Making Ends Meet Shouldn't Be a Stretch

By JERRY CROWE

July 31, 2001 12 AM PT

TIMES STAFF WRITER

These should be prime income-earning years for Fred and Kristine Hanley of Desert Hot Springs.

Fred, 53, should be entering his fourth decade as an auto parts manager. Kristine, 51, should be nearly 20 years into a career as a payroll supervisor.

Instead, the couple is retired--and worried about how they’re going to finance the rest of their lives.

“We had good jobs,” Kristine said. “We liked what we did and we worked for good people.”

But they had to quit.

Like about 8 million people worldwide--and upward of 1 million in the United States--the Hanleys suffer from post-polio syndrome, a debilitating disease that haunts victims decades after they first contracted polio.

The Hanleys’ symptoms include muscle and joint pain, muscle weakness and overwhelming fatigue. There is no cure.

Unable to work, they must find a way to deal financially with an unexpectedly early retirement. Living on Social Security and disability benefits, the Hanleys wonder how they are going to meet their day-to-day expenses while funding three daughters’ weddings and possibly paying for assisted-living coverage when they are older.

Fortunately, they have no debts other than an auto loan. They already have put two of their daughters through college, and the third will graduate next spring before embarking on grad school. They have about $105,000 invested in a 401(k).

“Right now, we’re doing OK,” Kristine said. “But we don’t have a whole lot of extra money.”

They’re concerned they’ll run out of money before they run out of breath, particularly because they don’t have the option of going back to work if they fall short of cash.

Scott Leonard, an El Segundo-based fee-only financial planner, said the couple need not worry--if they can maintain the frugal lifestyle to which they’ve grown accustomed over the last few years.

“Chances are,” he told them, “you’re probably going to be OK going forward, especially considering that the [401(k)] retirement portfolio is still out there to supply supplemental income.”

For at least the next 13 years, their fixed costs are completely paid for by disability insurance, which not only is stable, but also is adjusted for inflation, Leonard noted.

“There is very little risk as it relates to your income,” Leonard told the couple. “But you need to stay on your budget and watch your expenses.”

The Hanleys have been cutting costs since 1986, when Fred first experienced the symptoms of post-polio syndrome. He finally had to stop working in February 1998. His wife, also suffering from the disease, had to retire 14 months later--a little more than a year ago.

Their cost-cutting was dramatic, but effective.

First they sold their five-bedroom house in Irvine. They squeezed their family into a two-bedroom Irvine apartment, because they wanted to keep their daughters in the city’s school system. After the girls were out of high school, the couple moved to a mobile home in Desert Hot Springs owned by Fred’s mother.

As a result, the couple’s annual income of about $43,770 from Social Security and disability benefits is more than enough for their own expenses. However, it barely covers their costs when they start adding up what they pay to send their youngest daughter to college. They pay about $5,000 annually for her apartment, auto insurance, cell phone and flights home from Cal State Chico.

Meanwhile, they’re also determined to kick in $5,000 for each of their girls’ weddings. Their middle daughter, Stephanie, will marry in September.

Leonard said the Hanleys ought to let their daughters pay for themselves. The girls could take out student loans and have small weddings, or whatever they themselves could afford. But the couple wouldn’t hear of it.

“We always told them we would give them as much financial support and every other kind of support as we possibly could,” Fred said. “Once you bring children into this world, you find out in a hurry you’re not the most important thing anymore.”

Health-Care Plan Savings Will Help

Working in the Hanleys’ favor: Their annual premiums for health care will be cut by nearly $7,000 to $1,200 when they qualify to receive Medicare benefits in October. And in three years, their auto loan will be paid off and their youngest daughter will be finished with graduate school. All of that will save about $17,000 a year.

The cost savings eventually will be important because their annual income will be reduced by about $13,500 when Kristine’s supplemental long-term disability insurance benefits run out on her 65th birthday, about 13 years from now. And because of the degenerative nature of their disease, they may eventually need help with day-to-day activities.

Although the best way to finance that possibility would be through long-term care insurance, it’s unlikely that the couple could buy a policy, given the state of their health. That being the case, maintaining their savings and living frugally becomes all the more important.

Post-polio syndrome is not life-threatening, though it leaves many victims in wheelchairs and on ventilators. The Hanleys should plan to live long lives, Leonard said.

Their 401(k) account, invested mostly in U.S. large-cap equity and money market mutual funds, should be moved into an IRA rollover account at a discount brokerage such as Fidelity or Vanguard, the planner said, to give them more investment options. He recommended that it be broadly diversified among several investment sectors, including U.S. and foreign stocks and fixed-income vehicles.

“I think your biggest risk going forward, as your muscles continue to deteriorate, is that you’re probably going to need assisted living,” Leonard said, especially as it becomes increasingly difficult for them to help each other.

The couple’s daughters are willing to provide some support--one already suggested that her parents move closer to her so she could help care for them--but the Hanleys prefer to remain independent as long as they can.

Less difficult, it seems, will be funding their retirement. Financially, at least, the worst may be behind them.

If they don’t have to tap their nest egg for several years, they can reasonably expect it to more than double in less than 10 years. Then, if they need to tap it to improve their cash flow, they initially can withdraw about 6.5% annually and increase their withdrawals each year for inflation.

“If the money is invested as I have suggested, you should be able to take a steady income from the investment without spending it down,” Leonard said.

That puts them in good shape.

Kristine seemed relieved.

“I feel a lot better,” she said. “We were beginning to wonder if we had a future.”

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(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

This Week’s Make-Over

Subjects: Fred Hanley, 53, and Kristine Hanley, 51

Income: About $43,770

Goal: Financial security despite having to retire sooner than planned.

Current Portfolio

Retirement account: $105,000 in a 401(k) account, invested mostly in U.S. large-cap stock and money market mutual funds

Savings account: About $3,000 in a bank savings account

Debt: $10,000 auto loan

Recommendations

n Move 401(k) into an IRA rollover account at a discount brokerage and broadly diversify the funds.

n Continue to live frugally and let retirement account grow.