Personal Finance Case #14

The average age of widows in the United States is 56. Widowed this year at age 48, Peggy Brie is "suddenly single" and on her own financially at a much earlier age than many widows. She has many important financial decisions to make and her lifestyle has changed dramatically.

Brie and her late husband, together, earned $135,352. Of this amount, Peggy earns $47,000, so she has lost two-thirds of her household income. Her two major concerns are to maintain her household on a greatly reduced income and to wisely manage her late husband's $250,000 life insurance policy and $110,000 IRA account. She is also expecting a $45,000 inheritance within the next six months, so she'll soon be making decisions to invest over $400,000.

Brie's net worth is $425,680. On the asset side, she has $800 in checking and $239,600 (mostly the insurance settlement) in a bank account paying 1.65% interest. In addition, she has the $110,000 IRA balance, $18,000 in five stocks that she knows nothing about and wants to unload, a $11,000 car, a $215,000 home, and $20,000 of personal property and home furnishings. Brie also has $188,720 of debts. They include $4,720 remaining on her late husband's car lease ($337 per month x 14 months), an $80,000 first mortgage, an $83,000 second mortgage, and $21,000 of credit card debt, $13,000 of which includes medical and funeral expenses that had to be charged before the insurance settlement arrived.

Brie estimates that her monthly expenses total $4,000, but she really isn't sure. Her biggest expense is $2,300 per month on the home mortgages. This is more than half of the $3,916 that Brie grosses each month and 72% of her $3,200 net pay. Brie is considering paying off both mortgages with the insurance proceeds as soon as possible so that she doesn't have mortgage payments looming over her. It is very important to her to keep the house for at least another 10 to 15 years until she is ready to retire. Her three children are in their late teens and early twenties and two still live at home.

Brie estimates that she will retire at age 62. She will be eligible for an employer pension and Social Security but has no individual retirement assets of her own. Her employer offers a tax-deferred 401(k) retirement plan, but she has never participated. "My husband was the saver and I liked to spend what I earned," she explains. Brie plans to rollover her husband's IRA into her name and not touch this money until she retires.

Brie has adequate employer-paid health insurance that covers her and two of her three children who are still considered dependents. It has low deductibles and co-payments and $ 1 million of major medical coverage. She has $150,000 of life insurance and no individual or employer-provided disability insurance. The liability coverage limits of her auto and homeowners policies are $300,000.

Instructor: Dr. Barbara O'Neill, CFP®, Extension Specialist in Financial Resource Management and Professor II
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