| Help me advise my parents on a HUGE decision, please! |
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| Should I press the issue to consult a financial advisor? |
| Yes, they need professional guidance before making this decision. |
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| No, they have a decent plan in place and years left to earn back a nest egg without the debts looming. |
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thatgabeflood
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| Help me advise my parents on a HUGE decision, please! |
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My parents are planning to cash in my father's retirement early (events already rendering it too little to fully retire on anyway; around $70k before taxes I think?) in an attempt to (nearly-but-not-quite) eliminate longstanding credit card and loan debts that have hounded them for decades. I sincerely think they should invest a tiny bit into a consultation with a professional financial planner or accountant before making any tens-of-thousands-of-dollars-all-at-once decision, just to ensure they're finding the best ways to use that money (or even just not lose as much to unanticipated/unknown fees and taxes) , but they're acting like I'm impugning their pride by suggesting it. In actuality I know I'm just inconveniently challenging their desperate desire to believe they can be free of it all in one simple fell swoop, and I'm fully willing (and have a good enough relationship to be able to without dire consequence) to press the point if it's indeed as important a thing to do as my gut tells me it is.
A few details:
My father is 59 currently, and my mother 56. Both make a good living working (around 120k annual earnings between the two before taxes and debt payments, is my understanding), but have been living well below their actual earnings due to these longstanding debts and the subsequent around 2k/month in minimum-plus payments. Both acknowledge that this is the result of really bad planning and poor impulse control over many years. I believe my father plans to wait until June to do this, when he will be 59 1/2 years old, to avoid at least one penalty.
How much of a difference could such a consultation potentially make? Am I really just advising them to throw a couple hundred dollars away to be told their basic idea (cash out retirement, lose whatever to penalties and taxes, then throw whatever is left at the debts in lump sums to eliminate as many as possible and lower monthly payments ASAP) is already the best one? I feel a serious sense of filial duty to keep my parents whom I deeply love from making a huge financial mistake, if it would in fact be one...
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Sun Apr 03, 2016 9:58 pm |
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oldguy
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quote:
Both make a good living working (around 120k annual earnings between the two before taxes and debt payments, is my understanding), but have been living well below their actual earnings due to these longstanding debts and the subsequent around 2k/month
They aren't telling you their full story, lol - if they were indeed earning $120k/y and living below their means, they would likely have 10X that much money. Must be some gambling/get rich-quick stuff going on?
Anyway - if the $70k is in a qualified plan (IRA, eg) the pre-59 1/2 penalty will be $7000 - so I would definitely wait until June. That's the only penalty, the other cost is the taxes owed, probably about $20,000 for their tax bracket.
I assume that the debt is high-rate consumer loans? How about their other things - home mortgage, second mortgage, car loans? SS eligibility? Medicare? Other things that factor into the overall decision.
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Sun Apr 03, 2016 11:12 pm |
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thatgabeflood
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quote:
They aren't telling you their full story, lol - if they were indeed earning $120k/y and living below their means, they would likely have 10X that much money. Must be some gambling/get rich-quick stuff going on?
That's my own misspeaking, and I apologize for it. What I meant to convey is that it is because of their substantial debts that they are living below the means they should be, earning the wages they each do. A too-large amount is going to monthly payments that are nearly all interest, and too little to principle.
quote:
I assume that the debt is high-rate consumer loans? How about their other things - home mortgage, second mortgage, car loans? SS eligibility? Medicare? Other things that factor into the overall decision.
This is largely correct, to my understanding. Mostly credit card debt, with a large chunk going to a large-sum educational loan. Mortgage situation is unknown to me, beyond knowing there is (at least?) one in play, as they do own the house.
My primary question, however, remains: Should I be pressing the suggestion to consult a financial professional prior to the decision?
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Sun Apr 03, 2016 11:19 pm |
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oldguy
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Yes, it would probably be good to buy a session a financial planner - the calculations aren't difficult, but it would be to remove family emotion from the decision. Find a fee-only planner, not a commissioned salesperson that is associated with a company that sells stock, bonds, annuities - and not a bank.
Spending $20,000 to net the $50,000 (from the $70,000) is a big decision. And you have to determine if it is worth a $20k tax bill to prepay $50k of loans. There may be better answers - eg, refi the house, that would give them a bunch of 4% money that could repay 10% and 15% credit card money. Or, refinance cars, that could give them some 5% or 6% money to prepay some 15% cc loans.
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Mon Apr 04, 2016 2:07 am |
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GardenCat
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Old Guys advice is good.
Altho spending $20K to repay $50K seems like a hard way to go... So...
I think you need to get more detail from your parents if they are willing to share. If they only have one mortgage and they have some real equity in the house, a re-fi might gain them some significant money to pay debts with and may not change their mortgage payments much, and as Old Guy said, it would likely be 4-5% debt.
Sometimes parents aren't real willing to ask/get advice from their children, maybe embarasing or whatever, but with good intentions and not wanting to get money from them you may be able to have some good sit down discussions. Having until sometime in June is good...
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Wed Apr 13, 2016 8:57 pm |
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