Guidance for 2nd Wife Whose Husband Never Saved

[TiredinTX]

Hi All,

This board was suggested by a member of another board.

I am hoping to find others with more knowledge and understanding to help my husband and I turn around our financial life. Many mistakes have been made mainly do to lack of interest. I however am very interested in learning because I know we still have the chance to do good.

My husband is 60

I am 40

We have two college attending children and a 6yr old. Mine & Ours College Kids do have part time jobs and pay for some things with that. Trying to wean them off more and more.

We have been together nearly 10yrs now.

My husband and his ex wife never saved until a few yrs prior to their marriage ending. It ended up all in her pocket anyway so probably just as well. Plus my husband voluntarily gave her a few other assets.

We rebuilt our life literally from scratch. Go stand in the street with nothing but the shirt on your back and picture starting over. We are not complaining and we would do it again! Although my husbands income is high we had to rebuild an entire household, large legal fees, car payments plus alimony of 2K monthly. It has been a long road to say the least.

The last several yrs we have rebuilt ourselves into a normal existence thanks to generous bonuses plus the usual wage increases yearly.

3 of 4 cars are pd. We don't ever carry any CC balances. We have a modest home pd 179,000, owe 168,000. Prior to our home purchase 5yrs ago we had not been in a position to save for a down pymnt for above stated reasons but we really needed a more space with the children. So we are paying PMI on the mortgage. Interest is 6.5%

Pension has about 48K in it

401K has about 128K 30% company stock (I Know I'm going to here about that!) Balance in Bonds. Why? Well the company stock is the only thing that ever seemed to make gains. All the other choices we always putting me in the red.

We have 62K in a savings account. My husband should get another nice bonus this yr. so that number may be closer to 100K soon.

Husbands Gross salary is 171,500 After deductions it works out to about 9K mnth It wasn't nearly his high 10 yrs ago BTW.

Alimony is out biggest debt for 3yrs 10mnths and counting, 2K mnth
Mortgage is 1,800
We supplement college tuition since unsubsidized loans don't cover all. Runs us between 3-4K per semester.
Car pymnt is made by son mostly 293.
Personal Term Life 300K 263. mnth Husband has mild diabetes so policies are extremely difficult to get and cost allot.
Typical utility expenses
Plenty of extra $$ to continue to save at least 1500 every mnth most mnths.


I really want to start investing. We are so behind.

I know some cash should be kept for an emergency fund Yet I really feel I need to become very proactive in making the money we are able to save grow faster.

I love the mommymillionare site and all her posts. I have followed countless links from everywhere. Following a questionnaire Fidelity was "matched to me" based on how I wanted to invest. I feel silly but I think what I feel like I'm really missing is things that I'm afraid people aren't really addressing. I don't like surprises.

For instance say I start by putting 1K into Fidelity to get my feet wet. Do I buy one fund or a couple. How am I charged? If I decide I don't like the fund am I charged again to sell it or can I roll the money into another one? I guess the day to day inner workings and management of investing si what I'm scared will cause surprises.

Once it was really clear to me on what to do and how to do it I would be so motivated to put every extra penny I could find into growing more money. I can live very very simply if given the right motivation. I've learned seeing the money in the bank is more exciting to me than any "thing" you could ever buy with the money.

Thanks for your time!

[Moemg]

Welcome to the board !
Are you a stay at home mother? If so maybe you could get a job to help the savings along .

[Martha]

One thing to do is to get educated on the basics of investing and asset allocation. Many here can give you some good book recommendations. Here is a thread with several good books mentioned: http://www.early-retirement.org/foru...ers-31560.html

[simple girl]

I think it's really overwhelming when you first start learning about investing. Putting your personal financial plan together is no small task! At least it wasn't for me. I read a lot and didn't make any major moves until I at least had a good overview of investing and a plan of where I wanted to go and how we were going to get there. It's a continual process, and I just keep building and building upon what I know.

Here's a link to a great site for educating yourself on asset allocation: Investment Guide It's so great, I think I'm going to re-read it to see what didn't sink in the first time!

[travelover]

Welcome, Tired. You are on the right track - the hardest part is getting started, which you have done by posting here.

I agree with Martha - start by reading a book or two on the basics of investing. Don't be concerned if it is not all clear right away. As you read the back and forth posts on this forum and others, like Bogleheads, it will become clearer and clearer. Guide to the Vanguard Diehards Forums

There is no such thing as a dumb question so don't hesitate to ask, as others probably have a similar need to know - that is why we continue to read the forum.

Good luck.

[Puzzley]

Tired, it seems that you've got a pretty good start on a "second life". Congratualtions on that. Also, you apparently want to continue to save and improve your future retirement life. You're going in the right direction.

One thing I noticed in your original post is that you have 62k in a savings account. May I ask what type of account that is? I would hope not a passbook savings account, because if it is there are other options for that much money that would give a significantly greater return....

[militaryman]

If I were you I would consider a refinance as rates are lower now and use enough of your savings to get you out of the PMI payment. INSTANT $$

[travelover]

Quote:

Originally Posted by TiredinTX ......................Pension has about 48K in it 401K has about 128K 30% company stock (I Know I'm going to here about that!) Balance in Bonds. Why? Well the company stock is the only thing that ever seemed to make gains. All the other choices we always putting me in the red. ...............

You are correct, investing that much in one company is too risky- ask any Enron employee. I suggest that you develop a long term focus - don't concentrate on year to year performance. The recommended books will clarify this point.

Quote:

Originally Posted by TiredinTX For instance say I start by putting 1K into Fidelity to get my feet wet. Do I buy one fund or a couple. How am I charged? If I decide I don't like the fund am I charged again to sell it or can I roll the money into another one? I guess the day to day inner workings and management of investing si what I'm scared will cause surprises..............

If you stick with Vanguard or Fidelity you will minimize your investing costs. To discourage market timers, they have penalties for moving your money around too often. The time limit and penalty is clearly stated. You can move your money from fund to fund with no charge, if invested beyond the minimum time. In a taxable account you may incur capital gains taxes when you sell.

I would suggest that you think about working toward a long term asset allocation of Total US equities, Foreign equities and Bonds, or use a target retirement fund that automatically does this allocation for you based on when you plan to retire.

The Bogleheads site (reference in my other post) can help you with the best choices within your current 401(k).

[Sandy]

Welcome -

I have some similaries to your situation. DH is 60 and I am 51. Alimony of 1200/month for the last 10 years. DH never saved much and had made several choices, that negatively effected his ability to save.

We also have 11 year old twins so we are planning for college and retirement at the same time. DH has grown children who never went to college, and we don't send more than an occaisonal $100 here and there; nothing substantial.

On the other hand, we have no debt except our mortgage and we have a plan. Read up and post your questions here as you learn. You don't need to act hastily, but give yourself a time frame for a learning curve and begin to set goals for each segment of a savings plan - how much to save, where to save, and how to rearrange current and future investments. Once things are in place, set some longer term savings targets, so you can track your progress.

[Coach]

Quote:

Originally Posted by TiredinTX For instance say I start by putting 1K into Fidelity to get my feet wet. Do I buy one fund or a couple. How am I charged? If I decide I don't like the fund am I charged again to sell it or can I roll the money into another one? I guess the day to day inner workings and management of investing si what I'm scared will cause surprises. Once it was really clear to me on what to do and how to do it I would be so motivated to put every extra penny I could find into growing more money. I can live very very simply if given the right motivation. I've learned seeing the money in the bank is more exciting to me than any "thing" you could ever buy with the money.

TiredinTx, welcome to the forum! It sounds like you and your husband have recovered from some reversals and are on your way to building a secure financial future.

Since you want to do some more self-educating before you start seriously investing in things like mutual funds, you could put your money into a money market account with, for example, Fidelity. It would earn a decent return for now, be very safe, and hopefully would provide the motivation you talk about. Then when you have made some decisions about how to invest, you can easily transfer money into other funds.

Coach

[Texas Proud]

Tired in TX.... good to see someone else from Texas

Just to give a couple of comments... first, 30% of your 401(k) in company stock is not the same as 30% of your portfolio... think of everything as one big bundle and then do the percentages... Almost half of my 401 is in company stock, but it is about 10% of my total.... not nearly as bad...

Second... just START.... that is the hardest part (like going to the gym... and YES, I am going tonight ).. pick one of the target retirement accounts or one of the 'all in one' accounts and plug is some money... set it up where it sucks out money from your checking on a monthy (or even every paycheck) basis... that way it is 'gone' before you spend it...

READ up on investing and then start to make decision on how you want to allocate... you can then start to open up other funds and go from there.. step by step and you get there...

[Rambler]

Others have said it, read this board and self educate. I will add, ween the college kids (they'll survive...).

At 171k salary (his - plus bonuses) I would estimate you could save a lot more than you are. Are you working too? Do you know exactly where your money is going? Sounds like you have a LBYM mindset, but perhaps are using a lot more of your "means" than are necessary for a comfortable (if not luxurious) life, and thus passing up opportunities to save...can't really tell from your intro.

Yes you should test the waters...but do yourself a favor, and study first, at least a primer or this board. Also, you will have noticed that the market is pretty rocky at the moment. You may suffer some "paper" losses here and ther. But the market will come back. They are not real losses unless you sell at less than you bought. Just remember to DCA (keep investing more on a regular basis. If you know what you are doing AND have some luck, you can make money on market timing, but that is better left to the pros -think heads of well run mutual funds - who have access to better information and analysis than most of us do).

Finally, with the amounts you have saved, if you are not working, I would seriously consider going to work to help build the nest egg. At his age and your level of savings, if it were me, I would want to try to find a way to add to it. There are links elsewhere on this board I believe that help determine whether it is feasible for a stay at home spouse to re-enter the workforce (cost of childcare, meals away from home, work clothes, commute costs, etc). Sometimes it really is not worth it to go back to work 40 hrs/wk for the extra 20-40 dollars a week in income after tax (and other job related costs).

best of luck to you!

R

[Ed_The_Gypsy]

Stop spending and start saving like crazy. Get rid of debt before you even consider investing--the rate of return is higher and guaranteed. You both will probably have to work longer than you had hoped and get used to the idea that your future lifestyle will be considerably more modest than today. Talk to each other about it and get used to the idea.

When you eventually get to investing, the first things to understand is that investment is get-rich-slow and also that markets go up and they go down, but eventually they go up. Sometimes it takes as long as ten years, though.

With one of you being 60 already, conservative investments are a good idea. Something like a fund with relatively low volatility that has a mix of stocks and bonds. Or split 50/50 between a total market fund and a short-term bond fund. Interest rates and therefore yields are low now, but they are what they are. Chasing higher than currently reasonable returns is a great way to get burned. Start by looking at Vanguard's stuff. Look at the long-term history of the funds that you like and pick ones that you would be comfortable watching go up and down like that. (Get the fund symbol and type it into Yahoo Finance's Get Quotes window. Then go to the chart function and look back five years or maximum.)

Good luck. You sound like you should be OK. The hardest part may be keeping your spirits up.

[rgarling]

ditto "Ed the Gypsy"

also, as far as a simple, but effective investment plan, just $ cost average as much as you can save into one of the Vanguard Target Retirement funds (look it up on google). Target Retirement 2015 is a good place to start looking.

[SteveR]

Welcome to the forum. Glad you were directed here and I hope you use the Search function to find more information on specific topic which interest you.

Please read the forum rules posted here: http://www.early-retirement.org/?page=rules

Quote:

Originally Posted by TiredinTX Hi All, ...My husband and his ex wife never saved until a few yrs prior to their marriage ending. It ended up all in her pocket anyway so probably just as well. Plus my husband voluntarily gave her a few other assets. We rebuilt our life literally from scratch. Go stand in the street with nothing but the shirt on your back and picture starting over. We are not complaining and we would do it again! Although my husbands income is high we had to rebuild an entire household, large legal fees, car payments plus alimony of 2K monthly. It has been a long road to say the least. ...

Been there done that and have the scars to prove it. Starting from scratch with no cash, a ton of CC debt, buying a house near school so my son could walk to school (yes I was a single parent), working crazy hours, etc. etc.

Here is a common roadmap.

Pay down your house equity to get out of PMI. That is money down the drain and adds nothing to the equity in the house. Once that is gone you will have more money to save.

Once you have at least 6 months of basic living expenses covered you can then start to invest. Sounds like you are leaning towards Mutual funds. There are thousands of them out there.

Read the books suggested in the link to Young Dreamers. These will help explain a lot. Go slow. The market is always uncertain and especially now. Don't put all your eggs in one basket and don't put all your money in the market at the same time. Spread it out over several months.

Park your cash in a money market fund until you know where to put it. There are many out there that have a decent return with no purchase or sales fees. I use Vanguard for most of my investments so my MM fund is there which makes it easier to transfer money around.

Watch out for expenses. Get and read a prospectus for any funds you want to buy into. Check out the type and amount of expenses. Be aware that you may also get hit with short term cap. gains taxes at the end of the year.

Don't get into individual stocks unless you know what you are doing. Index funds and diverse mutual funds are less work for you and if you get them at a low cost brokerage like Vanguard you will pay lower fees which gives you a better return over time.

Invest with a specific goal in mind. Income? Appreciation? Security? Dividends? Low volitility? etc. Also have a time frame in mind for when you want the money back. After all, you invest to make your saving grow faster than in a savings account. At some point you are going to need or want it to pay for living expenses. When you want it back will determine where you put it.

Remember, balance is important. Balance in your investments and balance in your life.

Only you can determine how much to save and how much to spend. We all have our bottom line on LYBM so you have to do what works for you. Yes you have a lot of making up to do and it might take longer than you like. The alternative is to work longer or live at a lower standard of living while retired.

Good luck and keep reading. It can be done. I did it and many others here did too. Be patient and focus on a plan to get where you want to be.

[clifp]

As others have suggested becoming knowledgable about investing is your number 1 goal.

I'd suggest that your short term goal is to refinance the mortgage to eliminate the PMI and drop the interest rate into the 5% range or so. Given your husbands high salary it should not be to hard to qualify for some excellent loans and given his age and current earnings a 15 year mortgage might be a good choice. A 1.5% drop in interest rates would saving your more than $2K a year.

[TiredinTX]

Thanks so much for all great responses!

I had not checked back since I had not received an email saying my post had new responses after the first day.

Let me try to respond to some of the questions asked.

Yes it is 171,500 gross salary plus a bonus that has went up yearly. Gross 50K last yr but more like 40K after taxes. Previous yrs had been around 8K less then each previous yr. These bonuses are what allowed us to pay off all CC Debt, our vehicles, a 2003 Jeep, a 2005 Cobalt, and a 2005 Suburban.

The 401K is divided as follows: Company Stock has 49K, Stable Value Fund 82K.

62K Savings is in online account

I would like to go back to work. I am just overwhelmed. Should I go get a lower lever job with my current skills just to have extra $$ to place in savings or should I attempt to go back to school & earn much more. Interests are Pathology, Pharmacology etc. Professions that will take considerable attention, time and money to attain. I'm feeling at 40 this is my last chance to pick a path career wise. I'm actually leaning more towards the first option. Maybe get in at a hospital where a 401K is offered.

Break down our Monthly expenses: 9200K Take Home
Mortgage $ 1801
Alimony 2000
Car Ins 275
300K Life (private) 259
Cable/phone/Net 135
Water 80
Gas 150 When Cold
Cells (2) 90
Electric 250 TX Air On Almost Non Stop
Groc. 750 Allot for 5?
Gas 400 All 4 Vehicles

Optional Spending

Eating out 350
General Stuff 500
Husbands Hobby Allowance 200 Trust Me Be happy with our agreed 200!

So that leaves about 2K extra per month

After tax but taken out of pay before we see it
180K Life 80
250K Spouse Life 14
20K Kids Life 2

Pre Tax Withdrawals

Medical 348
Dental 48
FSA 306
STD 60
ADD 20
401K 1100

Federal IncomeTaxes 2000

Yearly Bills
Home Owners Assessment 825
Chubb Ins. (Stupid Ring) 220
Car Plates 280




No luxury spending going on IMO. I have made two REALLY STUPID purchases and it cured me of high $$ purchases. My Suburban which I like but if I had it to do over would not buy for the $$ spent and an I want to look like the rich 10K wedding ring that is totally something I would sell in a minute if I could have my 10K back! Liked my plain gold band just fine.

We also did some home upgrades (about 15K Floors, shutters, appliances) this last year however hubby was on a special project making way over base pay so we thought it as a good time to do that rather then buy a larger home which we had considered.

I clip coupons & bargain shop. I'm cheaper now in some ways then when I didn't have any money to worry about loosing.

[Marquette]

You know, fwiw, I wouldn't beat yourself up over that budget... it's admirable (my food budget is $50 more than yours and there are only two of us!). One of the first things I would consider is if you're underinsured. It looks like your husband, the sole wage earner at this point, is insured for about 380k? That's less than two years of his pay. Granted, it's nothing fun to think about, but it's worth thinking through what life would be like in that situation.

Aside from that, if you regret the suburban or the ring, would you consider selling either of them? Or, maybe the jeep? I'm not sure that now is the best market to try and sell a large suv, but it might be worth a shot (then again, 5 people in a cobalt doesn't sound like fun either).

Only you can know if you'd be happier with a job now or after going back to school. A job you don't like is a job you don't like. However, going back to work now gives you that much longer as a wage slave which lets compounding work that much better.

Good luck!

[SteveR]

The 401k is a split between company stock and the Stable Value fund. Hmmmm. Stable value is not much more than a saving account at the bank. No real gain and might just stay close to inflation. Company stock may or may not be a good thing. Depends on the actual and expected performance of the company.

The rest of your investments consist of an on-line savings account. I assume that is a Money Market account. Again, you will do just a little better than inflation with this fund...especially with rates going down. You don't have any equity exposure other than your company stock. I would move some of the stable fund into some equity index funds...emerging markets if possible and some more into a total market index fund.

Your budget is a bit fat by some standards. Mine is worse but I don't have your problem. The question you need to ask yourself about going back to work is will it cost more to work than to not work? Add babysitters, after school programs, daycare, clothing, gas, lunches, additional educational needs, maid service, etc. Who will be the kids personal chaufer? Who will cook and clean? How much can your husband do to help out? How much can the kids to? If the numbers work out in favor of working than by all means go back to work and save every penny you can to invest in your retirement accounts.

What about the kids? College costs taken care of? How?

Life insurance on you? How much?

Life insurance on hubby seems low with 3 kids at home and college on the horizon.

The best I can see is you finding a good job and hubby hanging in there until age 65 to get all he can. No elaborate vacations. No new houses, no new cars, and you might just be able to survive with some part time work here and there unless you can sell the house when you retire and move to somewhere with lower housing costs and lower utility bills.

Funding retirement and college while under a $2k alimony screw is a pain...I know all about that kind of pain. I

I wish I could be more hopeful but your finances are what they are and without a fair amount of cash input to investements that do better than MM or CD rates you are stuck in a hard place. MM, CD and Stable funds will keep your money safe but it won't grow much. The stock market is still spining down to a new basement so waiting until it starts to come back might be a wise choice unless you do international or find a sector that will do well even in a down market; like drugs.

Good luck and don't lose heart. Many of us have been there at one time or another.

[TiredinTX]

Quote:

Originally Posted by Marquette You know, fwiw, I wouldn't beat yourself up over that budget... it's admirable (my food budget is $50 more than yours and there are only two of us!). One of the first things I would consider is if you're underinsured. It looks like your husband, the sole wage earner at this point, is insured for about 380k? That's less than two years of his pay. Granted, it's nothing fun to think about, but it's worth thinking through what life would be like in that situation. Aside from that, if you regret the suburban or the ring, would you consider selling either of them? Or, maybe the jeep? I'm not sure that now is the best market to try and sell a large suv, but it might be worth a shot (then again, 5 people in a cobalt doesn't sound like fun either). Only you can know if you'd be happier with a job now or after going back to school. A job you don't like is a job you don't like. However, going back to work now gives you that much longer as a wage slave which lets compounding work that much better. Good luck!

Yes for certain we are under insured. Work Ins. denied additional covered due to diabetes. Thus the outside policy for 300K. it was about 500 per month for a 500K policy which just seemed way to high. We figured at least with the 300K I could pay of the house.

I have considered selling the suburban. Rarely do all of us travel together. I think at this point trying to trade would just further put me in the red. Luckily since I am a stay at home mom gas isn't a huge issue. I only have about 18k miles on it. I've vowed to drive it until the wheels fall off! The cobalt is my daughters car. Since my husband commuted 1 hr to a project all last year, the Jeep will need to be replaced at some point, it has pretty high miles on it. We will be buying pre owned BTW.

The research I've done indicates I would be lucky to get half what I paid for the diamond ring. Lesson learned priceless.