Putting Herself FirstDiana hopes to retire at 65—just 13 short years from now. If she's going to hit that mark, she must make retirement security her top priority. Which is why, when Diana asked how to save for Mary's college, I told her not to. There are loans for college but none for retirement. I said it was time to stop putting her daughter's needs ahead of her own. "I did that with my husband, too," Diana said. "I do it with everyone."
After she retires, Diana will receive a public pension that will pay her about $4,000 a month after taxes. And if she continues to save through her 457 plan—the government equivalent of a 401(k)—she could have more than $500,000 by the time she's 65. That's an impressive sum, from which Diana can safely draw about $1,700 a month once she retires. Because she was married for at least ten years, Diana will also qualify for a Social Security benefit equal to half her ex-husband's, giving her another $1,000 or more each month. (As a public employee, Diana does not pay into Social Security.) She also told me she hopes to relocate to a less expensive area once Mary leaves for college. If Diana keeps the $600,000 from the home sale, she can likely buy a home outright.
Next StepsDiana is pondering her options. Now that she has all the facts, I'm confident she'll make the right choices once her divorce is finalized this fall. The only step that I insisted she take right now is to clarify in her divorce decree how her husband's life insurance benefit would be passed to Mary. If something were to happen to him, his life insurance policy would provide support for their daughter. Diana and her husband have already agreed that he must maintain his policy, but I was concerned when Diana told me that Mary would be named as the beneficiary. That's a big mistake. Minors aren't allowed to receive insurance payouts directly, so when a parent dies and a child is the beneficiary, the courts get involved—meaning there may be a huge legal hassle before a penny is disbursed.
What needs to be spelled out in the divorce settlement is that Diana's husband will set up a revocable living trust, and make that trust the beneficiary of the life insurance policy. The trust should stipulate that if the death benefit is paid out while Mary is still a minor, Diana—or someone else the parents mutually agree upon—will be the trustee of those funds.
A Fresh StartThere is no question that divorce is a challenging process. But Diana seems to intuit that she can help herself and her daughter begin their new lives by making smart choices for their future. Throughout our conversation, Diana was eagerly taking in my advice, not cowering in fear or defensiveness. Afterward, I asked her how she felt about everything I'd said. "It's great to know all of this," she said. "I was just spinning my wheels, ruminating. The truth really does set you free." Amen to that.
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