Published June 29, 2012
Dear Debt Adviser,
My wife and I are both retired and are able to make payments on our mortgage. Our house was appraised at $160,000 and we still owe $150,000, plus $10,000 on a new roof to another bank. If I die first, my wife will get my Social Security because I receive more than her, and the same with my pension. Our mortgage payment is $1,400 and our roof payment is $240 a month. With me gone, my wife will not be able to handle this. What is the best way to go about all of this?
You didn't mention what you have in savings and investments. Social Security was never meant to be a standalone retirement plan. Plus today, many pensions are less secure than they were in times past. A sound retirement plan may include investments, savings, insurance, other sources of income and more. The more parts there are to a plan, the more secure your financial future will be. If I take you at face value, meaning that all you have is Social Security and your pension to rely on, then you are smart to be doing something before one of you passes on and leaves the other in a financially untenable predicament.
A term life insurance policy of $160,000 or more would be one way to cover your dilemma. If you don't already have life insurance or have inadequate coverage, it wouldn't hurt to check with an agent to see if you could afford to purchase or upgrade a policy for you and/or your wife. The proceeds from the insurance policy would provide the surviving spouse enough money to pay off the mortgage and stay in the home.
Another option is for you and your wife to start looking for housing that is affordable using only your Social Security benefits and pension. If your pension doesn't have survivor benefits, then you'd want to calculate what your Social Security and your wife's pension (if she has one) would be. You get the picture. Any new housing option would, of course, involve your moving from your current home and selling the property to pay off the mortgages. Depending on where you live, it might be difficult to sell your home right now. You could wait to make a move until the housing market improves, or you could consider letting the house go back to the bank. Should you decide to let the bank have the house, be aware of the credit consequences and other downsides of that move.
Unfortunately, your $10,000 new roof loan would not fall under the current foreclosure protections available. Even though it is secured by your home, you would likely need to satisfy that loan.
You might also consider talking with your children or other family members and determine if any of them would be willing to purchase your home and allow you to continue to live there and pay the mortgage note. This would be a sort of family-funded reverse mortgage arrangement. You would need to include in the agreement that the surviving spouse can continue to live in the home for as long as he or she wishes at a rental rate that is affordable with only one income.
One last thing -- no one knows what the future may hold, and you may find yourself as the one left behind without enough money to make ends meet. If you opt for the term insurance, be sure it covers both of you, not just you or your wife.
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