Personal Finance

Meg Green: My parents are in financial trouble

The dilemma: I thought my parents were wealthy. Business seemed good, and my mother inherited a lot from my grandparents many years ago when they bought their house. Five years ago, when they were 68, Dad sold his business, retired and they’ve been living high on the hog ever since. They’ve been generous with us too, taking me and my kids on big vacations, helping my brother’s son with a car and grad school expenses, and giving my sister a down payment for her house.

We thought they could well afford it from the way they live. Apparently, the payout of my father’s business is over now, and so is their income. They had been living on the payments, when it was really their principal. Also, there’s little left from my grandparents’ inheritance. They were spending that too.

We found this out by accident when Dad fell and broke his hip and right shoulder. We stepped in to help Mom organize the bills, and everything then came to the surface. Their mortgage payment alone is more than their Social Security! And the credit cards!

Dad is very chagrined. Mom goes between furious and sad. She too thought they were wealthy, when actually there’s about $250,000 left from the inheritance and going fast, and $175,000 in IRAs.

So, our dilemma. Do we give our parents back the money they gave us? My brother thinks we owe them; my sister and I feel it was a gift and they would be embarrassed if we offered. Besides, it would be hard for us to do right now. They could sell their house and downsize to a smaller place, but my mother does not want to leave her home. Not up for discussion. Their house is worth over $1 million, but of course they have two mortgages on it so their equity is $400,000. Needless to say, our family is a mess right now. What to do?

Meg’s solution: I can just imagine the varied emotions running through all of you, from disappointment to anger to guilt and fear. It never ceases to amaze me how many people don’t look to see (or care?) if they’re spending more than their income allows … until it smacks them in the face, like now.

First, to directly answer your question, I think mortified would be a better word should you offer the gifts back. Leave them their pride, or what’s left of it. Besides, it’s a drop in the bucket. But do put something into a kitty for when they need help down the road. And they will.

Your mother is going through a mourning process, so be patient with her. Not to be mean, but it’s not OK to keep your head in the sand. Two have been living this lifestyle, and this is not a fairy tale. It’s reality. But enough of a spanking; this is tough, and huge changes must be made. I’m certain your father will comply. Some therapy may help your Mom.

Besides the huge life crisis, I’m sure she’s mad at herself, too.

Staying in their home isn’t possible for more than financial reasons, although that’s good enough. Along with this reversal of fortunes comes social embarrassment, especially trying to keep up with the old lifestyle. It continually rubs salt in a wound and adds unneeded stress. But let the numbers do the talking to convince her that they simply cannot afford to stay put.

Help them find a financial planner to work with so they can see what they really have to live on, and what spending choices they have. It’ll be shocking, I’m sure. Do they sell and rent a place and invest the proceeds for income? That may work, as long as they don’t dig into their funds, as has been the case. Or they can buy a small home free and clear in a community with lots of activities where they can live within their more modest means. There’s a safety net.

So many people out there have no options at all. They do. Time to take lemons and make lemonade. Hopefully they can regain their balance, and find a way to seek a new adventure together while they still have some funds to do it with.

Got a dilemma? Email Meg Green, CFP, is a wealth manager with offices in Aventura. Her Money Dilemmas column runs monthly in the Miami Herald.