Want to help daughter - Do we risk our retirement?

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Always passive
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Want to help daughter - Do we risk our retirement?

Post by Always passive »

We are retired, ages 73 and wife 70. Unfortunately we want to help daughter and pay mortgage that she cannot afford (straggling financially).
My financial situation post paying debts is:
$2.4 Million in 40% Equities/60% Bonds;
SS $3,500/month + Pensions (no Cola) $2,000/month.
Do we risk our retirement?
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Lee_WSP
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Re: Want to help daughter - Do we risk our retirement?

Post by Lee_WSP »

No.

The wise course of action is to make sure your oxygen mask is secured first.

However, you can probably send her five to fifteen grand a year without much burden on yourself. Maybe even more with your pensions. The question then becomes how many trips are you willing to sacrifice?
KlangFool
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Re: Want to help daughter - Do we risk our retirement?

Post by KlangFool »

Always passive wrote: Wed Oct 20, 2021 8:45 pm We are retired, ages 73 and wife 70. Unfortunately we want to help daughter and pay mortgage that she cannot afford (straggling financially).
My financial situation post paying debts is:
$2.4 Million in 40% Equities/60% Bonds;
SS $3,500/month + Pensions (no Cola) $2,000/month.
Do we risk our retirement?
Always passive,

Why do you think you are helping your daughter by paying mortgage on a house that she cannot afford?

When a person is in a hole, the person should stop digging the hole. How does helping the person digging the hole helps the person?

<<Do we risk our retirement?>>

This should not be the first question. The FIRST question is does this really helps your daughter.

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Strayshot
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Re: Want to help daughter - Do we risk our retirement?

Post by Strayshot »

Hard to know what you are risking without a bigger picture (what are your annual expenses, how are you handling healthcare, etc).

Your question is emotional more than financial.

Generally, if someone can’t afford something, it is either a short term issue (temporary job loss but employable in a few months, cash flow challenge, etc) or a long term issue (bought something or got into an arrangement they never should have been in like someone in a 60k a year career buying a million dollar house over 30 years). Is the financial struggle a short term issue or a long term issue?
flyingaway
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Re: Want to help daughter - Do we risk our retirement?

Post by flyingaway »

What is your annual spending? How much do you plan to help your daughter each year? Without those numbers, it is impossible to say if you will risk your retirement.

On the other hand, I would help my children reasonably without risking my retirement.
dak
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Re: Want to help daughter - Do we risk our retirement?

Post by dak »

We will need information on your spending - simply are you spending all of your income, or do you have excess funds? If you have excess funds, you could reasonably decide to assist your daughter.

But...is this a short term problem or a long term problem? Are the mortgage problems likely to dissipate in the next few months, or does your daughter have a structural imbalance between income and outgo? You have mentioned her mortgage, but that is not likely her only spending - how is she doing with the rest of her budget?

Lots of questions that need answering before a reasonable proposal ban be floated.
123
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Re: Want to help daughter - Do we risk our retirement?

Post by 123 »

Who will help her after you are gone? Leaving money to her will not help her if she lives beyond her means.
The closest helping hand is at the end of your own arm.
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AnnetteLouisan
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Re: Want to help daughter - Do we risk our retirement?

Post by AnnetteLouisan »

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sailaway
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Re: Want to help daughter - Do we risk our retirement?

Post by sailaway »

If you think this will risk your retirement, the answer is easy: no.

If you want to determine whether or not it will risk your retirement or how much you can help without risking your retirement, then we would need a complete case study to help.

As others have said, an even more important question is whether or not your plans would help your daughter in the long term or you would just be helping her dog further into the hole.
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Metsfan91
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Re: Want to help daughter - Do we risk our retirement?

Post by Metsfan91 »

Always passive wrote: Wed Oct 20, 2021 8:45 pm We are retired, ages 73 and wife 70. Unfortunately we want to help daughter and pay mortgage that she cannot afford (straggling financially).
My financial situation post paying debts is:
$2.4 Million in 40% Equities/60% Bonds;
SS $3,500/month + Pensions (no Cola) $2,000/month.
Do we risk our retirement?
Why is your daughter struggling? Does she have a mortgage? Is she thinking about buying and wanting your help paying mortgage? How big is the mortgage?

Sorry, all I have are some questions... Unable to answer your question.
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texasdiver
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Re: Want to help daughter - Do we risk our retirement?

Post by texasdiver »

You don't say whether the daughter is single or married with a family.

If single it sounds like a roommate is in order. The entire time I was a younger single with a mortgage I had roommates who effectively paid my mortgage for me.
delamer
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Re: Want to help daughter - Do we risk our retirement?

Post by delamer »

In order to determine whether helping your daughter would truly risk your retirement, we need to know:

What are you annual expenses?

How much money would you need to give your daughter? Is it a lump sum or a monthly stipend?

How are your assets split between taxable, tax deferred, and Roth accounts?
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Watty
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Re: Want to help daughter - Do we risk our retirement?

Post by Watty »

Always passive wrote: Wed Oct 20, 2021 8:45 pm My financial situation post paying debts is:
That is an odd way to phrase that and often when people say something in an odd way that is because they are obscuring something that is important. How much you owe could be very relevant.

How expensive her house is really also matters a lot.

We do not know if she is in a $1.5 million dollar bungalow in an expensive area or a $250K tract home in an inexpensive area. If it more like a $250K home then you could buy it for cash and let her live in it with or without rent. She could also inherit it some day at a stepped up cost basis, if the laws don't change. That might not be a smart move or solve all her problems but it likely would not endanger your retirement since you could still get to that home equity if you really needed to. You could not afford to do that with an expensive house though.
Always passive wrote: Wed Oct 20, 2021 8:45 pm Unfortunately we want to help daughter and pay mortgage that she cannot afford (straggling financially).
If it is more than she can afford then one risk is that you will enable her to keep it for a few more years and tread water financially but the current super hot real estate market could end and the home value could drop by 30% or more. That has happened before and it will likely happen again some day.

If you choose to do something them make sure that it actually fixes the problem and does not just postpone the consequences.

If she is married and you give her a lot of money then you should also talk to a lawyer to make sure that you do it in a way where she will not lose half of it in a divorce.
Last edited by Watty on Wed Oct 20, 2021 9:42 pm, edited 1 time in total.
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AndrewXnn
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Re: Want to help daughter - Do we risk our retirement?

Post by AndrewXnn »

This is a very difficult situation.
Part of the problem is that nobody on this board knows your daughter.

Yes; it's good to help.
However, if she has been irresponsible, then you risk simply enabling her.
Ultimately, she needs to be responsible and budget accordingly.
The problem with enabling is that it does not motivate her to be fully responsible.

So, yes! Help your Daughter, but be careful about it.
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Always passive
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Re: Want to help daughter - Do we risk our retirement?

Post by Always passive »

She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
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AnnetteLouisan
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Re: Want to help daughter - Do we risk our retirement?

Post by AnnetteLouisan »

My mom would say, why does she have to live there in that place she cannot afford?
pizzy
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Re: Want to help daughter - Do we risk our retirement?

Post by pizzy »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
Why wouldn’t you just subsidize the monthly payment?
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Wanderingwheelz
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Re: Want to help daughter - Do we risk our retirement?

Post by Wanderingwheelz »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
What sort of financial situation are your son in laws parents in?

This gets a little tricky.
Being wrong compounds forever.
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Re: Want to help daughter - Do we risk our retirement?

Post by KlangFool »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
Always passive,

How does burden your daughter with a 1.5m house helps your daughter?

<<It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k.>>

Why? Feeding the family should more important that keeping a 1.5m house.

<<She (only daughter) and her husband work but the monthly mortgage payments are a big burden. >>

That means they bought a 1.5m house and living way beyond their means. So, how does keeping them in the same life style helps them? Keeping them in the same hole.

Why do you think they would not spend more and live beyond their mean when the house is paid off? And, if and when that happen, would you help them out again?

Keep your money. They would crash and burn eventually. If and when they realize that they cannot afford the 1.5 m house and sold the house, you may help them. Right now, your money would only keep them in the same hole.

They selling the house is the best thing that could happened for them. Please don't keep them in their hole by giving them money.

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Last edited by KlangFool on Wed Oct 20, 2021 10:09 pm, edited 1 time in total.
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Normchad
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Re: Want to help daughter - Do we risk our retirement?

Post by Normchad »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
You have plenty of $$$. Paying off her mortgage won’t jeopardize your retirement.

That doesn’t mean you should do it though. That’s an entirely different question.
Big Dog
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Re: Want to help daughter - Do we risk our retirement?

Post by Big Dog »

IMO, the best way to "help" her is to encourage her to downsize to a less expensive house, one that is not a "burden".
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Re: Want to help daughter - Do we risk our retirement?

Post by tibbitts »

Always passive wrote: Wed Oct 20, 2021 8:45 pm We are retired, ages 73 and wife 70. Unfortunately we want to help daughter and pay mortgage that she cannot afford (straggling financially).
My financial situation post paying debts is:
$2.4 Million in 40% Equities/60% Bonds;
SS $3,500/month + Pensions (no Cola) $2,000/month.
Do we risk our retirement?
You're going to have to provide vastly more detail regarding both your finances and your daughter's finances if you want any useful replies.
KlangFool
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Re: Want to help daughter - Do we risk our retirement?

Post by KlangFool »

pizzy wrote: Wed Oct 20, 2021 10:02 pm
Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
Why wouldn’t you just subsidize the monthly payment?
How does helping someone living in a house that they cannot afford helps them?

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Doctor Rhythm
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Re: Want to help daughter - Do we risk our retirement?

Post by Doctor Rhythm »

pizzy wrote: Wed Oct 20, 2021 10:02 pm
Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
Why wouldn’t you just subsidize the monthly payment?
Or have them refinance after you pay down part of the principal, so that they end up with lower payments.
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AnnetteLouisan
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Re: Want to help daughter - Do we risk our retirement?

Post by AnnetteLouisan »

I‘d hang on to the money so you can help them if ever they really need help in the future. This doesn’t sound like an emergency to me. They bit off more than they could chew and it’s a sellers market right now. Sounds like selling would take the pressure off them and their marriage. Paying the mortgage could cause harm to your relationship with the SIL and his relationship to your daughter. Because people often end up resenting the hand that helps them - paradoxically!! And you might resent them if you help them and they maintain their current spending levels.
Last edited by AnnetteLouisan on Wed Oct 20, 2021 10:59 pm, edited 2 times in total.
exodusNH
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Re: Want to help daughter - Do we risk our retirement?

Post by exodusNH »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
So it sounds like they could sell the house, walk away with about $750,000, get an apartment for a year and figure out their next steps.

If they got themselves into this financial situation, what's to prevent them from doing it again? Did they experience an unexpected job change that's impairing their ability to pay the mortgage?
pizzy
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Re: Want to help daughter - Do we risk our retirement?

Post by pizzy »

KlangFool wrote: Wed Oct 20, 2021 10:10 pm
pizzy wrote: Wed Oct 20, 2021 10:02 pm
Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
Why wouldn’t you just subsidize the monthly payment?
How does helping someone living in a house that they cannot afford helps them?

KlangFool
I agree with you from a financial perspective. But I get the feeling that this is an emotional dilemma more than a financial for OP. If he decides to help instead of asking them to sell, I think covering the “shortfall” each month is a much better way to go then a $650,000 payoff.

With the monthly subsidy, if their situation improves (better paying jobs, or reduction in expenses) then OP can discontinue subsidy.

With that said, I agree with you that the best option is sell and downsize.
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WhatsIRR
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Re: Want to help daughter - Do we risk our retirement?

Post by WhatsIRR »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
What’s the the cost of living in their area? Is a $1.5M home entry level or high end? Could they sell it and use the $750k in equity on a cheaper house? Have they had a change in income or has the house always been a stretch for them?

You have $60K for SS/Pensions so you’ll need another $40K to get to your $100k. At 4% withdraw rate you need $1M. If you finished the mortgage you’d have $1.75M left which should be an ultra safe 2.3%.

Financially it looks like you can do it, the next question is emotional and if you are bailing them out of a bad decision or helping them in a true time of need. My parents will no longer loan/gift money to my oldest brother because he continues to make bad decisions and they will no longer supplement them.
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Re: Want to help daughter - Do we risk our retirement?

Post by Northern Flicker »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
Covering about $40K/yr of residual expenses after SS and pension with $2.4m requires a 1.7% sustainable inflation-adjusted withdrawal, which is not putting yourself at risk. You also need to cover the inflation of expenses covered by a non-COLA'd pension, still a low withdrawal rate.

I assume daughter lives in a high cost of living area so that downsizing the house is not feasible?

Another option would be to pay down the mortgage to a level they can afford. The bank normally will offer to recast the amortization based on the new balance so that the payment is lowered. There usually is a nominal fee for doing it, like $25-50.
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Re: Want to help daughter - Do we risk our retirement?

Post by vanbogle59 »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
I mean it's your money. Do what YOU want.
If I understand your math, you only need 40K per year from a $2.4m portfolio. That should be super easy.

As for the co-mingling of family finances, well, sure. There are risks. But you are all adults, so...
runner3081
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Re: Want to help daughter - Do we risk our retirement?

Post by runner3081 »

Sometimes people need to fail to learn.

She will recover and likely won't get herself in this situation again.
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Re: Want to help daughter - Do we risk our retirement?

Post by sailaway »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help.
Sounds like a good lesson right there.

If you want to help, consider the alternatives. Annual gifts would let you have more control over your own finances long term. An offer to pay for financial peace university style course to facilitate communication and planning.
MathWizard
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Re: Want to help daughter - Do we risk our retirement?

Post by MathWizard »

Why do they need a 1.5 million dollar house, and why did they buy one if they can't afford it?

That is almost all your retirement assets.

I would understand a short term assistance, but don't pay off their mortgage.
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Re: Want to help daughter - Do we risk our retirement?

Post by FoolMeOnce »

Normchad wrote: Wed Oct 20, 2021 10:08 pm
Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
You have plenty of $$$. Paying off her mortgage won’t jeopardize your retirement.

That doesn’t mean you should do it though. That’s an entirely different question.
+1
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vanbogle59
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Re: Want to help daughter - Do we risk our retirement?

Post by vanbogle59 »

Need a clarification. These two ideas contradict each other.
MathWizard wrote: Wed Oct 20, 2021 10:23 pm That is almost all your retirement assets.
Always passive wrote: Wed Oct 20, 2021 9:58 pm We will end up with $2.4m plus another $5k monthly coming from SS and pensions.
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Re: Want to help daughter - Do we risk our retirement?

Post by CRC_Volunteer »

I will take a slightly different tack. If the time comes when you and your wife are unable to manage your finances, who will be handling your financial portfolio? If it is your daughter, you may have more to worry about than the mortgage.

My grandparents continually bailed my Father out of his bad financial decisions. In the South, it is called “Having champagne taste on a beer budget”.

Nothing good came out of them helping him.
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Re: Want to help daughter - Do we risk our retirement?

Post by Metsfan91 »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
You are not risking your retirement. After social security and pension, you need about 2% from your portfolio. You'll do fine. You could pay off the mortgage. There is no need to worry about it.
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Metsfan91
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Re: Want to help daughter - Do we risk our retirement?

Post by Metsfan91 »

vanbogle59 wrote: Wed Oct 20, 2021 10:25 pm Need a clarification. These two ideas contradict each other.
MathWizard wrote: Wed Oct 20, 2021 10:23 pm That is almost all your retirement assets.
Always passive wrote: Wed Oct 20, 2021 9:58 pm We will end up with $2.4m plus another $5k monthly coming from SS and pensions.
2.4M remaining after paying 650K remaining mortgage balance. That's my take.
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Re: Want to help daughter - Do we risk our retirement?

Post by mikejuss »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
Wow--gotta say your daughter probably doesn't need to be living in a $1.5 million house, regardless of where she is in America. This isn't a matter of you risking your retirement, as you wouldn't be. It's a matter of not enabling spendthrift ways.
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Watty
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Re: Want to help daughter - Do we risk our retirement?

Post by Watty »

Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k.
If they refinanced the house with a new 30 year 3% mortgage their mortgage payment would be about $3,000 a month. They would of course have property taxes and maintenance too.

It would take $36K a year to pay the mortgage payment. If they can't afford that with two even modest incomes then they must have a lot of other things going on in their financial lives.

I suspect that it is the other things that may be causing the financial problems and those likely need to be addressed before you do anything or you paying off the mortgage might not really solve anything. Paying to resolve the other things, like student loans or other debt, might be a lot less expensive than paying off the mortgage.

Instead of paying it off you might have them refinance then you could give them $36K a year to pay the mortgage with.

You might also be cautious that there is some sort of drug, alcohol, or gambling problem that is causing the financial problems. it happens and it is not always obvious.
Last edited by Watty on Wed Oct 20, 2021 11:12 pm, edited 1 time in total.
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Re: Want to help daughter - Do we risk our retirement?

Post by delamer »

Have you determined what federal taxes you would pay if you withdrew a lump sum of $650,000 from your assets?

I’d guess you are looking at a rate between 20% and 35%, depending on where the money is coming from.

If it’s 20%, you’d need to withdraw $812,500 to net $650,000.

That would leave you with $1.6 million. (Less if the federal tax rate is higher and/or if you’d owe state taxes.).

If the $2.4 million is what would be left if you paid off your daughter’s mortgage, so much the better. But don’t ignore the tax factor.

You can use tax software or the TaxCaster app to estimate the taxes.

You also need to take into account what will happen to the income (and expenses) of the surviving spouse when the first spouse dies. The survivor might need to withdraw from your portfolio at a higher level than you do as a couple.

As others have suggested, consider subsidizing their monthly payment rather than giving them a lump sum. The tax consequences to you are less drastic and you can withdraw the support if needed.
Last edited by delamer on Wed Oct 20, 2021 11:10 pm, edited 1 time in total.
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Re: Want to help daughter - Do we risk our retirement?

Post by Sandi_k »

Always passive wrote: Wed Oct 20, 2021 8:45 pm We are retired, ages 73 and wife 70. Unfortunately we want to help daughter and pay mortgage that she cannot afford (straggling financially).
My financial situation post paying debts is:
$2.4 Million in 40% Equities/60% Bonds;
SS $3,500/month + Pensions (no Cola) $2,000/month.
Do we risk our retirement?
Can you afford it? Yes.

Should you do it? IMO, no. You give no indication that this is just a short term bridge loan; it sounds like she's just bad with money. So why would you bail her out? If you're 73/70, surely she's at least older than 40. At that age, she should manage her own obligations, not come running to Daddy to fix it.

Secondly - if the house is owned with her spouse, you're essentially transferring six figures of YOUR lifetime savings to HIM. What happens if the financial stress breaks them up, after you pay off the house? No way are you or she ever getting those funds back.

Third - do you have any other kids? If so, NO WAY would I be sinking $600k to only one kid's benefit.

Conclusion: if you must help, give them some funds to help make the payment until they get back on their feet, or decide to sell and downsize to a house that they can comfortably afford.
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Re: Want to help daughter - Do we risk our retirement?

Post by SnowBog »

Normchad wrote: Wed Oct 20, 2021 10:08 pm You have plenty of $$$. Paying off her mortgage won’t jeopardize your retirement.

That doesn’t mean you should do it though. That’s an entirely different question.
If I'm following, this is right...

$100k annual expenses - $65k in SS + pension = $35k to cover from portfolio.

That's a 1.4% withdrawal rate. Or put differently, even if your portfolio didn't grow anymore (0%) you'd be able to cover 70+ years of expenses ($2.4M / $35k).

So to my mind you have plenty of money, and I would think you know you have plenty of money. So I wonder if you aren't asking for other reasons...

Towards which, the second part of Normchad's post is spot on (as are those from KlangFool, etc.).

Just because you "can" do this does not mean you "should".

I forget the term for this from The Millionaire Next Door, but this feels very much like the examples of [usually] parents attempting to "help" [usually] their kids in these situations. While well intended, and obviously done from a place of love, with the hope of making things better, it [usually] has the opposite effect.

My gut says that it won't end after the mortgage. They need the furnishings, the cars, the clothes, etc. to go with the house. My gut tells me they don't have enough saved for their own retirement, and seemingly didn't learn the lessons you did about living below your means and saving the rest. My gut tells me this won't end as positively as you'd like. Maybe you won't be around to see it when it happens, but this feels like setting up future generations for a lesser experience than you and your spouse were able to provide for yourselves.

That said, it's very hard to have these "tough love" discussions. My parents are basically doing the same thing with one of my siblings. They are enabling them to live beyond their means. Ultimately they - like you - have the money to do so, and they can't bring themselves to deal with anything beyond the immediate "need". As long as my parents are alive, they all keep living the lie. But now my sibling's kids are getting caught up in that lie. They aren't learning lessens like LBYM and work hard to improve your life, they are learning how to take handouts. And when my parents die, it won't matter the size of the inheritance left, my sibling will burn through it as the money has just always come from somewhere. And they are going to be in for a very rude awakening when the money runs out. And it breaks my heart to think about the kids and the disadvantages they will have to overcome. But that's how these things work more often than not...

Again, you have enough money to do this if you want, and you don't need permission from random people on the internet. But I'd recommend searching your conscience to ensure this is really what's "best" for your child long term. I suspect that's why you posted the question anyway.
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Re: Want to help daughter - Do we risk our retirement?

Post by cchrissyy »

exodusNH wrote: Wed Oct 20, 2021 10:13 pm
Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
So it sounds like they could sell the house, walk away with about $750,000, get an apartment for a year and figure out their next steps.

If they got themselves into this financial situation, what's to prevent them from doing it again? Did they experience an unexpected job change that's impairing their ability to pay the mortgage?

absolutely
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Re: Want to help daughter - Do we risk our retirement?

Post by celia »

Always passive, This is what you wrote 4 years ago:
Always passive wrote: I retired late 2003 and even with the crisis of 2008 and never more than 40% in equity, I have been able to help my daughter buy a nice place after she got married, and although both, she and her husband make decent money, I often spoil them and the grand children. This winter I am taking my son in law and the 6 year grand daughter skiing, she for the first time, to Italy. That is what I do with the extra money and I love it!
viewtopic.php?p=3656209#p3656209

This sounds like your daughter and SIL never could afford the house to begin with, but you put them in this situation. Along with an expensive house, there are ‘expensive’ maintenance costs and ‘expensive’ property taxes.

It looks like your well-meaning help has now actually hurt her and her family. They need to now sell and find something they can afford.

Let them live the lifestyle they (and you) can afford.
Last edited by celia on Wed Oct 20, 2021 11:55 pm, edited 1 time in total.
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Re: Want to help daughter - Do we risk our retirement?

Post by Always passive »

Extremely wise comments. Wife and I struggle through the decision. This is 100% an emotional issue, a rational person will most likely take a different path, most likely let her fall (the husband's fault is not controlling her, he is a good guy). The question is how to strike a balance between help and help them help themselves. We live in a world of consumerism, with Amazons, etc. that make it so easy to over spend. Compulsion shopping is modern times sickness. Wife and I come from holocaust survivor parents, brought up so very differently.
We are trying to help them but also find a way to stop their overspending by limiting their ability to get credit. As crazy as it may sound, we have even hired a home economics advisor to work with them.
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Re: Want to help daughter - Do we risk our retirement?

Post by mikejuss »

Always passive wrote: Wed Oct 20, 2021 11:46 pm Extremely wise comments. Wife and I struggle through the decision. This is 100% an emotional issue, a rational person will most likely take a different path, most likely let her fall (the husband's fault is not controlling her, he is a good guy). The question is how to strike a balance between help and help them help themselves. We live in a world of consumerism, with Amazons, etc. that make it so easy to over spend. Compulsion shopping is modern times sickness. Wife and I come from holocaust survivor parents, brought up so very differently.
We are trying to help them but also find a way to stop their overspending by limiting their ability to get credit. As crazy as it may sound, we have even hired a home economics advisor to work with them.
You're a good man, Always passive. But it's probably time to let your daughter and her husband sink or swim. I bet they rise to the occasion. :)
Last edited by mikejuss on Wed Oct 20, 2021 11:56 pm, edited 1 time in total.
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Re: Want to help daughter - Do we risk our retirement?

Post by marcopolo »

I largely agree with most of the comments saying that helping your daughter and SIL will just enable them to live beyond their means.

But, just to play the devil's advocate for a minute, with your financial, you will most likely never spend down you assets. In fact they are likely to continue to grow. I assume since she is your only child, she will likely inherit most of your estate. So, eventually they will be able to live beyond their own means anyway. Giving them some of that money now probably helps them more when they need it. Getting out of the house will likely have pretty large transaction costs. Helping them pay it off may actually be better financially when considering combined finances. If i were to do that, I would be more inclined to provide some support for monthly payments as opposed to paying the whole thing off.

Not advocating that this is necessarily wise, just an alternative way of looking at it.

EDIT: I wrote this before i saw your follow up post about your daughter possibly having spending problems. I would highly recommend helping her get that under control before going down this path. Best of luck to you and your familiy
Last edited by marcopolo on Wed Oct 20, 2021 11:58 pm, edited 1 time in total.
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Re: Want to help daughter - Do we risk our retirement?

Post by Fat Tails »

cchrissyy wrote: Wed Oct 20, 2021 11:23 pm
exodusNH wrote: Wed Oct 20, 2021 10:13 pm
Always passive wrote: Wed Oct 20, 2021 9:58 pm She (only daughter) and her husband work but the monthly mortgage payments are a big burden. It is a great house worth keeping (worth about $1.5m) with a mortgage of $650k. They are basically prisoners of the mortgage and would have to sell if do not get the help. Wife and I have thought that if we can afford it, we will close their mortgage and be done with it. Our question is if that may risk our retirement. We will end up with $2.4m plus another $5k monthly coming from SS and pensions. Our annual living expense is about $100k.
So it sounds like they could sell the house, walk away with about $750,000, get an apartment for a year and figure out their next steps.

If they got themselves into this financial situation, what's to prevent them from doing it again? Did they experience an unexpected job change that's impairing their ability to pay the mortgage?

absolutely
+1, its a good time to sell if a refinance won’t help them. They have likely made a nice profit. Being house-poor is a good lesson unless you bail them out.

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Re: Want to help daughter - Do we risk our retirement?

Post by cchrissyy »

It does sound like your well-intentioned help might have put them in a lifestyle they can't afford. i'm sorry!
but
it also sounds like you don't have the full picture - or - you didn't tell us the whole story.

a 650k mortgage and property tax on a $1.5m house, is what, 4k, 5k a month in total? that should not be overwhelming a 2-income couple. they must have other debts, or are there other extreme costs such as addiction issues? If so, paying the mortgage won't help, and inheriting won't help. you need a bigger plan.
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