How to plan for aging Mom's retirement

[fooldani]

Good evening, Reddit.

I'm a 32M and I'm married to a wonderful 30F. We are doing OK financially, but I think we will face an inevitable challenge in assisting my Mother in her retirement later in life.

On the matter of supporting parents financially, there's likely differing opinions within the financial planning/personal finance communities. However, I know, that at some point - whatever, however, whenever, that might be - I will likely need to provide some kind of financial support to my Mom to aid her "retirement," and I'm willing to do that to some extent. I'm not interested in debating whether I should, rather, I'm interested in gaining ideas, recommendations, or similar, that my wife and I can begin thinking about to prepare for this type of situation.

For context, my Mom (62F) is employed and single.

Retirement/Savings/Cash:

• 401k: $32,077
• IRA: $46,543
• Taxable: $3,609
• Checking account: $23,901
• Total: $106,130

Income:

• Annual Gross Income: 73,500 (started new job in 2018, prior to that, she worked for 16 years at a salary of ~45,000)
• Pre-tax 401k Contributions: 10%, or 7,350.00 for 2023
• Taxes: $17,140
• Net Income: $49,010 (or, 942.50 per week)

Budget:

• Fixed Expenses: $2,500
• Variable Expenses: $500
• Surplus: ~$900 on average

Actual Expenses: (based on March)

• Fixed Expenses: $2,345
• Variable Expenses: $1,309
• Total: $3,654
• Surplus: $1,058.50 (extra week in March, paid weekly)

Other facts:

• Based on $3,600 of monthly expenses, emergency fund should be 21,600
• Which means of the $23,901 in her Checking, she can move $2,301 to her taxable brokerage and invest. The 21,600 can either stay in Checking account or, she could move a certain % to a money market account and leave enough in Checking for cash flow purposes.

So now, the question is — what year will Mom run out of money, with zero financial support from us?

Assumptions:

• Annual inflation: 3%
  • yes, i know the inflation figures of 2021 and 2022, but the baseline of monthly expenses for 2023 takes into account today's prices — so, a big Logan Roy f\** off if you don't like me using Powell's perceived global inflation standard of 3%*
• Annual raise: 3%
• Annual bonus: 5%
• 2023 monthly expenses: $3,600
• Mom invests the cash flow surplus each year towards taxable brokerage
• Mom declares retirement and Social Security so that SS payments begin in January, 2028
• Mom receives 50% of maximum SS because of SS divorce statute – based on today's figure, that's $1,813.50, which in 2028 with 3% inflation, is — *Brad Pitt snaps fingers at Jonah Hill across the Oakland A's scouting table\ —* $2,165.41.
• Mom quits full-time accounting job upon taking social security, and takes a job earning her $40k gross — think, government worker, librarian, administrative work, etc. She works this job starting in 2028, along with receiving her SS payments.
• Mom works part-time job until end of 2032.
• Mom stops working start of 2033.
• Annual yield across investments: 5% after inflation until death do us part

With all of these assumptions, my Mom will run out of money in 2046 at the age of 86/87. Based on her family's lifespan, she hopefully is able to live another 8-10 years beyond that. So, we'd theoretically need to start supporting her then.

My questions to you:

• How realistic are these assumptions?
• What are the tax implications to my Mom's AGI in years 2028-2032 when she is working part-time and receiving SS benefits?
• How do I contribute financially here-and-there, as opposed to committing to - and thereby creating a dependency - recurring financial support (i.e., subsidizing rent, gifting money, etc.)?
• What suggestions do you have for investment strategy/allocation in her existing investments given her situation?
• What am I not thinking about? For example, healthcare is not built into my model — I don't know how to estimate/project that. It seems really difficult.
• Have you been through/or are going through a similar situation, and how are you approaching it/addressing it?

If you made it this far, I really appreciate you.

 

[seraphim]

@fooldani She could keep working her full time job longer, or contribute more to her retirement plan.

 

[fooldani]

@seraphim Unfortunately, I doubt she will work her full time job longer than the timeline I use.

Do you think it's more advantageous for her to contribute more to her 401k, as opposed to investing the surplus cash flow each month into her taxable brokerage account?

 

[poporetto]

@fooldani Have you confirmed with her that the part-time job into her 70s is a reasonable assumption (that she is willing to do it)? Also if she is only making less than $75k now in a full-time job in a well-paid field, why do you think that a part-time job in a less well-paid field would pay $40k?

 

[fooldani]

@poporetto Just based on sources such as Glassdoor, Salary.com, and anecdotal sources for lower-paid jobs. This also assumes the lower-paid job is less stressful - which is the main reason my Mom has this idea of switching to a part-time job such as that. Less stress.

 

[poporetto]

@fooldani I imagine those jobs would pay less if part-time though? Or are you assuming something like $40k full time salary, $30k part-time?

 

[lostman7]

@poporetto Yes, I agree. $40k part-time seems way too optimistic imo. I also expect she’d (wrongfully) experience some ageism at that point as well depending on her job experience and the types of jobs you mentioned she’d likely go after.

 

[fooldani]

@poporetto Good catch, I was thinking a full-time job paying ~$40k, but something she would consider less stressful/demanding.

 

[poporetto]

@fooldani Yeah I feel like this part may be optimistic. The jobs you describe either seem possibly more stressful than accounting (for example librarian = working with the public which can be rough) and/or may be hard to get.

I wonder if she is not still leaving some money on the table with her current job especially since it seems she has a history of being underpaid. I know ageism is a thing and it could be hard to find but is it possible she could make even more at a different job? Or could she seek out a promotion at her current job? Working for more pay now (even if it’s a bit higher stress in the short term) while she is relatively young and healthy but then being able to retire at a reasonable age seems preferable to me to working until 72.

 

[fooldani]

@poporetto I agree with you there, but going to take some encouragement on my end. She’s not a huge self-starter, and at the age of 62, doesn’t approach her career with the same mentality as I do at the age of 32.

 

[lgrice]

@fooldani Her best options are to keep working and claim Social Security at age 70. If she can continue working after 70, even part-time, to supplement SS, that will help. Like many people, she will likely need to live off Social Security as her main source of income.

Your Social Security estimate is probably off. Have her go to SSA dot gov to get a statement and see projections. Social Security is based off the top 35 years of income if claiming based on her own income.

The other part of the equation is expenses. Consider reducing expenses now. Have a discussion about getting roommates to save on housing expenses like Golden Girls. If she moved in with you and your spouse now, she could save on expenses and contribute more to retirement savings. Housing is the biggest expense for most people and shared housing/utilities can make a difference on reducing expenses.

It's not going to make a huge difference, but move some of the money in checking to HYSA or a money market for the emergency fund.

Here is a projection for the retirement savings:

current retirement savings (excludes checking): $82k

monthly contributions: $600

years of funding (until age 67): 5

6% annual return

balance at age 67: $151k

5% withdrawal rate

annual income from retirement savings: $7k

If she can work until 70 and can increase retirement savings to $1,600 per month, the balance at age 70 could be around $325k assuming a 6% annual return. With a 5% withdrawal rate, that $325k net egg would produce annual income of $16k (well short of current $43k annual expenses).

Social Security is likely to be the main source of income based on her age and current retirement savings. Retirement savings of only $82k with no house at age 62 is really scary.

 

[fooldani]

@lgrice Thank you for this, and the detailed projections and feedback. She doesn’t have a lot of friends, and likely none that need a roommate, so it would likely be a random roommate. That would be tough but doable if she could find the right person. Expenses need to come down for sure, and the idea of quitting her full-time job at 67 will need to die quickly.

It’s really scary, and being 2,200 miles away doesn’t make matters easier.

 

[person123454321]

@fooldani Can she move in with you?

 

[opova]

@fooldani From https://www.ssa.gov/benefits/retirement/planner/taxes.html

file a federal tax return as an "individual" and your combined income* is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. more than $34,000, up to 85 percent of your benefits may be taxable

 

[fooldani]

@opova Thanks, I'll have to incorporate those taxes into the model I built.

 

[christianityfacts]

@fooldani Does she have a mortgage? Cutting that out before retirement might solve the income/expense issues. You clearly did your homework so I doubt the math is off. If she’s going to continue working I would delay social security until she turns 70. That benefit will grow at 8%, which is higher than the 5% growth you’ve assumed for her investments. If your math and assumptions are correct you’ve got 25 years to set money aside for the goal of helping her out. Personally I’d decide how much you can part with per month now and just start shoveling a few hundred a month, or whatever that number is, into an an etf or index fund. If she needs it, its there. If not it can supplement your retirement goal.

 

[fooldani]

@christianityfacts No mortgage, she rents. She should still be in our home from 18 years ago, but my Dad didn’t have to pay it off from the divorce.

 

[fooldani]

@christianityfacts I agree, deferring SS as long as possible could really help out the situation. It might mean working the full-time job longer than 67.

This situation really makes me want to win the lottery.

 

[peg1974]

@fooldani Don't forget to give yourself credit for trying to help her. Many people are in her situation without someone like you.

 

[fooldani]

@peg1974 Thank you, that means a lot. One day at a time, we will make this work.