At age 60, Priya is entering the next stage of her life. Not retirement, but caregiver. She recently was awarded custody of her 3-year-old grandson, and his parents have given up their parental rights.
“I spent my savings on attorneys, and I still owe several thousand more,” she says. “I’m still working because I can’t afford not to, though I’d love to retire someday. I feel like I can’t get ahead, and saving extra money hasn’t been possible.”
Priya, whose name has been changed, has saved $25,500 in IRAs, $25,200 in a certificate of deposit, $1,200 in savings and $300 in checking. There’s also $800 in savings bonds for her grandson’s college education. She receives a small pension and Social Security benefits through her husband, who died six years ago.
The Star-Ledger asked Douglas Duerr, a certified financial planner and certified public accountant with U.S. Wealth Management in Montville, to help Priya come up with a plan for her financial future.
“While she would like to think about retirement, it is crucial for her to think about what is required to raise her grandson,” Duerr says.
The future guardianship of her grandson is the most important issue to address in case Priya passes away before her grandson is age 18.
“He is only 3 years old and since Priya does not have a husband she is the only guardian for him,” Duerr says. “Should something happen to her she needs to ensure she has someone who will take responsibility to raise him.”
Duerr says he realizes she’s just spent a small fortune on attorneys to get custody of her grandson, but she needs to have a will drafted. The will would list who will be her grandson’s guardian should something happen to her.
“This is not something that can be put off at this point,” Duerr says. “It needs to be addressed immediately to ensure he will be cared for by someone Priya trusts and knows will properly raise him.”
Choosing someone to be a guardian for a minor child is a very serious decision, but if she doesn’t act to name someone, her grandson could end up in the state’s care.
Duerr says Priya’s budget is pretty sparse, with her largest expenses being rent and food. There’s not much more to cut back on.
Priya could look for a less expensive apartment, but that might not be feasible, Duerr says. She doesn’t own a car so she needs to be close to her job or to public transportation, so moving may not be an option.
While Priya says she wants to save for her grandson’s college education, that’s not the most pressing situation. College is a long way away and her grandson can always apply for financial aid and student loans when the time comes, Duerr says.
Priya also realizes that retirement is nearing, and she wants to plan, but she doesn’t know how to approach it given her situation. At the present time, she is unable to afford making contributions to any retirement accounts, and her only earmarked retirement savings is an IRA from her deceased husband.
She does have a certificate of deposit (CD) worth approximately $25,000. It earns 2.675 percent interest.
“I would suggest that when that CD matures, she use some of the funds to pay off her $3,600 in credit card debt,” Duerr says. “Her credit card is currently charging her 20.2 percent in interest while she is not even earning 3 percent on the CD.”
She may also want to look into cashing in the CD early. If she did, she would probably lose some accrued interest as an early withdrawal penalty, but she should talk to her bank to see exactly how much. It could be worth cashing it in so she can pay off the credit card debt and stop the interest that’s accruing there.
Given her earnings, Duerr says it’s unlikely she could find a zero percent credit card offer so she could transfer the high-interest debt, but it makes sense to investigate. Duerr just wants to make sure she wouldn’t be tempted to use the zero percent card for any new purchases.
If the CD matures within the next year, Duerr says, she may want to consider using some of the funds to pay off her attorney. Although she’s paying $200 a month to this debt, it will take her another year-and-a-half before it’s paid off.
Another retirement asset for Priya will be her own Social Security benefits, which would be approximately $1,300 per month at her full retirement age of 66. But that doesn’t mean she should plan on retiring then, Duerr says.
“Even with the increase, Social Security and her husband’s pension benefits will not be enough to pay her bills,” Duerr says. “Given this I am afraid she must plan on still working after reaching age 66.”
Duerr says it’s possible a part-time job will be enough to supplement what she needs for her monthly expenses, but she can review that when it gets closer to decision time.
Priya could really use additional income now — asking for a raise can’t hurt — but Duerr says part-time work today may be impossible.
“Since her grandson is only 3, he requires a great deal of her time in watching him. From the sound of it, she is on her own with no other help,” Duerr says. “If she were able to work more, who would watch him?”
If she hired a babysitter, she’d need to do a cost-benefit analysis to see if the additional earnings would justify paying for his child care.
One plus is that Priya will be able to receive some tax advantages in 2013.
“She will be eligible to claim him as her dependent. Priya also may be eligible for some child tax credits,” he says. “While these amounts are not huge, any additional savings for her will be a help.”