My Parents Are In Serious Debt. Should They Save for Retirement? – Elizabeth

My dad lost a job many years ago, and was depressed and didn’t file their income taxes for 10 years. They owe 77k to the government, and they put in an offer in compromise with the IRS, but were told that they should be able to pay they full amount. At this point they have a chance to submit any documentation as to why they can’t pay, and the government said they will consider it before the offer in compromise process is final.

They are 62 and 59 years old, mom makes 80k, dad is taking social security at 1600 a month- he has always done sales but is not currently bringing in any commissions, ( total income 91k per year )and refuses to get a minimum wage or salaried job because he “could make more” in sales, even though he hasn’t made any money in 3-4 years at these sales gigs.

They have 10k in credit card debt ( one card 5.8% interest, one at 8.9%), owe 106,000 on their home, ( 7.5% interest, fixed mortgage- they cant refinance because there are liens against the house from the IRS ) and have zero dollars in any retirement savings.

I’ve worked with their budget, and they have paid off 15k in credit card debt in the last 1.5 years- ( awesome)- they have 3k a month to put toward the debt if they stick to the budget. at that rate it will take about 3 years to pay off the IRS debt, and then 2-3 years to pay off the house and they will be able to live on social security I guess. ( mortgage payment is $821 per month) is this a good strategy? should they focus on getting out of debt or should they take some money and save it for retirement? any advice for my father? we think he should just get any job to help out and stop drawing his social security but he doesn’t listen to us. maybe hearing it from an objective source will help. Any advice on how to convince the IRS that they need a break on the debt?

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Thank you so much!!!!


Dear Elizabeth,

It sounds like you’ve done a good job of managing their money and digging them out of this hole. It might be worth talking to a local bankruptcy attorney about the possibilities of discharging the old taxes due. Tax obligations older than three years may be able to be discharged in bankruptcy.

Your parents absolutely need to focus on income right now. If the future social security checks don’t reach far enough they will either land on public benefit programs or you.

This tax situation needs to be resolved before they depend on social security for their income. Their social security checks can be levied for delinquent Federal taxes.

Basically it seems what we have here is a head in the sand approach that has not worked at all. We need a strategy that will address the underlying issue of the taxes and the lack of any retirement savings to provide some resource for basic safety and human dignity in the not so distant future.

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The reality is the offer in compromise is not granted that often and there may be other alternatives. See this previous answer for details.

Getting your father out in the workplace has several benefits. He will be able to earn something to save, the action will do him good both emotionally and physically, and activity breads activity. Opportunities for him may be more apparent if he’s out and about earning.

I remember a similar situation with a woman years ago. She refused to go out and get a $10 an hour job when she felt she could earn much more. Things changed when I made her ponder how much she was earning by sitting at home without either job.

It sounds like your father is stuck in a bit of denial about his current income potential. Consider drawing a line in the sand by which time he has either landed one of this great sales jobs or he will agree to go get another type of job. I can’t imagine that his sitting at home is providing a positive benefit for anyone in the family.

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If he needs a bit stronger advice I offer up my unfiltered take, “Dude, get off your butt, stop making excuses and go get a job. Show people you can do great work to contribute towards this financial hole. You owe it to yourself, your wife and your daughter. Don’t make me come out there and kick you in the ass.”

I hope I didn’t sugar coat that too much.

Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach
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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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