Here's a retirement planning question: If a mother moves in with her grown children, how much room and board should she pay?
I have a friend whose mother decided to live with her and her husband, and as a result the couple bought a larger and more expensive home. To help them manage that expense, her mother offered to pay room and board.
My friend initially was reluctant to take her mother's money. They don't really need her mother to pay room and board and, after all, her mother had raised her and supported her for many years. Turnabout is fair play. But her mother insisted.
Here are some of the things that they considered in ultimately calculating an amount. I found this retirement discussion interesting and one that other families might find useful.
First, my friend considered her mother's current budget -- how much it cost her to pay her bills and live comfortably on her own. Then she calculated her husband's and her own household expenses, leaving out things like weekend getaways and pet food that Mom won't share in.
The IRS says that if you charge fair-market rent for a portion of your home, you must declare it as income, but you can deduct expenses and depreciate that part of the property. So my friend factored in the impact of that. She used the market price for a studio apartment in her city as a guide.
She divided the resulting total expense into three equal shares, and then, feeling a little guilty, she divided one share in half, considering that cutting Mom a break might be the ethically -- and emotionally -- correct thing to do.
She was nervous about how her brother might react to this, so she discussed her calculations with him, just to make sure he wouldn't be opposed to the arrangement, and found him to be satisfied with whatever she and their mother agreed was fair.
Next, she shared her calculations with her mother and told her that she and her husband would be happy with a half-share. Her mother, after taking a day to consider the issue, decided to pay a full share, which was more than it had been costing her to live on her own. My friend says her mother thought that she should be paying her fair share and felt good about being able to do that. Paying the larger share still leaves her mother with about half of her monthly net retirement income to spend as she likes -- or to save for a time when she might require care. Plus, if she ever needs to claim Medicaid to help her pay for long-term care, having a logical rationale for her room and board payments could eliminate any questions Medicaid might have about whether the money she gave her daughter was a gift.