The Bills

I’m Loaded. Should I Pay Off My Mortgage and My Son’s?

This and other personal finance questions, answered.

File this edition under “problems that would be nice to have.”

Photo by Kosmin/Thinkstock

Welcome to Ask the Bills, where every two weeks Helaine Olen answers readers’ questions about their most nagging personal finance and financial etiquette dilemmas. Seeking advice on a money issue? Email

My wife and I are in our 60s and retired. We think we are in good shape financially, but things change. We have a little more than $1.1 million in taxable accounts from which we draw $8,000 per month, and my Social Security adds just under $2,000 to that. We currently owe about $260,000 on our fixed-rate mortgage at 3.75 percent interest. In four years, I have to tap into my IRA and 401(k), which currently total about $3.3 million. My wife and I have medical coverage through my former employer. Until recently, we had no other debts, but we just bought a house for our son. The note on that is also about $260,000 with a 3.5 percent interest rate for about 10 years before adjusting. We’ll be paying most of the new household costs initially. How should we manage these mortgages? My head tells me we would do better by paying the low interest rates on at least our son’s adjustable-rate mortgage until it adjusts, but my Puritan background nags at me to be debt-free. What’s our best move?

Welcome to the hard-work-leads-to-good-fortune-for-your-loved-ones edition of Ask the Bills!

That’s a terrific net worth you and your wife have built up. Here’s the best way to protect it: Teach your son how to manage his own financial life. It sounds like you gave him the money for the down payment on a home, and now you’re paying his mortgage, too. I understand the motivation. You want to help your son.

But people have a way of taking things that come too easily for granted and getting careless. You don’t want this to happen to your son. It would be good for everyone if your son felt a sense of ownership over his home, not to mention his overall financial life.

Forget paying off your son’s mortgage. And under no condition should you pay his monthly household expenses. I’m not saying you should tell your son that enough is enough, though plenty of personal finance gurus would advise just that. It sounds like family support was baked into this homeowning arrangement, and it’s not clear you could unwind it without causing real financial damage. So how to change the parameters? Instead of paying the new household costs directly, you could gift the money to your son on a yearly basis. The IRS currently permits an individual to gift another individual $14,000 annually without needing to file a gift tax return. Then let your son learn to pay his own bills—or not—with the money.

(A quick aside: This sort of thing is why wealth inequality can get so sticky. It’s not just that being born into a family with high income gives you more education and other opportunities in life. It’s that you get more chances to grow wealth too, through means like your parents buying you a home before your own earned income can support it.)

Oh, and as for your own mortgage? If you’ll sleep better at night if you pay it off, do it. You’ve earned the privilege.

I’m a recent college grad who was fortunate enough to land a job before even graduating. I’m extremely frugal, paying all my bills and putting 36 percent of my income into savings every month. I grew up in a low-income household. My parents are immigrants. We lived on my father’s income while also paying the expenses of a child with a chronic illness (me). My parents barely get by every month, and as an only child, I feel obligated to help them. Just this month, I transferred $7,500 of their debt onto a credit card in my name, and they’ll make monthly payments toward it instead of their previous high-interest card. I was thinking of starting a Roth IRA for them because they don’t have enough retirement funds and still have 10 years until retirement, but I wonder if I should instead use that money to help pay off their debt. How do I get the most bang for my buck?

It’s terrific that you want to help your parents out. I completely understand your motivations. Your parents literally kept you alive. And as an only child, you are no doubt thinking that if you don’t step forward, no one else will.

But I’m concerned. Your financial life is going well now. You graduated from college and found a well-paying job. You’re saving what sounds like an incredible sum of money. But things can change. Have you considered returning to school for a graduate degree? Is your job secure? What about your parents’ financial situation? If yes, are you sure? I ask all this because I’d hate to see you on the hook for your parents’ debts if they can’t pay the bill—and neither can you. My advice? Dedicate your efforts to helping mom and dad pay down the credit card bill before the teaser rate expires. Only then should you consider whether you have the resources to set up a Roth IRA for them.

One last thing: You say you’re “extremely frugal.” If you enjoy this, great! But I suspect you’re giving up something or some things you really want to achieve that impressive level of savings. Are there things you want to do—travel, buy new clothes, indulge in a hobby—but can’t give yourself the go-ahead to spend the money? Then think of me as your fairy godmother, at least in this case. I permit you to let go of the purse strings. It’s important to save money for the future, but it’s also important to enjoy your life. You only get one, after all.

I’m in my 30s and make enough to live comfortably. My wife and I have no significant issues managing our family’s finances, mostly because after bills and small savings-funds contributions, there isn’t anything left. However, as with many people my age, I am likely to inherit a fairly sizable amount of money in the future (more than $3 million, if it matters), and I have no idea how to best responsibly manage it. My parents taught me fiscal responsibility but not a lot about wealth management. My parents also haven’t done the best job managing their finances, so I don’t think of them as a resource. What’s the best way to learn about protecting, growing, and managing wealth? What should I look for in a financial adviser? Yes, I realize this is the best kind of problem to have.

I’m glad to see you understand a crucial distinction. Fiscal responsibility and wealth management are two different, though complementary, skills. Yes, it’s important to regularly put money aside. It’s also important to know how to invest it wisely. There are a number of new books that offer guidance, including Jane Bryant Quinn’s How to Make Your Money Last and—forgive me!—the new book I co-wrote with Harold Pollack, The Index Card. As for a financial adviser, it’s important to find someone who is legally bound to act in your best interests and takes the time to understand your specific financial situation. (I wrote about this, from several perspectives, in my most recent advice column.)

Now, the lecture. You’re treating your possible good fortune as a given. Most people don’t expect or receive large inheritances. If you anticipate inheriting about $3 million, that officially puts you in the top 1 percent of all inheritors. So not only is this “the best kind of problem to have,” it’s a relatively uncommon one. Moreover, it’s also a “problem” you might not ultimately experience. You can never count on an inheritance until the day it lands in your bank account. Here a just few of the ways people I’m spoken with over the years never received an expected bequest: Relative lived to be 98, and most of the money went to long-term care and other expenses of a long life. A parent remarried and left the expected inheritance to the new spouse. A parent invested with Bernie Madoff. You get the idea. It’s not your money, and it might never be your money. Don’t make the mistake of living your life like it is.

So what to do now? Your instincts are mostly correct. Learn the basics of wealth management. Continue to save money. Finally, live within your current means, not the means you expect to enjoy one day.