Finding your way after the death of a loved one can be difficult. This week we look at a widow with hurt feelings healed and a new appreciation for her circumstances.
The situation
Elizabeth and John were high school sweethearts and married soon after college. The couple enjoyed traveling and raising their two children. Both Elizabeth and John worked full time and lived a healthy lifestyle.
The couple retired within a few months of each other and purchased a small retirement home on Grand Lake, something they dreamed about as a young couple. They had planned on a long retirement near the lake and spending time with their children and grandchildren. Several months later, John died suddenly of an undiagnosed heart condition.
It has been seven years since John’s passing and Elizabeth decided it was time to speak to someone about her finances. She wrote in to What’s the Plan to receive a second opinion on the decisions she has been making. Her income is stable, with $67,000 per year from John’s pension, $14,000 per year from her pension, and $22,000 per year from Social Security.
Elizabeth owns her home in Aurora and the small property near Grand Lake. She does not have a mortgage on either property. She has an IRA that is invested in an annuity worth $106,000. She also has approximately $30,000 in Savings Bonds, which she has earmarked for her grandchildren, and $37,000 in her checking account.
She purchased the annuity two months ago with the balance she rolled over from her late husband’s 401(k) plan. Her main reason for buying it was to make sure that her children have something from her estate. She was surprised to learn from us, that there is a surrender fee, which is typical for this type of product, if she needs to take her money out of this account within eight years. Nonetheless, it is a good investment with a reputable company.
Recommendations
When John died, Elizabeth found out that he had recently canceled his life insurance policy that he had paid into for his entire working career. It had a death benefit of $300,000. She said she was “crestfallen” when she found out, and felt that John had taken something away from her from the grave. It disturbed her so much that she talked to a therapist for the first time in her life.
In reality, John had given her a larger legacy. Because he named her as the beneficiary to his entire pension, she will continue to receive his pension payments for the rest of her life. We helped Elizabeth see John for what he was, a great provider for his family.
Elizabeth has more than enough income to take her through retirement, and live as she has always lived. Our projections show that she can spend $5,400 per month after taxes, ending at her age 95.
Elizabeth is now saving $2,000 per year for her grandchildren’s education, but would like to do more. She is using a Coverdell Savings Account that was set up by her son for her grandchild and is saving the maximum into this account. She asked Pam how she can best save more for their education.
Pam recommended a Colorado 529 plan to save more money for the grandchildren’s education. She will be able to make higher contributions into it, with an annual limit of $14,000 for 2015. As a Colorado resident, Elizabeth can deduct the dollar amount that she puts into the Colorado 529 plan against her Colorado state taxable income for the year she contributes.
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 — whatstheplan@consistentvalues.com to get advice. Names and identifying information are changed to protect confidentiality
