Photo: Marc Royce
Q: My parents are in their 70s and relatively healthy. Their home, which my father built, was recently appraised at more than $600,000, but their combined retirement earnings are less than $2,000 a month with no other assets or income. My dad is worried about the cost of maintaining the house; he'd just as soon sell it, buy a motor home, and travel. My mother, who is attached to their community, doesn't want to live out of an RV. Being house rich but cash poor is a source of great conflict for them. My sisters and I would like to help them out but are unsure how. Should we set up a bank account for maintenance and each put in $100 or so a month? Find reliable workers for them? We want them to keep the home Dad built and Mom loves, but we don't want our father to be overly stressed. Is this where a reverse mortgage comes in?
A: Isn't it amazing that no matter how long two people who love each other have been together, their financial differences never seem to go away? What your parents are struggling with is actually quite common. Like many couples, they view this as an all-or-nothing issue. They see only two options: Hold on to the house or live in a motor home. There is a third option, which I will get to in a moment, but first, Mom needs to understand that, actuarially speaking, women outlive men. So there's a good chance that one day she will be in that big home all by herself, solely responsible for its upkeep. Her income will also decrease because she'll be limited to one Social Security check. So while a reverse mortgage could help with your parents' current cash flow crunch, it's not the long-term answer. If they later decide to sell the house, the mortgage would have to be paid back. Then what? I don't think your pitching in financially is a smart move, either. The cost of your generosity could be their pride. And the truth is, they're not poor; they have a home worth $600,000.
I think they should sell the house and buy a smaller home or condo in the same area. They might want to look into a continuing care community, where they will be taken care of as they age. If your parents sell, the first $500,000 in profit will be tax-free ($250,000 for singles), so there should be enough for Mom to keep her ties to the neighborhood and for Dad to buy a small motor home for travel. Here's the best part: They should also have enough left over for a nice savings fund so they don't feel cash poor.