Retired couple - no major queries, just want to check is anything missing?

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Cantillon

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These are my parents, I sort of help them with finances, do tax return, etc.
I don't have any major question, just am I missing anything?



Age: 75 approx

Spouse’s/Partner's age: approx. 80 I think

Annual gross income from employment or profession:

(1) PS pension = 35-36k

(2) ARF pension income (4% or 5% of capital value) = 3.5k approx

(3) Other small labour incomes, say 1.5k, total is 40k min, maybe 42k max

Annual gross income of spouse: 0.5 State Pension Contributory = 6.5k

Total combined gross is 48k approx. pa.

Monthly take-home pay = I don’t know, but the tax plus USC is under 10%, so the net income is 43.5k, say 3,625 per month

Type of employment: both retired

In general are you: (b) saving? Yes, unplanned, savings simply accumulate

Rough estimate of value of home = 350k

Amount outstanding on your mortgage: no mortgage

Other borrowings – car loans/personal loans etc = none

Do you pay off your full credit card balance each month? = yes

Do you have a pension scheme? Public service occupational pension

Do you own any investment or other property? = No.

Ages of children: three, all adults

Life insurance: None, other than usual PS pension survivor’s benefits



Summary of Assets and Liabilities
Family home worth €350k

ARF = 70k approx., from which is drawn 4% or 5% annual income. I can't recall the funds, I think Consensus Fund and another fund?

Zurich (Eagle Star) Matrix investment bond, managed funds, started in 2007
  • 100k, with 101% allocation, and 3.5% commission added into fund = 104.5k
  • AMC = 1%
  • Spread evenly across eight funds, as follows:
Balanced
Dynamic
Performance
Eurozone Equity
Dividend Growth
Eurozone Property
Long Bond
Active Fixed Income

At the eighth year, I think the fund was worth 150k approx., and approx. 20k tax was paid. Unless there is some sort of disaster, these funds will never be encashed. The parents wouldn't think about them, they would hardly remember them. A statement comes yearly.


Deposits = I estimate about 300k, including 150k in Savings Certs, growing each month as funds accumulate in current account and credit union.



What specific question do you have or what issues are of concern to you?

I don’t have a specific question.

I’m just wondering are we missing anything?

Is there something they should be doing that I am missing?

CAT should not be an issue at inheritance, as there are three children.

Thanks.
 
Cantillon said:
Deposits = I estimate about 300k, including 150k in Savings Certs, growing each month as funds accumulate in current account and credit union.
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They are in very good financial shape.

The only thing that strikes me is the amount of wealth in financial assets here. If either of them needs the Fair Deal scheme it will not be sheltered the way that property is.

OTOH cash of that amount can be used to pay for home care to keep them out of a nursing home as long as possible too.
 
Do your parents need to do any upgrades to their house to make it suitable for them in their old age? Bedroom/bathroom downstairs? Elimination of steps? Upgrade of windows/heating/kitchen to make it more comfortable and easy to navigate/access. They have great savings so now is the time to look at this critically.

If they like gardening how about raised beds, pathways, etc.

Get them to think about this critically and use their savings to make the changes. It can be hard to look around and see your own house without emotion or not even seeing the fraying 30 year old carpet.

I would be encouraging your parents to make their money work for them to make life more comfortable and easy. For example, a cleaner, buying deli ready to heat meals, encouraging them to use taxis rather than slogging with buses/shopping. Gardening service to do lawn hedges etc. It really depends on their interests and abilities.

In terms of health use the money to access consultants, health checks, rapid access clinics, testing and screening etc. Good quality hearing aids, glasses, etc. Do they need any adaptive items in the house, grab bars, riser and recliner chairs etc.

Their aim should be to spend all their money and have it run out the day they die. The last thing that should worry them is inheritance and CAT issues for their children. But do encourage them to make wills, enact enduring power of attorney, make their funeral wishes known.
 
Cantillon said:
At the eighth year, I think the fund was worth 150k approx., and approx. 20k tax was paid. Unless there is some sort of disaster, these funds will never be encashed.
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Cantillon said:
Deposits = I estimate about 300k, including 150k in Savings Certs, growing each month as funds accumulate in current account and credit union.
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So they have about €450k which they are unlikely to use.

It is likely that the children will inherit this.

So their investment horizon should be their children's investment horizon.

On their death, the Zurich fund will deduct exit tax and pass the net amount to the estate.

On the other hand, if they owned shares directly, and Capital Gains would disappear on death. Death is not regarded as a disposal for CGT purposes.

So they should invest their savings directly in a portfolio of shares.

Share prices will go up and down over the longer term, so they must be prepared for that. But if they are in a Zurich funds, they will have seen this. Some years, the fund will have been worth less than the previous year's statement.

Brendan
 
The only thing that jumped out at me from the post was not knowing the ages as well! Other than that all seems fine.
 
If it was me I would be investing an awful lot of that cash into my house. Otherwise, as No Regrets Coyote has also mentioned, it will go in Fair Deal payments if they ever need nursing home care. People of a certain age don't pay enough attention to this detail. There's a flaw in the FD scheme, but one can, and should, turn such things to their and their family's advantage. Some may not agree, that's fine too. I don't hold the high moral ground on this.
 
jim said:
Whats the flaw?
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If you keep the cash the state can claw an awful lot more from you. By putting it into the house, you're still keeping it for either yourself, or your children, but state will only get a percentage and you'll get Fair Deal that costs the tax paying public a lot of money. I'd call that a flaw. Don't think for one minute it's not being done.
 
Thanks for all comments, I will go over them in detail.

The father is 76.

The mother doesn't discuss her age, doesn't disclose it, is the last person to fill in the Census, etc.! She is 80+.

One of the adult children lives in the family home with the parents, and has a caring role with them. This person is not a homeowner.

The other two adult children (including me) live elsewhere, and own their own homes.

I know what you mean about the FairDeal scheme, 50k spent enhancing the house means unchanged wealth (in theory), yet 50k less cash to be means-tested by the scheme.
 
Just floating an idea - is there anything to be said for transferring 3000 per year to the children starting now?

Also, if a new car might be needed soon, think about an automatic - if not already sorted.
 
NoRegretsCoyote said:
The only thing that strikes me is the amount of wealth in financial assets here. If either of them needs the Fair Deal scheme it will not be sheltered the way that property is.
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noproblem said:
If it was me I would be investing an awful lot of that cash into my house. Otherwise, as No Regrets Coyote has also mentioned, it will go in Fair Deal payments if they ever need nursing home care.
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Cantillon said:
I know what you mean about the FairDeal scheme, 50k spent enhancing the house means unchanged wealth (in theory), yet 50k less cash to be means-tested by the scheme.
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If the house needs to be upgraded, then by all means do so.

But don't spend money unnecessarily so that you will avoid it being means-tested.
  1. It's a waste of money
  2. The rules may well change
  3. They might prefer to spend the money on living at home longer rather than going into a nursing home.
  4. They might never go into a nursing home
  5. If they do go into a home, the average "cost" of having €50k cash is €7,500 towards their nursing home fees.

Brendan
 
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They pay 7.5% of their assets each year.

The average stay in a nursing home is 2 years

So it is likely that having €50k cash will "cost" them €7,500.

Brendan
 
But in this case it will be 7.5% of 350k which could be €26,250.00 in the first year if the annual fees were that high. The stay may be for much more than 2 years so the cash reserve will disappear very quickly. With the house as his only asset the payment stops after 3 years and is therefore limited to a certain amount which means the asset won't evaporate like the cash. Like you say they may never go into a nursing home, but the house value will hold in most cases if people are smart. In any case, many thousands of people are doing this and I don't agree when you say it's a waste of time. Just an opinion by the way, nothing's written in stone.
 
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Hi noproblem

This is a really interesting discussion and I will move it out into a separate Key Post when we have it sorted.

I am not an expert on the Fair Deal, but this is how I think it works

If one of them went into a nursing home today...

House 350k
Zurich 130k
Deposits 300k
Total assets: €800k
Means test: 3.75% :€30k

Pensions €40k@40% €16k

Total €46k for the first three years.

So they pay €46k and the taxpayer pays the balance.

(In the unlikely event that they are in a nursing home for over three years, the house is removed from the means, and so their contribution falls to €34k)

Burning €50k or spending €50k on the house and assuming it does not increase the value of the house, would save them 3.75% of €50k or €2k a year. It's not good value to burn €50k to save €2k a year for 2 years.

The average, for those who go into nursing homes, is 2 years.

The average for all adults is a lot less than 2 years as I assume most do not go into nursing homes at all.

If they need to spend money on their house so that it is more suitable for them in old age, then they should do so.

But they should not spend money solely to save money on their nursing home fees.

Brendan
 
Brendan Burgess said:
Burning €50k or spending €50k on the house and assuming it does not increase the value of the house, would save them 3.75% of €50k or €2k a year. It's not good value to burn €50k to save €2k a year for 2 years.
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Not strictly correct Brendan, the three-year cap only applies to your PPR, not financial assets.

So a five-year stay in nursing care would see 3.75%*5*€300k=€56k surrendered.

In their shoes I would look at using some of the €3k annual gift exemption as part of estate planning. But every family is different and this kind of thing can often cause more problems than it solves, so maybe best to leave it be.
 
NoRegretsCoyote said:
So a five-year stay in nursing care would see 3.75%*5*€300k=€56k surrendered.
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Let's be clear.

Are you suggesting that they should blow €300k on their home

just in case
1) One of them goes into a nursing home
2) That they stay in that nursing home for much longer than the average stay

just so that they can save €56k?

It's not even that much. If they spend €300k on their home, presumably it will increase the value so they will pay 3.75% of the increased value for three years.

Brendan
 
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