May 27, 2024

Money Through the Ages: Repairing a Long-Neglected Nest Egg

FROM Mozart, who begged patrons to help settle his debts, to the rapper MC Hammer, who declared bankruptcy, musicians have a long history of lacking money skills. So far, Marina Sturm, a 55-year-old clarinetist, has managed to avoid Mozart’s fate. “I don’t like owing people,” she said. And while she’s far from the problems Mr. Hammer’s faced, she has fallen into other money traps like indifference and a lack of confidence.

“I’m naïve” about money, she said. Combine that with the passage of time and this single, tenured professor at the University of Las Vegas feels as if she has wasted valuable years. “In my 20s, I didn’t think about it. Thirties, maybe. In your 40s you’re more likely to, then 50s you go ‘Whoops!’ ”

At least she’s on notice. In a recent Harris Interactive Poll, 25 percent of baby boomers said that they had no retirement savings at all and 26 percent said they had no cash savings.

Ms. Sturm is in much better shape, though far from where she should be to meet her retirement goals. After talking with Kimberly D. Overman, a certified financial planner who is president of the Financial Well, an advisory firm in Tampa, Fla., Ms. Sturm discovered that she actually had close to $180,000 saved and invested, much more than the $80,000 she thought she had before looking at her statements.

But to save the amount that Ms. Sturm actually needs to retire at age 67, there’s additional pressure. She earns her living in two professions taking a big hit in this economy — teaching and the arts. Ms. Overman, 52 and also single, took to Ms. Sturm and her needs immediately. “Most of the issues that are going on in our world are going on in her life.”

Ms. Overman said that when making a financial plan, assumptions on future income needed to be flexible to take account of the realities of the times. For Ms. Sturm, who even with tenure has already been placed on paid furlough and may be forced to take a 5 percent salary cut, “we’re in a position right now that we have to think that that assumption doesn’t really work,” Ms. Overman said.

And though Ms. Sturm does not have children, she is caring for an aging parent. To be able to take in her 89-year-old mother and have other family nearby to help, Ms. Sturm recently bought a bright, adobe-style home here, with a view of the mountains. After not being a property owner for decades, Ms. Sturm now has a mortgage and — though her mother is helping with expenses — the strain of a new set of costs is wearing on her budget and her mind. “If something happens with Mom, how much of it will have to be out of our pockets, I don’t know.”

With that in mind, Ms. Overman’s advice for Ms. Sturm started with getting long-term care insurance for herself. “In my opinion it’s essential. You can break a hip and long-term care will take care of you when medical coverage does not — same with stroke.”

Ms. Overman said all older people should consider such coverage, even married couples with children. “I have had women tell me, ‘My kids will take care of me.’ Only to have them call me a year and a half later saying that their kids are losing their jobs because they’re taking care of me!”

But long-term care insurance can be expensive. Can Ms. Sturm, who makes less than $70,000 a year, manage that? And does it make sense?

“It is expensive but not having it is also expensive,” Ms. Overman said. She estimated that such coverage for Ms. Sturm would cost about $1,900 a year. “I bet you she’s paying that much in car insurance.”

The youngest of three children from a musical family, Ms. Sturm has enjoyed her “nomadic” existence, but it has left her finances scattered through four separate retirement accounts. Ms. Overman’s advice: consolidate. “She does need to consolidate into a single I.R.A. so she can diversify without having to keep track of 14 different statements which she doesn’t read anyway.”

Ms. Overman, who is also president of the Financial Planning Association of Florida, works with clients by initially assessing their tolerance for risk. After answering 25 questions, Ms. Sturm’s results showed that she was very conservative — more so than 80 percent of investors.

Ms. Overman’s strategy to plump up Ms. Sturm’s conservative portfolio was to get her to put the maximum contribution into her 403(b) savings plan and put even more each month into a Roth I.R.A. “If she can bump it up to the 15 percent level and rebalances her portfolio, she has about a 70 percent chance of hitting her retirement goals.” This sunny prognosis is aided by Ms. Sturm’s pension, larger than she had thought, but still too small to live on even when combined with Social Security. As a last and vital move, Ms. Sturm needed to reduce her expenses by about 35 percent at retirement, Ms. Overman said. “If she doesn’t make these changes, her chances are zero. That’s the problem.”

Ms. Sturm’s expenses needed triage. Her cash balances were too low for Ms. Overman. After putting a down payment on the home and lending cash to her sister at 2 percent interest, Ms. Sturm needed to find places to cut. After a rather painful realization, she accepted Ms. Overman’s suggestion that she create and stick to a budget. “For someone who is creative, dealing with that hunt and peck is painful,” Ms. Sturm said. In the past, she never paid attention to grocery prices, but now was learning to pass up costlier items in favor of less expensive ones.

And that musical logic? Ms. Overman found that it had its advantages. She may not be trained in financial strategies, but “she’s very astute,” Ms. Overman said.

One smart move was buying half a dozen round-trip plane tickets from here to her job in Las Vegas. With rising oil prices and airfares, Ms. Sturm wanted to lock in current prices as a hedge. Also on her mind were tax deductions she might be able to take to reduce her commuting bill of $300 a week. “I need to ask around,” she said.

So many changes in such a short time left Ms. Sturm reeling but energized. “I don’t know how fast it can happen. But that’s the way I run my life: open the door; make the moves. And not just sit there, stunned.”

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