Life after losing a loved one is difficult to navigate. This week, we look at a widow trying to make ends meet after losing her husband.
The Situation
Robin, 57, is a fiber artist who makes quilts and wedding dresses on consignment in a small mountain town. After losing her husband two years ago to lung cancer, she has been consumed with fears of becoming a poverty-stricken “bag lady.” She currently works 14 hour days and is concerned with her health and the potential for a relapse of chronic fatigue syndrome. In 2013, Robin made $24,448, or $19,229 after taxes.
Robin lives in a little Victorian home and has no mortgage. In 2008, before her husband’s death, the couple sold a historic duplex and used the cash from that sale to live on while he battled the disease. During this period, Robin was unable to work, except as
Her late husband was an accounting professor-turned-business consultant, and he left behind a puzzle in regards to their finances with several TIAA-CREF accounts. So Robin had to spend several months piecing together the information before writing in to What’s The Plan.
Her assets currently include: her husband’s IRA of $149,342; his annuity of $76,531; her IRA, valued at $83,957; a stock mutual fund of $52,153; a bond fund of $33,844; and $106,953 remaining in a money market account from the sale of the duplex. Her total assets to date are approximately $500,000, not including her house.
She can take Social Security in as few as five years, and her benefit at age 62 would be $554 per month. If she waits until age 66, the monthly benefit would be $751.
Robin wants to know what’s next,
Recommendations
Social Security can be a difficult process to understand. Robin was unaware until our conversation that she is entitled to her late husband’s Social Security benefits. I sent Robin out to get this information, but she didn’t receive the correct guidance over the phone. She was, however, given correct information when she visited the Social Security office in person.
Robin will be able to collect $2,049 per month as a widow’s benefit when she reaches age 60. This is a telling reminder that you should double-check all information to make sure you are getting the maximum Social Security benefit owed to you.
I wanted to empower Robin to make her own decisions. Although $2,049 is a significant bump in her income, and it might be tempting to claim it at age 60, she should consider what she gains by delaying to age 70. Waiting the additional 10 years would increase her benefit to approximately $3,000 per month. With its cost-of-living increases, this payment would add significantly to her financial security.
I recommend that Robin draw $16,000 to $20,000 per year, after taxes. This would supplement her income and allow her to slow down now. Fortunately, she rolled her late husband’s IRA into a beneficiary IRA, with her being the sole beneficiary. She is able to withdraw without penalty because she is over age 55. Had Robin consolidated his IRA into her own, she would have had to wait until age 59½ to withdraw funds without penalty. (When she does turn 59½ she should consolidate the accounts for simplicity.)
In regards to the money market account, she should consider holding it to supplement her income and defend against market volatility. For the TIAA-CREF accounts Robin is able to direct, I recommend the following mix: 30 percent bond market, 35 percent stock, 20 percent growth and 15 percent global equities.
Robin’s beautiful quilts tell a story that includes her sorrow, but also the happiness on the horizon for her. Now that she has a plan in place — and more backstop for her own later years than she originally thought — she can take more time to focus on her health and relax.
Pam Dumonceau has 21 years of experience in the financial planning industry. What’s the Plan is not a substitute for financial planning or dedicated professional advice.
What’s your plan?
Ask Pam what you should do — e-mail whatstheplan@consistentvalues.com to get advice. There’s no charge for this advice, and names and identifying information are changed to protect confidentiality.
