Need Ideas to Help My Sister

[PandaBear]

My sister is going through a divorce. She is in her mid 50’s, has worked inconsistently (she was a stay at home mom to 4 kids, worked at the local Catholic school, basically in exchange for tuition when her kids were young) She now has a teaching job. They had very limited assets, including retirement funds. Like, she will probably walk away with about 50k. That’s everything….home equity, savings, retirement. (I knew they were not as financially well off as dh and I, but this has me truly shocked). Right now she has a decent salary. Her salary increases this spring because she just finished her masters degree in December.

She plans to teach until she is 65. That will give her 13 years towards a pension. She will have social security, but a small amount. It’s projected to be:
Age 62 $710
Age 65 $1009
Age 70 $1251

My brother decided to move to the city where she lives. He’s retired and he has lived around the country and has realized he wants to live where he has family (he’s single). He’s rehabbing a house and so come summer (when the house is habitable), she can live there and not have rent/mortgage. They live in an area that’s slightly below the average cost of living.

I understand 100% that one should never ever count on an inheritance. However, it is likely she will receive something from my mom, likely in low to mid six figures. But I realize that’s not something we should count on.

I am helping her figure out things and make a plan. I’d appreciate any ideas/suggestions/comments.

My thoughts/questions so far.
She will be impacted by the GPO. I’m just not sure exactly how to figure it out.
I am going to encourage her to open a retirement account, but I’m not clear on what she can do. Can she contribute to a ROTH, regular IRA and a 403b? Are totals cumulative or separate? I also believe she can contribute “catch up”?

Her salary can increase if she has 30 more college class units. She plans to take them this spring and summer so her salary will increase for the next school year (21-22). I have offered to pay for the classes, so she can put the tuition amount towards retirement instead.

Thank you.

 

[Amethyst]

Well, I can answer one thing. When I was working, I contributed to my pension (7%), the Thrift Savings Plan (which is a 401K), a regular IRA, and a tax-deferred annuity. They are separate contributions with their own maximums; I contributed the max to the TSP and the regular IRA, and a set amount to the annuity (no max there). I would have contributed to a Roth instead of a regular IRA, except our combined income exceeded the Roth ceiling. Since that will not be an issue for your sister, her issue will be more one of how much she can afford to contribute.

I wish her the best. It is not easy getting a masters in your 50's, and she sounds like an industrious sort. Good that her siblings care about her.

 

[wrigley]

My sister is going through a divorce. She is in her mid 50’s, has worked inconsistently (she was a stay at home mom to 4 kids, worked at the local Catholic school, basically in exchange for tuition when her kids were young) She now has a teaching job. They had very limited assets, including retirement funds. Like, she will probably walk away with about 50k. That’s everything….home equity, savings, retirement. (I knew they were not as financially well off as dh and I, but this has me truly shocked). Right now she has a decent salary. Her salary increases this spring because she just finished her masters degree in December.

She plans to teach until she is 65. That will give her 13 years towards a pension. She will have social security, but a small amount. It’s projected to be:
Age 62 $710
Age 65 $1009
Age 70 $1251

My brother decided to move to the city where she lives. He’s retired and he has lived around the country and has realized he wants to live where he has family (he’s single). He’s rehabbing a house and so come summer (when the house is habitable), she can live there and not have rent/mortgage. They live in an area that’s slightly below the average cost of living.

I understand 100% that one should never ever count on an inheritance. However, it is likely she will receive something from my mom, likely in low to mid six figures. But I realize that’s not something we should count on.

I am helping her figure out things and make a plan. I’d appreciate any ideas/suggestions/comments.

My thoughts/questions so far.
She will be impacted by the GPO. I’m just not sure exactly how to figure it out.
I am going to encourage her to open a retirement account, but I’m not clear on what she can do. Can she contribute to a ROTH, regular IRA and a 403b? Are totals cumulative or separate? I also believe she can contribute “catch up”?

Her salary can increase if she has 30 more college class units. She plans to take them this spring and summer so her salary will increase for the next school year (21-22). I have offered to pay for the classes, so she can put the tuition amount towards retirement instead.

Thank you.

Doesn't she have some sort of pension/retirement plan through the county/state she is teaching in? My son is a teacher here in Florida and he has a matching pension/retirement/401k plan through the county he teaches in. It's not much, but it's a start.



Mike

 

[teetee]

I am not in academic field or have kids but hopefully the following list of my retirement accounts give some ideas:

Roth IRA
Roth 401k
Traditional IRA (from 401k of the previous employer rollover) that I will be converting to Roth IRA within the next few years
HSA (she needs to have the required healthcare insurance plan to be able to contribute to this)
529 with Vanguard. I contribute $300 a month mainly for my niece but can always use it for qualified purchases. Perhaps 1200/month for the 4kids then? Tell the oldest they will need scholarship and/or part-time jobs to cover their own expenses in college.

Max all retirement accounts contributions including the 50yr age catchup. Survive from the remaining income. If there is any leftover, save and invest steadily.

Getting an advanced degree in the 50s is an achievement. She will need to start saving aggressively though. If she can utilize her Master's degree to boost the annual income over $100k, and the father pays for full childcare, plus good investment strategy, it is achievable to save over $2mil in 13yrs and have a modest retirement in low cost of living area with social security and RMDs rather comfortably.

 

[Surewhitey]

To really help her, you will need to first find her monthly expenses (or annual). Let's just do an example.

We spend $4k monthly for everything ($3k if we don't travel)
This includes insurance(s), property taxes, everything.
If we were each to expect $1k/months ($2k total), then we need $2k difference to cover everything.

To get $2k, we'll need to save $24k x 25 (4% rule) or $600k.

This is a starting point for discussion.

If she doesn't remarry, she should be able to get spousal SS benefits based her ex's too.

Hopefully she will get at least $1k SS & $1k pension and not spend as much as 2 people in my above example. Also as I see it, the 4 kids will hopefully be able to help in some way. And having generous siblings is awesome. She'll be fine after the initial year and she really knows what she will need.

My mom and SF live on SS & actually save some every month. They live in an extremely LCOL area and no debt, but are content.

My $.02

 

[Sue J]

If her current teaching job is in a public school is that the pension she will have? Is she in a state where public employees do not pay into Social Security? If that is the case then she will be subjected to WEP and GPO. These are reductions to her own SS and also to her benefits as a spouse.

If she's paying into SS with her teaching job then it's no problem. If she's not then look into WEP and GPO to see the effects on her SS benefits.

 

[PandaBear]

If her current teaching job is in a public school is that the pension she will have? Is she in a state where public employees do not pay into Social Security? If that is the case then she will be subjected to WEP and GPO. These are reductions to her own SS and also to her benefits as a spouse.

If she's paying into SS with her teaching job then it's no problem. If she's not then look into WEP and GPO to see the effects on her SS benefits.

Yes, as I mentioned she will be subject to the GPO. I’m just not sure how much.

 

[PandaBear]

To really help her, you will need to first find her monthly expenses (or annual). Let's just do an example.

We spend $4k monthly for everything ($3k if we don't travel)
This includes insurance(s), property taxes, everything.
If we were each to expect $1k/months ($2k total), then we need $2k difference to cover everything.

To get $2k, we'll need to save $24k x 25 (4% rule) or $600k.

This is a starting point for discussion.

If she doesn't remarry, she should be able to get spousal SS benefits based her ex's too.

Hopefully she will get at least $1k SS & $1k pension and not spend as much as 2 people in my above example. Also as I see it, the 4 kids will hopefully be able to help in some way. And having generous siblings is awesome. She'll be fine after the initial year and she really knows what she will need.

My $.02

I will have her ask her attorney about spousal social security.

 

[PandaBear]

I am not in academic field or have kids but hopefully the following list of my retirement accounts give some ideas:

Roth IRA
Roth 401k
Traditional IRA (from 401k of the previous employer rollover) that I will be converting to Roth IRA within the next few years
HSA (she needs to have the required healthcare insurance plan to be able to contribute to this)
529 with Vanguard. I contribute $300 a month mainly for my niece but can always use it for qualified purchases. Perhaps 1200/month for the 4kids then? Tell the oldest they will need scholarship and/or part-time jobs to cover their own expenses in college.

Max all retirement accounts contributions including the 50yr age catchup. Survive from the remaining income. If there is any leftover, save and invest steadily.

Getting an advanced degree in the 50s is an achievement. She will need to start saving aggressively though. If she can utilize her Master's degree to boost the annual income over $100k, and the father pays for full childcare, plus good investment strategy, it is achievable to save over $2mil in 13yrs and have a modest retirement in low cost of living area with social security and RMDs rather comfortably.

Thanks for the ideas. Her kids are all young adults and they already weren’t helping with college. So no childcare or anything like that. She’s in education so her salary won’t be 100k. She did do the census so made a little extra money last year. She will also probably teach summer school so that’s extra as well but no where near 100k. And at 55 she’s unlikely to find a job that will with limited experience (I think).

 

[ivinsfan]

I will have her ask her attorney about spousal social security.

She doesn't need to pay an attorney over this it's black and white... you could do a little reading here and then talk to her about it.. the GPO is a bigger issue..

Sounds to me like she will be fine not flush but fine...

 

[PandaBear]

Doesn't she have some sort of pension/retirement plan through the county/state she is teaching in? My son is a teacher here in Florida and he has a matching pension/retirement/401k plan through the county he teaches in. It's not much, but it's a start.



Mike

Hi, she does have a teachers pension as I mentioned. She will have 13 years in. She can also contribute to a 403b which is for teachers. I just want sure if she could do IRA, 403b and Roth simultaneously.
Thanks.

 

[ivinsfan]

Hi, she does have a teachers pension as I mentioned. She will have 13 years in. She can also contribute to a 403b which is for teachers. I just want sure if she could do IRA, 403b and Roth simultaneously.
Thanks.

I don't that she needs to use a Roth at her income level. I don't see much benefit.

 

[38Chevy454]

Your sister can get spousal SS based on being married 10 years or more, and doesn't affect the spouse's SS amount. Also not dependent on being currently married or not. She qualifies based on 10 years marriage. She should be able to get higher SS based on this from what you are describing.

Is there any employer match for 403b? If so, then always save the req'd amount to get the max employer match. That's free money. Depending on her income, whether to save additional Roth or other is question of taxes and her budget needs. Being over 50, she can save additional in retirement savings per the over 50 catch up provisions. With the extra income based on further education, she can try to maximize savings.

Nice that your brother is moving into the area and can provide her with free or lower cost housing. I am sure she will still contributor some to household expenses even if she technically does not pay rent. Such as utilities, internet, etc.

 

[Accidental Retiree]

Hi, she does have a teachers pension as I mentioned. She will have 13 years in. She can also contribute to a 403b which is for teachers. I just want sure if she could do IRA, 403b and Roth simultaneously.
Thanks.

Last I looked, the Social Security site has a WEP calculator which you may find helpful.

To give you some idea, I had 21 years of substantial earnings outside of my public sector work, and WEP decreased my SS by about 25% when I started collecting SS at 63-1/2.

 

[YakGrl]

I also believe that she would benefit from planning for post 65 work. At least part time. She should be able to do substitute teaching or tutoring, or some other part time work as long as possible.

 

[pb4uski]

The most important thing that she can do is to live below her means... and living with your retired brother is a good start.

Would she qualify for spousal benefits under SS? My wife's SS benefit is about the same as hers (another SAHM) but once I start collecting she'll receive half of my PIA which is substantially higher and that doesn't show up on her annual SS statement at all. It would only apply if her husband's PIA is more than twice her PIA... and given that it sound like they didn't have much it sounds like it might not apply.

While I agree that it is unwise to make an inheritance your retirement plan, it may eventually ride into the picture and save the day.

I don't know much about GPO but I did find this:

If you receive a pension from a government job but did not pay Social Security taxes while you had the job, we'll reduce your Social Security spouse, widow, or widower benefits by two-thirds of the amount of your government pension. This offset is known as the GPO.

Whether she should use tax-deferred (tIRA or 403b) or tax-free (Roth IRA or Roth 403b) retirement savings on her marginal tax bracket now and her marginal tax bracket in retirement. If the difference is slight, then go with a Roth... if it is substantial, then go with tax-deferred.

 

[FANOFJESUS]

To really help her, you will need to first find her monthly expenses (or annual). Let's just do an example.

We spend $4k monthly for everything ($3k if we don't travel)
This includes insurance(s), property taxes, everything.
If we were each to expect $1k/months ($2k total), then we need $2k difference to cover everything.

To get $2k, we'll need to save $24k x 25 (4% rule) or $600k.

This is a starting point for discussion.

If she doesn't remarry, she should be able to get spousal SS benefits based her ex's too.

Hopefully she will get at least $1k SS & $1k pension and not spend as much as 2 people in my above example. Also as I see it, the 4 kids will hopefully be able to help in some way. And having generous siblings is awesome. She'll be fine after the initial year and she really knows what she will need.

My mom and SF live on SS & actually save some every month. They live in an extremely LCOL area and no debt, but are content.

My $.02

+1 Check her spending to make sure it is not out of line. That is very important all the advice in the world is no good if her spending is crazy.

 

[Teacher Terry]

GPO eliminates a higher SS from a spouse for someone affected by WEP. Mine is reduced 60% by WEP. The SS website even states that because of GPO the majority of people see their claim on spousal support go to zero. Or it did 24 years ago when I got divorced and checked after taking a job not paying in to SS.

 

[ivinsfan]

GPO eliminates a higher SS from a spouse for someone affected by WEP. Mine is reduced 60% by WEP. The SS website even states that because of GPO the majority of people see their claim on spousal support go to zero. Or it did 24 years ago when I got divorced and checked after taking a job not paying in to SS.

That's interesting...so spousal SS might not be much of a factor...the bigger factor would be at what age the sister claims.

 

[OldShooter]

In many states, maybe all of them, there are state-level organizations using state and federal money to support seniors. In our state there is a one-call hotline staffed with knowledgeable social workers who can refer callers to resources. I suggest that you try to find such a resource in your state.

First, so she can become familiar with the program. Much of what they do is more retirement oriented and oriented to very poor people, but not all.

Second, to see what financial planning resources are available. This is what she needs now and what you are trying to do for her, but if there is a formal program that is pro bono or inexpensive I think she would benefit.

Another tack would be to find the local Certified Financial Planners' "club." (via https://www.cfp.net/). In our city, the club offers pro bono financial planning help for low income people. They also offer annually a free one-day sort of seminar festival called Financial Planning Day covering various topics and including free consultation with a CFP. It is very well run; no sales pitches are allowed and the CFP participants are not allowed to create prospect lists from it. I attended one time and talked a bit with the club president. I gave her my card, but she did not even have any of her own cards with her.

 

[RE2Boys]

GPO would only impact your sister if she applies for social security spousal benefits based on her ex's social security record and she is receiving a government pension. It does not apply to her obtaining social security based on her earnings record (that is the function of the WEP). I'm a gov't pensioner and GPO will mean I can not receive spousal benefits based on my wife's considerably larger SS benefits, my SS benefits are based strictly on my earnings record and reduced by WEP.

 

[Sunset]

OP - One thing not addressed so far, is why is your sister in such dire straits. Was it due to low earnings and not working for years, or one of them (sister or husband) spend all the money and not bother to save ?

With my sister, the issue is spending, as soon as she thinks she is getting more money, she is planning how or actively spending it. She has a total of $1K in savings, that she has not spent yet.
The only reason she is not on the street is due to getting a pension monthly.

 

[ivinsfan]

OP - One thing not addressed so far, is why is your sister in such dire straits. Was it due to low earnings and not working for years, or one of them (sister or husband) spend all the money and not bother to save ?

With my sister, the issue is spending, as soon as she thinks she is getting more money, she is planning how or actively spending it. She has a total of $1K in savings, that she has not spent yet.
The only reason she is not on the street is due to getting a pension monthly.

There are lots of people like this, doesn't mean they have done something wrong. Raised four kids, Mom at home or low paying job at church school to get the kids free tuition. Dad has blue collar job.. generally in situations like this, they aren't able to put much if any away until the kids are launched and the house is paid off.

This describes most the working class families in my rural area. They aren't blowing money on fancy cars or pricey vacations.

 

[Sunset]

There are lots of people like this, doesn't mean they have done something wrong. Raised four kids, Mom at home or low paying job at church school to get the kids free tuition. Dad has blue collar job.. generally in situations like this, they aren't able to put much if any away until the kids are launched and the house is paid off.

This describes most the working class families in my rural area. They aren't blowing money on fancy cars or pricey vacations.

I agree, wasn't assigning blame, but as my sister has shown, it needs to be known what is the cause, or a lot of effort and $$ can be wasted, as my sister's reason is due to a burning hole in her pocket.
And she did blow ALL her inheritance money (and CC maxed out) on pricey vacations.

 

[ivinsfan]

I agree, wasn't assigning blame, but as my sister has shown, it needs to be known what is the cause, or a lot of effort and $$ can be wasted, as my sister's reason is due to a burning hole in her pocket.
And she did blow ALL her inheritance money (and CC maxed out) on pricey vacations.

didn't say you were blaming just that dire straits isn't really the right term to use. Now if they made a million year that would be a different story.