Barbara Kelly’s husband Martin Kelly died of Covid in July. Now the 53-year-old from Phoenix needs a financial roadmap to get through the next few years and ultimately plan for retirement.
Ms Kelly currently lives with her three sons, aged 22, 20 and 17. For 16 years, she stayed at home to take care of them. In 2013, she started working at a real estate investment trust and now earns $66,000 a year.
Ms. Kelly has three separate individual retirement accounts: $12,000 in her own IRA, and $94,000 and $48,000 in two that belonged to her husband. Currently, she is not contributing to her IRA. She also has $45,000 in a 401(k) as well as a tax-deferred annuity worth $52,000. Additionally, she has $77,000 in an investment account — mostly containing individual stocks — and $200,000 in cash.
A big expense she’s facing right now is her sons’ college bills. Friends of her late husband raised $15,000 through a GoFundMe campaign to help cover the costs. In addition, she has two UGMA education savings accounts.
The account for her youngest son, who will graduate from high school in 2022, is $25,000. That of his second son, a student at the University of Arizona, has $15,000. That sum, along with a $3,000 scholarship and $2,500 tuition assistance he hopes to receive from his employer, should be enough to pay for his final year at school, she says. . Her eldest son currently attends community college and works 25 hours a week. But he hopes to return to the University of Arizona next year, and Ms Kelly plans to pay part of the tuition.
Ms. Kelly pays $300 a month for health insurance through her employer. She has $1,500 in a health savings account (HSA) and a life insurance policy worth one year’s salary. She also purchased an additional life insurance plan with $50,000 coverage.
Ms Kelly says the family home is worth around $610,000 and has a mortgage of $467,650 with an interest rate of 2.99%. She has no other debt and owns the family’s four cars.
Monthly expenses include: $2,471 for mortgage, $1,200 for groceries, $589 for car insurance, $400 for utilities, $130 for cable and internet, $200 for cell phones , $60 for gas and about $800 for incidentals.
Mrs. Kelly’s youngest son receives a $1,963 survivor benefit from Social Security (Mrs. Kelly uses $1,200 of that money to help pay the mortgage and the rest for groceries). He will receive this monthly benefit until he graduates from high school.
Advice from a pro
Stacy Francis, a certified financial planner at Francis Financial in New York, says Ms Kelly needs to make some big changes to shore up her finances now and start building her savings for retirement.
First, Ms. Francis suggests that Ms. Kelly purchase a 10-year term life insurance policy worth $500,000 on top of the coverage she already has, which would provide coverage for up to until her youngest son is 27. She should also update her will to clarify the proceeds of the policy should be held in a trust for her three sons. She should ask a trusted friend or family member to act as trustee.
As for college expenses, Ms. Francis urges Ms. Kelly to have her boys fill out the Free Application for Federal Student Aid (Fafsa). Since the boys will be in college at the same time, they are likely to qualify for a significant amount of money, she says.
She adds that while Ms Kelly’s children can borrow money to go to college, she won’t be able to borrow money for her retirement. Without her son’s Social Security benefits, which expire next year, Ms Kelly’s expenses exceed her income.
Since most of Mrs. Kelly’s income is spent on the mortgage, Mrs. Francis suggests that Mrs. Kelly consider downsizing to a smaller house once her youngest son is in college. Going forward, she should plan to allocate about 30% of her income to housing, compared to nearly half now.
Ms Kelly could also review her budget to see if there is anywhere she can cut, although Ms Francis believes she has done a good job of keeping spending down.
The financial planner suggests Ms. Kelly combine her IRA accounts into one account to streamline her finances and set aside about six months of spending from her cash reserve as an emergency fund. Next, she suggests that Ms. Kelly invest her remaining money in mutual funds.
Perhaps most importantly, Ms. Francis is urging Ms. Kelly to think about professional development, such as getting another financial designation that will help boost her income over the next 15 years.
Ms. Ward is a writer in Vermont. She can be contacted at [email protected]
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