan, then that's all it's worth.

What are her expenses? Have you found her last SS statement?

[973beachbum]

Jan 26, 2011 12:18:08 GMT -5 @aprbrew244 said:

Thanks for the input. I will try to answer some more of your questions.
The farmland is rented out for roughly $3000 a year. This amount will be $1500 after property 1 is sold.
Property 2 has been in my family for a century and will be passed on to my siblings and I.
The life insurance was purchased 25 years ago when she had dependants, now she wants to know what to do with it.

The current consensus we came up with
This spring my brother and I will repay her for the loans she gave us, which is $26K, 12K will go towards an IRA, 14K to EF
Use the money from the sale of Property 1 to completely pay off the HELOC this year
Keep the Life Ins as protection to prevent Property 2 from needing to be sold

Are thinking in doing this is to get a start on having investments in something other than land, eliminate the interest only HELOC and to prevent the possible liquidation of property 2. Are these good ideas?

Things we are still trying to figure out, what the dividends are, what the annuity is?

As for my input into her decisions, she had asked for my help regarding, I obliged and found a stack of papers on a desk. I in turn am trying to put the stack of papers on here and am asking for your help

My first thought is if the life insurance policies are for you and your siblings benefit so that the land doesn't have to be sold upon her death then you all need to pay for them. She simply can't afford that on top of everything else, if she wants to ever retire.

My other thought is that she doesn't even seem like she can afford to have a house + the family property. Not and retire like she should. maybe there is something I am not seeing but these properties I would look at as her retirement fund.

If she sold the two properties that she isn't living in, and got paid the two loans, she would have almost $500K to live off of in her retirement. If we take this whole part about having to pass on her assets to the kids I would say she is fine.

People used to fund their retirement with the sale of their home and land all the time. All she would need to do is sell all the assets and live off that. What I feel like you are asking is how to do this without her selling what the kids see as their inheritance.

Is that what you are asking?

[cronewitch]

Jan 26, 2011 12:18:08 GMT -5 @aprbrew244 said:

Thanks for the input. I will try to answer some more of your questions.
The farmland is rented out for roughly $3000 a year. This amount will be $1500 after property 1 is sold.
Property 2 has been in my family for a century and will be passed on to my siblings and I.
The life insurance was purchased 25 years ago when she had dependants, now she wants to know what to do with it.

The current consensus we came up with
This spring my brother and I will repay her for the loans she gave us, which is $26K, 12K will go towards an IRA, 14K to EF
Use the money from the sale of Property 1 to completely pay off the HELOC this year
Keep the Life Ins as protection to prevent Property 2 from needing to be sold

Are thinking in doing this is to get a start on having investments in something other than land, eliminate the interest only HELOC and to prevent the possible liquidation of property 2. Are these good ideas?

Things we are still trying to figure out, what the dividends are, what the annuity is?

As for my input into her decisions, she had asked for my help regarding, I obliged and found a stack of papers on a desk. I in turn am trying to put the stack of papers on here and am asking for your help

Since she will own the land free of debt it doesn't actually need to be protected from needing sold. Only if you or brother wanted to sell your half to the other would you need money. You could set up a contract between you instead of needing cash. She doesn't need life insurance. She should have bought term when she had babies. Now the insurance is expensive but you need to look at it carefully not just cancel thoughtlessly. It will be a way to leave a windfall to the heirs but that needs weighed against the cash surrender value and the future premiums. Where those annual or monthly premiums? If monthly it is a high expense for something she doesn't need. It might make her happy to keep it but if she doesn't die for 45 more years it could be expensive insurance. When she does eventually pass on she has assets that can be sold to pay her funeral cost.

[aprbrew244]

She discarded her last SS statement, about 2 months ago. So it will be awhile till she receives another one. I wrote previously that I don't expect very much in SS payments.

The family loan takes into account loans to 4 children, two will be paid back in full this year (26K) the remaining may or may not be paid back. I guess I don't expect my sis or other brother to make good on their promise. My mom doesn't consider it a big deal either as she expects to subtract the amount from their inheritance.

As for her expenses, its a work in progress as she doesn't budget and mainly lives paycheck to paycheck. I'm am upgrading her computer and created a monthly budget to try and get this nailed down

Another thing I want to make clear, I in NO way am trying to GAIN an inheritance from my mother. She has made the decision to pass on Property 2. Her plan is to sell Property 1 to pay the HELOC this year, work till 67, retire on 15 years of IRA,401K contributions as well as income from the before mention divedends/SS/annuity (we don't know these values yet). When the time comes she would sell her house and move into a home, using that amount to pay for it.

Again this is her plan without a plan. I'm just trying to see if it is actually a viable one. She doesn't know what to do with the Life INS policys and I have no idea what their intended purpose was or is.

[Gardening Grandma]

She discarded her last SS statement, about 2 months ago. So it will be awhile till she receives another one.

You (or she) can get a statement online. Or you can download the request form and mail it in.
secure.ssa.gov/apps6z/isss/main.html

I wrote previously that I don't expect very much in SS payments.
You may be surprised. But you won't know til you see a statement.

[The J]

I wrote previously that I don't expect very much in SS payments.

Right, but she's very low income. The difference between $200/month in SS and $500/month in SS is significant for her planning.

[Deleted]

Here's the elephant in the room. The $320k 2nd parcel is only generating $1500/yr; that's a .5% rate of return! How much are the property taxes per year? And while she doesn't need the income now she does need the money working for her because in 15 or so years she will need to live on that money. At at 3% rate of return that's only $9,600 a year but if that money is reinvested for 15 years that $320k will grow to something like $500k. She needs to sell that property to fund her retirement; she can't afford to sit on that asset to leave that kind of inheritance.

And practically speaking, do you really want to try to own something with your three other siblings? I'm guessing that if two of them aren't able to repay Mom it's going to be no fun co-owning property with them. So it's going to need to be sold anyway. Are any of the kids in a position to buy the property from her?

[Clever Username]

Simply put, she needs to sit down with an unbiased financial plannner.
Be warned, here there be trolls. Some are concerned more with their own finances than hers.

They should vet her:
assets vs liabilities.
income vs expenses.
goals vs. position and trajectory.

You've posted probably 1/3rd the necessary details.

[aprbrew244]

Thanks for the replies

Way ahead of you clever as I have come to the same conclusion, we just don't have enough info at this time. She is currently accumulating all of her financial data as well as creating a budget and coming up with a goal. It takes 2-4 weeks to get a new SS statement. Hopefully at that time I will be able to repost the topic with more info and a clear goal in mind. I also gave her the same suggestion, finding a financial planner. She's afraid that someone will give her poor advice and she'll get ripped off. I told her it can't hurt to get their opinion and we can then determine if it is the best for her or not.

I will continue to answer questions on the thread and when we have all the information necessary to continue further, I may just start a new thread. Until then thanks for the ideas and continue discussion on the topic if you would like.

As for my siblings and myself, purchase right now is out of the question.