Personal Finance Case #10

Sandra Hayhoe, 49, was recently laid off from a local factory. Worse yet, her former employer has filed for Chapter 11 bankruptcy and closed its doors so she doesn't have any health insurance. Normally, when someone loses their job, they are eligible for continued health benefits, at their own expense, under a federal law called COBRA. COBRA covers employers with 20 or more workers. In Hayhoe's case, however, there is no longer any employer to collect premiums or administer coverage.

Prior to losing her job, Hayhoe earned $20,800 annually at the factory. She also has two other part-time jobs. She earns about $8,000 a year from salary and tips as a bartender/waitress and $4,000 annually working in a retail store. Thus, her annual income has declined from $32,800 to about $12,000, a 64% decrease. She is hoping to increase her hours at both of these jobs in the next few months. She is also thinking about taking some computer courses to learn a new job skill. "I doubt that there's any other factory around here that will pay me what I was earning before," he explains.

Hayhoe is divorced and has two grown children. One lives at home rent-free. She rents a two-bedroom apartment for $600 a month, including utilities. She also has a $246 monthly car payment and pays $150 monthly on $5,500 of credit card debt. Before the layoff, Hayhoe was just making ends meet. Now, these three bills alone consume all of her income. She estimates that she is spending about $600 a month more than she earns. The $10,000 in savings that she had from an inheritance a few years ago is down to $7,600.

For years, Hayhoe says she has lived "paycheck to paycheck." She took on her two part-time jobs a few years ago when her children turned 18 and child support checks ended. She felt that she couldn't reduce her expenses any further, so she increased her income. Hayhoe has no life, disability, or renter's insurance. She carries 100/300/50 of auto liability coverage.

Hayhoe has a net worth of $19,600. Her assets total $25,100 and include $7,600 in a 1.5% bank savings account; $1,500 in a checking account; $8,000 in an IRA invested in several certificates of deposit; a $5,000 car; and $3,000 of personal property. Her debts include $1,230 on her car loan (five more payments) and $4,270 on four credit cards.

Hayhoe doesn't see herself retiring. Rather, she says, "I'll probably always have to work." Another concern of Hayhoe and her former co-workers is their future pension benefits. Hayhoe worked at the factory almost 24 years and is vested in its pension plan. According to representatives from her former union, she can start collecting a pension at age 62.

Hayhoe does not have a will. She says she never knew whom to list as guardian for her children, so she never prepared one. She always assumed her ex-husband would care for the children, if necessary. She has also never gotten around to replacing him as the beneficiary of her IRA, which was funded in the 1980s. "I had more money then," she explains. "Between the two of us, we earned $63,000. Unfortunately, we spent it all."

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