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Mom must start saving for herself

Son's college costs undermine retirement prospects for a thrifty Santa Monica woman.

February 22, 2009|Kelly Barron

As a divorcee and single mother, Sandy Andrews has been resourceful. When her only son was growing up, she bartered for piano lessons, took in foreign exchange students to help pay the mortgage and skimped on dining out.

But now Andrews, 55, has run out of money-saving ideas. To help pay for college for her son, Chris, she's stretched her finances too thin. Meanwhile, she's saved little for retirement.

"It doesn't look pretty," said Alfred McIntosh, a financial planner in Los Angeles who reviewed Andrews' finances. "If she continues at this rate she'll run out of money when she's 78 years old."

Andrews earns $88,000 a year as a registered dietitian at a hospital that's close enough to her Santa Monica home that she walks to work. She has $204,000 in retirement accounts and $2,500 in rainy-day savings.

Yet she struggles to pay about $2,300 a month on her debts. They total about $260,000 from a mortgage, a home equity line of credit, a car loan and a credit card balance. She is using the home equity line of credit to help fund Chris' college education in Maine. Largely because of that, she winds up $800 a month short, leaving her further in debt.

"I don't want to put my son in the position where he has to work so much to put himself through school," explained Andrews, adding that it took her seven years to pay her way through college. "He needs to have some fun."

But by paying for Chris' schooling, Andrews is sacrificing her own financial well-being, McIntosh said.

"My recommendation is to pay for absolutely none of it," he said. "I am recommending to her in the strongest terms possible not to do this."

McIntosh, like many planners, believes that middle-income parents short on savings can't afford -- and shouldn't try -- to pay for their children's college education. Those costs can be devastating at a time when parents need to convert more of what is usually their highest-earning years into retirement savings. Their children have years to pay off their loans, he reasons.

Chris also worries about how the costs of his schooling affect his mother's finances. The college sophomore works part time and scrimps, even borrowing textbooks from friends, which saves hundreds of dollars.

"I'm mostly concerned about what I can do to help her," he said.

Last semester, he made the dean's list at the University of New England in Portland, where his tuition, room, board and fees run about $39,000 a year.

A former Eagle Scout who wants to become an anesthesiologist, Chris earned a scholarship and took out a bank loan and small federal Stafford loans to pay for nearly two-thirds of the cost. His father pays part of the remainder and Andrews contributes about $12,000 a year.

She says she pays about $1,800 a year to cover the interest on Chris' $15,000 bank loan so his debt doesn't balloon. She also pays for trips back home and other needs, such as a laptop computer.

From the $100,000 home equity credit line, Andrews has borrowed $34,000 so far, using $18,000 several years ago for needed repairs and kitchen remodeling in her condominium. The rest of the borrowing went to her son's college costs, and she had expected to tap the line more for his school expenses.

Her only major expense was replacing the Volvo station wagon, which she drove for 20 years, with a Subaru Forester. She took on $13,000 in debt to buy the car in 2007. Her credit card balance is about $9,000, mostly from property taxes and medical expenses.

Overall, Andrews is frugal. Her household budget showed so little for dining out and entertainment that McIntosh worried about her self-sacrificing lifestyle. Andrews said, for example, that she spends only about $5 a month on video rentals.

"The numbers don't represent a lifestyle of someone who is leading a fulfilling life," McIntosh said. "They represent the lifestyle of someone who is sacrificing for someone else."

McIntosh wants Andrews to change that. He wants her to help Chris take out more student loans to cover all of his educational costs, and he suggested several student-aid counseling services.

"If all goes well, he should be able to get the loans to pay for his schooling," he said.

What's more, McIntosh said, if Andrews got out of debt and started saving now, she might be able to help her son pay off his student loans later. She also could downsize when she retires, for example, and sell her home. Andrews owes $206,000 on the condo, but she said it's valued at $750,000.

"The help she may be able to provide for him in the future will be greater than the help she can provide now," McIntosh said.

Aside from nixing tuition from her budget, McIntosh recommended that Andrews sell her car and get the Volvo, which she still owns, back on the road.

"I don't see why she needs such an expensive car, especially when she walks to work," he said.

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