Q: A relative of mine is 75 years old and owns a condominium in Marin County, California, worth approximately $400,000. Although she has suffered more than one stroke in the past, she has fully recovered and we expect her to be with us for many years to come.

Her only income is her monthly Social Security check which is approximately $850. Her monthly expenses are approximately $1,400. Although these expenses could be reduced by maintaining a strict budget, her expenses would still exceed her income.

Other than basic living requirements including homeowners association fees, her additional expenses are prescription drugs, $100 per month golf club dues, and minimum payments on a $25,000 home equity line of credit and $15,000 accumulated credit card debt.

She does own some stock which is rapidly diminishing since she sells stock every couple of months to cover major expenses such as property taxes.

Family members became aware of her financial troubles last year and are struggling with the best way to resolve them. We have heard about reverse mortgages and would like more information to determine if this is the most viable option for her. We want her debt eliminated and a budget developed for the future.

A: A reverse mortgage may be one option, but there may not be enough equity in her property to keep up with the monthly expenses she has.

Many local lenders now offer reverse mortgages. The best places to get information are from Ken Scholen’s book, Your New Retirement Nest Egg (National Center for Home Equity Conversion, 612-953-4474) and the Fannie Mae website, www.homepath.com.

A reverse mortgage can be structured to pay off her debts and give her the rest to live off of. But with $40,000 in debt to be paid off first, she will likely end up with about $150,000, or perhaps a little more. Invested at 5 percent, it will give her an additional $625 per month.

To make that cash last over the next 10-20 years will take careful budgeting and planning. She may need to cut her expenses to the bone, including that golf club membership, in order to make it. Inflation will take a large chunk out of that cash as well, making her $625 per month feel like $300 over 20 years.

A better option might be to sell the home, pay off her debt, invest the proceeds, and rent. If she invested after the costs of sale, and paying off her taxes and any capital gains profits she’d owe, your relative may end up with about $300,000 in cash. Invested at 5 percent, she could earn about $15,000 per year, which would give her an additional $1,250 per month toward her expenses.

She would then have a monthly income of $2,100 per month, but she would have to find somewhere to rent, which could cost her $500 or $600 per month. But that should still leave her with enough cash.

While your relative may prefer to stay in her home, selling may be the more economically prudent way to go, and would allow her to continue to do the things she enjoys in retirement, like golf.

Either way, I’m glad she has someone like you to help her figure out her next best step.

March 1, 2001.