A Widow

Scenario: Marilyn is a 51-year old widow, living in Delaware, supporting two teenagers. When her husband died unexpectedly, she had to return to the work force full-time. She is an office manager for a small law firm and earns $40,000. She currently receives $1,800 a month in Social Security survivor benefits for her children which will end when the children turn 18. She received a $50,000 life insurance payout from her husband’s employer and is receiving $12,000 a year from his pension. Altogether, her family's after tax income is about $57,000, but will drop to $41,000 when the kids are in college.

Main concerns:  How to pay for college and have a comfortable retirement without having to work until she is 75. Both of her kids will graduate from high school within the next three years. Marilyn's and her husband had saved $40,000 in a college fund to pay their children's tuition, but she doesn't know how much more she'll need.

Solution: Here's what Marilyn is doing right to care for her family financially during a difficult time:

Talks openly with her children: An important step toward rebuilding their family life was for Marilyn and her children to talk openly about their feelings, finances and their future together without a husband and a Dad. It was Marilyn's children who urged her to take active control of the family's financial future.

Family budget: Marilyn and her husband were pretty much living paycheck to paycheck with a modest savings for college for the kids. She knows she can not continue that life style and she and the kids will need to pay attention to how they spend their money in the future.

Determines current income and short-term needs: With her husband's pension, the children’s survivor benefits and her income she is in good shape right now. But the Social Security benefits will only be available for three years and that worries Marilyn. She is hoping to be able to save most of those dollars so they can learn to live on the smaller income. She is planning to put the money in a money market for the kids’ education.

Reviews her retirement needs:  Marilyn won’t be eligible to collect full social security benefits for herself until she is almost 67. At that time she will be able to collect on her own benefit record or her husband’s. She knows she will need more than her husband’s pension and Social Security for a comfortable retirement and seeing that her current employer does not offer a retirement plan she needs to be proactive and open an IRA.

Looks for financial aid options for college expenses and involves children in process: Her children's high school counselor advises her that both kids are good candidates for some financial aid in college in the form of part-time work and grants. She is finding more tips about paying for college on Sallie Mae's web site: www.wiredscholar.com. Her kids have found part-time jobs to help. After making a budget with the participation of her children and paring some expenses, Marilyn believes she can save most of the Social Security money for college over the next three years.

Seeks out professional investment advice: The accountant who handled the estate and income taxes when her husband died recommended a financial planner. Marilyn meets with the planner and starts her financial planning. She opens an IRA account for her retirement and will invest that initially in a balanced mutual fund.  And because she is over 50 she will be able to take advantage of the IRA catch-up which will allow her to contribute even more to her IRA. The financial planner recommends the Marilyn meet with an attorney and update her will and other estate-planning documents such as her Durable Power of Attorney and Medical Directive.

Life Insurance Money: With the life insurance benefit Marilyn decides part of it will be her emergency fund so she sets aside $10,000 in a money market account for that purpose. She wants to invest the rest in mutual funds for her future but is concerned she may need the money for college so she decides to invest half in mutual funds and half in CDs.

New Job: She will also look for a new job in the future that has a 401(k) plan but that is definitely in the future for her current job includes health benefits for her and the children and it is close to home so she is available if the kids need her.

Downsizing: Marilyn is also considering downsizing her home especially with the kids going off to college. She thinks she would save both time and money with a smaller home and really does not want to spend Saturday mornings mowing grass.

Widow

Age 51

Saved/invested: $90,000

Projected annual savings for 3 years: $20,000

Risk tolerance: moderate