“I’m a single mom with two kids in college. Will I ever be able to retire?”
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Hey everyone, I'm Jean Chatzky. Thanks so much for joining me today on Her Money. You know how much I love these Ask Me Anything episodes. It is so much fun to get the chance to connect with you one-on-one and really dig into what's on your minds. Well, today we've got two incredible conversations lined up with some single moms who are thinking ahead,

asking some really smart questions about how to prepare for the future. First up, I'm chatting with Rebecca. She's a mom of two in Oregon looking at retiring in the next 15 years and wondering, is she doing enough to get there? We break down her pension, social security, and retirement savings and talk about how to get a clear picture of her future income and whether it'll be enough.

Then Sarah joins me from Virginia. She too is a single mom with a preschooler. She's thinking about estate planning. Specifically, she is wondering how to make sure her assets go directly to her daughter and not her ex if something unexpected happens. We dive into the importance of wills and trusts and beneficiary designations and how to make sure you're prepared should the very worst happen.

If you are a single parent or you're just trying to plan ahead while juggling a lot, this episode is for you. And if you've got a question you want to talk through, I would love to hear it. Email me at mailbag at hermoney.com. We'll set up a Zoom and a time to chat. We are going to take a quick break.

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And we're back. Here's my conversation with Rebecca. Rebecca is with us. She is a single mom. She's got a few questions about saving for retirement. Hey, Rebecca, I'm impressed that it's just a few questions. Thank you. Thanks for having me. Of course. Where are you calling in from? I'm calling from Oregon. Oh, wow. We're in Oregon. I love Oregon. I'm on the Columbia River in a little town called the Dalles.

I've never been there, but it sounds beautiful. It is beautiful. Yeah, I'm sure. Tell me a little bit about you and tell me how we got to this question or these questions. Yeah, I'm a single mom. I have two kids. I probably have about 15 more years of working or so, ideally retiring around 65.

And I'm putting one kid through college and another one will be coming up through college in about nine years. So I'm starting to think about my timeline and horizon and if I'm putting in enough for retirement at this point, because I only have about 15 more years to really pump it up.

What do you do? I work for Oregon State University and I develop educational programs for farmers and ranchers.

Very cool. All right. So tell me a little bit about how you're situated for retirement. And at a university, I'm wondering if in addition to 401k, 403b money, you've got pension. Yeah, so I make a little over 100,000 a year. And my pension will be based on my final year of employment.

If I work till about 65, I'm guessing my pension is going to be about $3,000 to $3,500 a month. I still don't really know if that is a lifetime pension or how that actually works, but that's my understanding of it. And then I estimate I'll have about $2,500 a month in Social Security. And I have some IRAs, but I don't have any other retirement savings.

Okay, what is your if you think of your expenses? What's your sort of monthly nut? Well, you know, my mortgage is about 2400 a month, that's probably the biggest expense. And then with everything else, children, healthcare, etc. I'm probably spending about $5,000 a month on household expenses.

So I am planning on having my house paid off right around the same time that I retire. So that mortgage payment at least should be hopefully gone. And I'm just paying taxes. And by the time you retire, college will be done and the kids will you expect be grown and flown? Yeah, yeah, actually, my youngest should be about through college by then. So yeah.

Okay. So when we look at questions like this, because I know the question is, you know, are you getting there? It's a matter of comparing what you expect you'll be spending with what you will expect you'll have coming in. So if you expect that you'll have $3,500 coming in, and these pensions generally do last for a lifetime, plus...

Social Security of what about $2,500 a month. So let's say that that's $5,500 a month with your house paid off. Is that $5,500 a month and you have to remember it's going to be taxed. Is that going to be enough for you to live on plus

4% of whatever you've been able to accumulate from those other retirement accounts. I know the 4% rule is squishy and sometimes it's a little more than 4% and sometimes it's a little less than 4%. We'll use it here to just sort of

ballpark it. So if you've got how much total in your other accounts, it looks like it's about it's not a lot. It's about $55,000 in Roth and traditional IRAs. Okay, so and how fast are you adding to that? Are you able to put money in those? Yeah, I'm maxing my contribution out now. I have been for the last couple years. And I'm planning on doing that till I retire.

Okay, so if it's $55,000 now, you're adding another $105,000 to it, right? So you're adding $70,000 over the next 10 years, $35,000 after the five years after that. Maybe you'll make some catch-up contributions as well. You add another $110,000. The money also grows because it's invested. So let's say that's worth $250,000 by the time you retire.

that'll be another, if we take 4% of it, that's what, $10,000? A little over $10,000, $12,000 plus your...

And the question is, okay, is that going to be enough for me to live on? And I can't answer that question without knowing where you think you're going to spend the money. You're going to need to do the sort of work that we do in our pre-retirement finance fix class, where you look at where your money is going today, category by category. How much am I spending on food? How much am I spending on health care?

health care, how much am I spending on travel, and how is all of that going to change? Well, at 65, you'll be on Medicare. So you will have some cost for your Medicare premiums, but it'll go probably down from what you're paying now.

you'll look at the cost of food you won't be feeding two kids you'll be feeding yourself and maybe a partner if you've got one you know how is that going to shift if you're no longer working what will that do to your cost of transportation will you want to stay in this house or will you want to change where you're living and will that put money in your bank account or cost you money

We have to kind of look at it granularly. And a friend of mine sort of told me this funny story. Over the weekend, he and his wife were going through their retirement calculations, again, with a financial advisor and looking at

how much life was going to cost them as they got older. And they're big exercisers. They go to a gym that's kind of like a CrossFit gym. They each pay a couple hundred dollars a month for that gym. And in the financial advisor's calculations,

He had them going to this gym until they were 95 years old. Well, they're not going to CrossFit at 95. They're probably not going to CrossFit at 75. And that's just money that can sort of come out of the budget. And we have to make assumptions about exactly what life is going to look like.

Does that make sense? Yeah, there's a lot of unknowns. I mean, I'm very healthy now. But yet, like I have a mother with a with a chronic illness who's in a nursing home that's quite expensive, that basically drained her life savings. So, you know, there's a little part of me the back of my mind thinking, you know, that could be a future but another part of me wants to travel a lot and travel can be expensive. So

So maybe I'll just swap my mortgage payment for travel. Right, exactly. Or maybe because you live in such a beautiful part of the world, when you travel, you'll swap your house with somebody. Yeah.

I think there are a lot of different ways to look at it. I've been doing a lot of research on retirement and retirement spending for a new book that I'm working on. And one theme that I keep hearing is that we're so reticent to spend in retirement that

In those years, between 65 and 75, when we're really healthy and when we're really able to do things, we should do things. And far too many people just don't. I mean, I'm running into that right now. I want to travel a lot more right now. And my partner is like, no, you should put that money into retirement. Right.

And I'm thinking, well, what if I'm not as able bodied, then, you know, I might as well enjoy life while I am able bodied. So there's that balance to be made, too. Yeah, absolutely. And I think it's okay to split, you know, the difference a little bit. Yes, you want to be on track for retirement, but you are also fortunate enough to have a pension, which will provide a very stable life.

And so I would just go back and although you've taken a really good look at your savings numbers, take a really good look at your spending numbers and remember that one of the things that we don't have to replace in retirement is our savings rate.

You know, we funnel an awful lot of money into saving. Once we actually are retired, we don't have to do that anymore. And that's a big sigh of relief for a lot of people. That's a good point. Can I ask you one more question? You can ask me three. Okay.

Well, I have this debate with my partner. I'm paying down my mortgage faster because I want my mortgage paid off by time I retire. My interest rate on my mortgage is very low. It's less than 3%. He thinks I should take that extra $500 a month that I pay towards my mortgage and put it in my IRA or some other investment tool.

What are your thoughts on that? By the numbers, he's right. But I paid off my mortgage. And I paid off my mortgage. I'm a few years older than you are. I'm a decade older than you are. And I paid off my mortgage, even though I had a low interest rate, because I wanted to know that I was going to go into retirement without a mortgage. And that was more important to me than a couple of additional percentage points in return.

So I don't know if it was a product of my divorce, but emotionally it was really, really important to me that nobody could ever tell me again that I had to move. Financially, was it the right move? Probably not, because when we look at the return on the money, the markets have gone gangbusters, but I'm very happy with my decision. Yeah, I mean, I think when I retire to not...

be spending roughly half of my income on my mortgage will feel really good. Yeah. And then, then I can sell the house, I can move, I can do whatever I want, right? You can do whatever you want. And you can put more money into investments than if you want. I know they won't have as much time to grow, but you can still do it. Okay, great. Thank you. Yeah, absolutely. Thanks so much for talking. Yeah, thank you. We are going to take a quick break.

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Hi, thanks for having me. Tell me a little bit about you. I am a mom to a little preschooler and a crazy huge dog. And my mom actually lives with us as well. And we have a beautiful place out here on this wonderful Virginia day to talk to you today. Amazing. Amazing. Tell me what's going on in your life. How can I help? So I have a preschooler and I have sole legal custody. Her dad still has visitation. And I'm just worried that if something were to happen to me, I want to make sure that

All of my financial assets go to her and not her father. And I heard that, I mean, like I know to set my beneficiary specifically for retirement and things like that. But I'd heard something about maybe a trust is the option to make sure that it can't be contested in court to make sure that the funds will actually go to her.

And I was just kind of wondering what that involves and where do I start? Yeah, absolutely. And I'm not a lawyer and you're going to want to speak to an estate planning attorney. But I'll tell you what I do know. You should be able to, with a combination of beneficiaries and wills, direct your

that your assets go where you want them to go. A will is the basic legal document that lays out what you want to happen, both in terms of care of your daughter, it's the document that allows you to name a guardian for her, and your assets. It's a document that allows you to say this is what goes where.

Beneficiary designations supersede wills, meaning that they count above and beyond wills. So if you had named your daughter's father as the beneficiary of your IRA, for example, and you never changed that, even though you were no longer together, there is a pretty good chance that he would get that IRA.

But it sounds like you've already made those changes and are taking the appropriate steps. Where a trust comes in is

is that your daughter is very, very young. And what you don't want is a lot of money flowing into her hands before she's able to actually handle it. So you can use trust vehicles to essentially, they call them gifts with strings attached.

You have a trust that the money actually sits in. It can sit in outside your will. It can flow from your will into a trust. They can be written in a number of different ways. And then you name somebody to control those assets for the benefit of your daughter if you're not able to do that.

You also can name somebody to control your assets using a durable power of attorney for finances, but once she hits the age of majority,

all bets are kind of off. And for that reason, if you want to keep the protections in place longer, having a trust in place and naming somebody that you believe will act in her best interest to manage that trust is probably a good thing to do. There used to be a lot of tax reasons why people would set up trusts in order to sort of prevent people

their heirs from having to pay a lot of pricey estate taxes were they to pass away. Right now, the estate tax exemption, the amount of money that any individual person is allowed to pass on during life or at death is all the way up in the 13, 14 million dollar range. So

they're a lot less necessary than they used to be. But for maintaining control, trusts can still be really valuable. Are you worried that you're

Is it an ex-husband? No, we were never a couple. We were a couple, never married. Are you worried that he's contentious? I know that based on previous, that he basically appeals every decision we've ever had in court. So I would assume he would appeal this as well.

Then I think having everything buttoned up, more than buttoned up, makes perfect sense. He doesn't have any legal right as far as I can tell to your money or your assets simply by virtue of being...

your daughter's father, he can certainly pay a lawyer and contest whatever he wants. And so if he knew that you've got everything well protected, maybe that would dissuade him from doing that. Yeah. I want to just make sure I dot every I and cross every T I can to make it as

painless as possible should something happen sooner than I'd like. Yeah, I completely get it. And I think, you know, making sure that you keep your documents in good working order, that you update your will, that

occasionally every couple of years that your living will, your durable power of attorney for finances, your durable power of attorney for health care are all in good shape. That's important. You may also want to look into a document that gives somebody else the right to make decisions for your daughter should you be unavailable. Not like around the corner, but out of the country or out of town.

Would that also cover if like I was in surgery or something and couldn't make decisions? Yeah, it should. You should talk about that with an estate planning attorney as well. And, you know, these days divorce is so common that they handle an awful lot of these things. Yeah, unfortunately, that makes sense.

Yeah, even though it's not a divorce situation, but they're used to handling families where there's a lot of a lot of strife. And then I think the only other thing that I would say is that as your daughter gets to the point where she's nearing adulthood, you know, you're going to want to bring her into the conversation. You're going to want her to understand why you're as careful as you are.

Yeah, that makes sense. With a trust, can you set a time frame at which it expires? So like if she hit 25 or something like that?

Yeah, you can absolutely do that. Funnily enough, the last meeting that we had with our estate planning attorney, they told us that there has been a swing from those expiration dates. Because when I originally set up trust for my kids, they were to have access to money in three pools, basically at 30, at 35, and at 40. Most recently, it's been

They've set it up so that their lifetime trusts, I believe, I may be misspeaking, but yes, you can absolutely talk to your attorney about that. And again, the thinking was always make sure that

a child doesn't come into too much too soon and give them the opportunity to have a do-over if they need it by releasing the funds themselves

Okay, that makes sense. Yeah, yeah. I'm sorry that you have to go through this.

It's not ideal, but I guess I also am pleased that it is making me think about the documentation, because even with my mom, who's well past retirement, she doesn't have these things in place. So now we can both sit down and talk about it. Yeah, absolutely. And you want to make sure that you know where your mom's...

Right. You want to know where her will is. You want to know how to access her online accounts. And if she is your person, then you want to make sure that she has the same for you. Yep, exactly. And it's not great to think about, but it feels good to have done. Excellent.

Excellent. Excellent. Anything else on your mind today while we're chatting? I think that was the main one. Okay. All right. Well, good luck. Thanks so much for reaching out. Thank you so much. If you loved today's episode, please take a moment to leave us a five-star review on Apple Podcast. Your feedback means the world to me. And if you're ready to keep the money conversation going, Hermione has three amazing programs designed to help you feel more confident

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