Personal Finance Case #16

Frank and Mary Neiser, 57 and 54, are feeling the effects of New Jersey's poor economy. Frank was recently laid off from the information technology department of a large state university. "I was in a staff position without tenure and we were the first to be let go due to state budget cuts," he explains.

As a result of the layoff, the couple's household income was reduced to $45,000 from $120,000. Fortunately, Frank has employer-subsidized health insurance for life as a long-time state employee, and a $978/month pension benefit. Mary, a human resources manager for a large corporation, also has employer health coverage. She had been saving 14% of her salary in a 401(k) plan but scaled back to 2% after Frank's layoff.

The Neisers had both expected to work at least another decade to prepare for a comfortable retirement. They put two children through college during the 1990s and recently paid for a daughter's wedding. "Even though tuition was free as a university employee, there were still lots of expenses," says Frank. The couple is dismayed that their plans to sock away money, now that their children are grown, have been derailed.

The Neisers admit to getting a late start in saving for retirement. "We were hoping to catch up between age 55 and 65," explains Frank. Their net worth is $461,500, with their largest asset a $295,000 home. Other assets are $40,000 in a money market fund paying about two percent interest, $1,000 in checking, $46,400 in Mary's 401(k), $62,600 in Frank's 403(b), $24,000 in mutual funds, two cars worth $17,000 and $20,000 of personal property.

The couple's debts are a $43,000 mortgage, $700 on a credit card, and $800 on a home equity line of credit. Frank got a $50,000 home equity credit line when he heard that he was about to be laid off. "Better to borrow at 4.5% instead of 18% on a credit card," he explains.

Frank received no severance payments but has applied for state unemployment benefits. He has also begun the arduous task of sending out resumes to potential employers. The couple has scaled back "discretionary" expenses such as eating out and their annual summer vacation. They are still spending more than Mary earns but aren't sure how much.

The Neisers have adequate life, health, and property insurance but lack disability income (DI) coverage. If Mary was unable to work tomorrow due to an accident or illness, the couple would lose their sole source of income.

Frank and Mary recently updated their wills after Frank's brother died without one. They also adjusted Mary's W-4 tax withholding form to reflect their reduced income and Frank is exploring ways to make withdrawals from his 403(b) plan.

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