Help! Sustainable Retirement Solution Needed

p0ppa8ear

My mother is 68, retired, and lives alone on a limited income. She owns her home (valued at approx. £250k), has no savings and has approx. £16k of unsecured debt (credit cards). Over the past 12 months her level of anxiety about her financial situation has increased dramatically. The heart of the matter is that she feels unable to enjoy a comfortable lifestyle in the way that her close friends (who each have partners and are in much greater financial health) do.

She has given consideration to down-sizing, equity release through a lifetime mortgage and consolidation of her debt into a more manageable arrangement. Each option has a compromise and I feel inadequately informed on the subject to give her any meaningful guidance. Any pointers or thoughts would be greatly appreciated.

atush

Downsizing seems to be a good idea to me. If this is likely to take long, consolidation of debt in the meantime?

With the proviso that she needs to make a budget and stick to it and not overspend in future or she will just go back into debt?

Linton

Could she take in a lodger?


Equity release through a lifetime mortgage is expensive if you are as young as 68 as she is unlikely to get more than 25-30% of the house value and the high interest rates will significantly deplete the equity making it difficult to move into something like self-funded sheltered or adapted accommodation in perhaps 20 years time.


In my view downsizing is the only other option. If the current house is too big anyway then that should not be a major problem, otherwise perhaps she can move to a cheaper part of the country rather than to a nearby house that is inferior to what she has now which may be difficult for her to accept.



Whatever she does she must learn to live within her means and not get into further debt. Implementing a sustainable plan to pay off her current debt is essential.

DairyQueen

p0ppa8ear wrote: »

The heart of the matter is that she feels unable to enjoy a comfortable lifestyle in the way that her close friends (who each have partners and are in much greater financial health) do.

No criticism is implied but the above statement concerned me as it signals that (perhaps) she is struggling to live within her means rather than seeking cash to (say) fund home improvements, car. holiday, help children, etc . At age 68 (assuming that she is in good health) she is likely to live at least another 20 years so, if she begins drawing on her home equity now to fund daily spends, then the capital released is unlikely to be enough over her lifetime.

Has she completed a budget?
Does she know the figures for her discretionary/non-discretionary expenses?
How long did it take for her to accumulate that credit card debt?
Is that debt only the result of funding her daily expenses?
What kind of pension arrangements does she have?
How big is the deficit between her income and spending?

At age 68, and with £250k in equity, it's possible that neither equity release nor downsizing will meet her income needs for the rest of her life unless she also reduces her spending.

Unfortunately, her desire to live at couple-pension level may not be do-able. Wanting to spend more than she can afford now may be a recipe for difficulty later.

I think the best option depends on the amount of income deficit relative to the amount of capital she could access via downsizing or via equity release. Don't overlook inflation in future income requirements as the extra amount she will require will increase over time. Taking equity now, and leaving it in cash for any length of time, would be a one-way street to real-terms capital loss.

p0ppa8ear

DairyQueen wrote: »

No criticism is implied but the above statement concerned me as it signals that (perhaps) she is struggling to live within her means rather than seeking cash to (say) fund home improvements, car. holiday, help children, etc . At age 68 (assuming that she is in good health) she is likely to live at least another 20 years so, if she begins drawing on her home equity now to fund daily spends, then the capital released is unlikely to be enough over her lifetime.

No criticism taken. It is fair to say that she has always struggled to budget and live within her means. It is not inconceivable that a solution today doesn't stand the test of time because the underlying behavioral issue remains. I don't mean to imply that she is frivolous with her money, simply that she is often guilty of 'treating' everyone (big Xmas gifts for grandchildren etc.).

I have given some consideration to another option, which would be for her to sell her house to me. In practice though, I could only afford a small second mortgage (maybe £60k), so this suffers the same issues as a lifetime mortgage (she only actually receives a small equity release), with the added complexity on matters like inheritance (e.g. what if my wife and I were to separate and now any intent to sell in future and share some of that with my sibling is in jeopardy).

As conveyed in my original post, I'm not very well informed on the options.

Chickereeeee

The traditional way (as in it seems to have happened a lot more in the past) was for your mother to move in with you. She could sell her house, and the funds could be use for an extension, granny annex or just making the house suitable. There are the obvious downsides for you both, of course.


K

justme111

I don't think tradition applies here - elderly used to move in with children when they could not function alone physically or mentally; not when they could not have the lifestyle they wanted. In a former case I understand it , in the latter - I do not see how any person of a sound mind would have agreed to likely 20+ years to have their or their partner's parents in their home.

p0ppa8ear

Chickereeeee wrote: »

The traditional way (as in it seems to have happened a lot more in the past) was for your mother to move in with you. She could sell her house, and the funds could be use for an extension, granny annex or just making the house suitable. There are the obvious downsides for you both, of course.

I'm absolutely amenable to that, but unfortunately we live 500 miles apart and she isn't ready to consider moving away from everything and everyone that she knows.

bostonerimus

The first step must be to control your mother's spending. She needs to do a budget and stay within it. High up on that budget must be an amount that goes towards repaying the cc debt. If your mother is fit maybe she could also consider some part time work. The next part of the solution might be downsizing.

Chickereeeee

justme111 wrote: »

I don't think tradition applies here - elderly used to move in with children when they could not function alone physically or mentally; not when they could not have the lifestyle they wanted. In a former case I understand it , in the latter - I do not see how any person of a sound mind would have agreed to likely 20+ years to have their or their partner's parents in their home.

Depends how far back you go: it is still quite usual for older generations to share the house in Indian cultures, I believe, as it was in the general population in the UK prior to, maybe, the 1960's.



k

xylophone

https://www.nationaldebtline.org/

The above may assist.

She has to learn to live within her means - you and your siblings could explain that your children do not need expensive presents?

Downsizing may not be the answer as a suitable smaller property might not be that much cheaper than what she has now.

Even if she were able to realise a certain amount of capital from the sale, how long would it last if she is set on "keeping up with the Joneses"?