Money Makeover

Linda, 66, raised three kids while pursuing a college degree and worked until last year as a title officer, verifying real estate claims, in nearby Klamath Falls.

A skilled handyman, Lloyd began an addition on their two-bedroom prefab home. Linda kept working—she loved her job. On weekends, the couple was active in the local Lions Club, raising money for charitable projects and assembling holiday food baskets for the needy.

They had money enough to enjoy life. Linda earned a good salary. In addition to her home, she owned a rental property, ten acres of undeveloped land, and, at their peak value, over $400,000 in investment accounts, mostly consisting of stocks. Lloyd received disability payments from Social Security and had a small IRA. He brought no other assets to their union. But since he was working on the house, Linda gladly added his name to the deed, keeping her savings in her own name.

Lloyd’s health

About five years ago, Linda recalls, Lloyd began acting strangely. “He had occasional delusions and started running up big bills buying whatever caught his fancy,” she says. Their debt on credit cards and auto loans ballooned to $24,000. At first, doctors at a nearby U.S. Department of Veterans Affairs hospital identified it as a bipolar disorder. But last year, after Lloyd gave away his tools—$30,000 worth—and began taking long aimless drives, the diagnosis changed: early-onset dementia.

Linda tried to manage the situation as best she could while continuing to work. But when she tried to take away his car keys, Lloyd became aggressive. Prescriptions to subdue his unruly behavior made him listless, barely able to care for himself. Reluctantly, Linda quit her job last year to attend to her ailing husband, trimming their income—Social Security plus rental income and investment proceeds—to a little over $40,000 a year, plus any investment proceeds. She is unwilling to hire caregivers, and support services are limited in the area anyway. Now, she says, “I’m worried we don’t have enough to see us through, especially if I can’t care for Lloyd myself anymore.”

Affording a move

Linda is considering moving with Lloyd to Salem, about 250 miles away, where her older daughter, Karin Bastuscheck, lives in an apartment with her nine-year-old son, Derryk. Buying a home there, she reasons, means support could go both ways: “My daughter and grandson could live with us, contributing rent, and we could help one another when we need it.” There are also more options for Lloyd’s care near Salem, including a VA hospital in Portland. Eventually Lloyd might qualify for admission to a VA long-term care facility in Portland, though Linda would rather not think about that possibility just yet.

Meanwhile, she doesn’t feel she can risk relocating until she sells their real estate holdings. Lloyd’s unfinished renovation effort makes their one-story rambler unfit to sell at the moment. Due to zoning restrictions imposed after her purchase, the nearby undeveloped ten-acre parcel they own may have little value. And of course the housing market is in an historic slump. “Our real estate isn’t worth what I thought it would be,” Linda says.

Linda’s investments

Her stock-heavy investment accounts have been a disappointment, too. Like many Americans, Linda has watched her investments sink and sink some more. “I planned to work longer and build up my savings,” Linda says, but since she’s needed at home, “now I can’t do that.” Her current allocation—around 80 percent in stocks—includes more than $100,000 in company stock from a previous employer. “I felt I had time to slowly make changes to bring my portfolio in line with what we would need for retirement. Then, boom—having to retire, less income, the value of everything dropping like rocks. Scares the heck out of me.”

Jennings’s plan for the Kenyons includes a series of recommendations that starts with them getting basic estate planning documents in place, such as wills and powers of attorney. Signing up Lloyd for Medicare Part B insurance, which helps cover outpatient care and doctors’ services, among other things, is also high on the list. Both are solutions to problems that the Kenyons weren’t focused on but that need quick action. Other recommendations address the biggest worries that Linda Kenyon presented.

Boost your cash, pay your debts

Linda should convert about $94,000 of her taxable investment accounts to cash, using $10,000 to build up her cash reserves, $24,000 to pay off her credit card and auto loan, $20,000 for the Keno house renovations, and $40,000 to set aside in a high-yield savings account for either a down payment on a house in Salem or to help cover renting in Salem until the Keno home is sold.

Reallocate your investments

Even though it means exiting at a low point, Jennings recommends that Linda sell most of her stocks—including more than $100,000 in company stock from a previous employer—to bring her allocations in her remaining portfolio to about 30 percent stocks and 70 percent bonds, mainly U.S. Treasury bonds and Treasury Inflation-Protected Securities. Though it’s usually preferable to make such portfolio moves gradually, says Jennings, Linda needs the improved diversification and stability his recommendations should bring right away.

Inquire into Lloyd’s eligibility for VA nursing home benefits

Although Linda is nowhere near ready to relinquish caring for Lloyd at home, she needs to understand the extent and availability of subsidized nursing home care for him. It could have a major impact on her finances in the future.

Get your home ready for sale

“Hire a contractor to complete the renovation Lloyd began,” says Jennings. “This should cost roughly $20,000, but it’s money well spent because the house is not saleable as is.”

Try selling the rental property

“The rental house, which has no mortgage, might fetch $100,000 or more,” Jennings estimates. “Get advice from a local agent to see whether an aggressively low price would help.” The best way to get value from the development-restricted land parcel, he says, may be to donate it to a local conservation group and take a tax deduction.

Sell or rent your home

If their residence, which has a $60,000 mortgage, can’t be sold for an acceptable price—perhaps $250,000—Linda can pursue renting it. “Again, by pricing the rent attractively, possibilities may open up for the Kenyons,” says Jennings. Of course, timing a move can be tricky. Linda and Lloyd might want to rent a place in Salem before their Keno home is rented, though Jennings cautions against jumping to combine their household with Linda’s daughter and grandson. “While multi-generational living can make huge economic sense, especially during times of transition,” he says, “People who have not lived in the same home for many years can find sharing a roof stressful. This situation too often just doesn’t work out,” he says.

Buy a home in Salem to shield your cash

Ultimately, a home purchase in Salem would be a shelter in two ways. As long as Linda is living in a home the Kenyons own, the equity in it isn’t included in Medicaid’s calculation of assets available to pay for care. Here’s the scenario: if Lloyd does not qualify for subsidized nursing home care from the VA, and Linda is no longer able to care for him herself, she may some day have to rely on Medicaid. If so, the couple would have to spend a large portion of their total assets—not just the few assets with Lloyd’s name on them—before Medicaid coverage kicks in. “Owing a home outright could help protect the Kenyons’ assets,” says Jennings.

Financial planning never really ends. While Jennings showed the Kenyons a way to move to Salem sooner than later, and to get enough cash flow from renting and savings to manage it, life—and market conditions—are bound to change. Jennings will be checking back with them periodically, and they may want to consult a planner every year or so, he says. —Lani Luciano

To follow the Kenyons' progress in their Money Makeover, read updates at the Payoff.