My parents have no savings, live paycheck to paycheck, and own a home with $400k in equity – should they cash out and rent instead?

There is just something wonderful about growing up, knowing that your parents worked hard and will finally get a chance to rest and relax. At least that is the plan but as is the case with many different things, the best plans don’t always happen as we want them to. 

Unfortunately, one Redditor posting in r/personalfinance is struggling with watching his parents attempt to retire with no money. The parents lived paycheck to paycheck for essentially their entire lives, and now they find themselves in a position where they can no longer work but also have no savings. 

Not Having Money to Retire

On the bright side, the Redditor’s parents receive about $2,400 a month from Social Security. Sadly, it’s not enough to live on as they are in their early 60s and it’s about all of the money they are currently making. The father immigrated to the US at the age of eight and started working right away and never received any kind of formal education. 

The Redditor’s mother has been running an in-home daycare for the last 10 years, which has only brought in a tiny bit of income. The parents live in a small town, so you can imagine that there isn’t a ton of money available across the board, regardless. Unfortunately, the father worked for a farming company for 35 years, but they did not offer any kind of retirement package. 

Without any formal education, the parents were understandably unfamiliar with the different types of methods they could have used to invest money while they were working. It was only when the Redditor came of age and began to understand the parents’ financial situation that things started to come to light. They realized the extent of their parents’ impoverished financial situation. 

The best hope for the money may be the home they bought in a small California town in 1985, though they have a second mortgage to contend with as well. Still, the home is worth approximately $500,000, so after paying off the remaining mortgage, the parents would have around $400,000 that they could use to live on and rent somewhere else. 

The Dad’s Horrible Accident

Adding to this story’s sadness is that the father was in a work-related incident three years ago after injuring himself while trying to fix a piece of machinery. Unsurprisingly, the farming company that employed him had a strong lawyer, which resulted in a settlement of only $100,000. Over the last 24 months, the Redditor’s parents have used up most of this money to live on without the father’s regular income coming in. 

Now, in their 60s, the dad cannot work due to his disability, and the mother, with only her GED, can only bring a little extra cash through babysitting. They are living off $2,200 per month and only have whatever is left of the $100,000 settlement to enjoy. 

Deciding Between Renting and Owning

If, and it’s a big if, the parents are interested in improving their financial situation, selling their home has to be on the table. The Redditor believes that after selling the home the parents could walk away with around $400,000 after the sale and after paying off their mortgage. This could be the best course of action, since the original poster mentions that the parents would be unable to afford any kind of large home repairs. 

This leads them to their best piece of advice, which is to consider renting, but they aren’t even sure this is good advice. With the high cost of rent in California, even in a small town, they are unsure how to advise them. 

To be fair, what the Redditor’s parents should do is sell the home, take the money, and move somewhere cheaper where the money would stretch further. The mom likely needs a W-2 job that she can work for a few more years, which can help boost overall living expenses alongside the $2,200 in Social Security.

The other alternative here is that the Redditor becomes the retirement plan, and the parents move in with them. Several things should have happened differently here, but no question, selling the home and renting is the best approach. At $400,000, they could withdraw $1,600 with a 0.04% interest rate, which adds to their $2,200, giving them $3,800 in spending power. If they are willing to move to a lower cost-of-living area, there is no question they could live comfortably.