Mom must start saving for herself


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.

Meanwhile, he wants her to boost her savings, contributing $300 a month to her Roth Individual Retirement Account and putting away another $300 monthly in an emergency savings fund. Ultimately, he wants her emergency savings to grow to $30,000.

“All it takes is for one illness to completely change the costs,” McIntosh said. “She needs to build up her reserves immediately.”

To help create that fund and give her more cash from her paycheck, McIntosh said Andrews should borrow the remaining amount of her home equity line -- $66,000 -- and use some of the proceeds to pay off her credit card bills and car loan and save the rest. What makes this usually risky strategy work now is that, under her credit line terms, she could borrow the money at a 2.5% interest rate and could get a savings rate of 3%.

McIntosh’s caveats are that she mustn’t touch the savings and that she continue to pay down the line of credit.

He also suggested that Andrews buy long-term care insurance to offset her medical bills as she grows older.

Andrews also should revive her consulting practice to bring in more money, he said. Previously, she made as much as $4,000 a year by teaching diabetics how to administer insulin. Renting out a room might be another way to supplement her income, he said.

McIntosh also wants Andrews to rebalance some of her existing investments, shifting them into a mix of 60% stocks and 40% bonds. She now has half in stocks and half in bonds.

If she follows his advice, Andrews should have about $6,200 in inflation-adjusted monthly income, or $74,400 a year, by age 66, he said. By 78, she would be out of debt and have enough money to last into her 90s.

Andrews said she planned to talk with Chris about her finances, then help him get financial aid and transfer to a less costly school.

“I feel like I’m letting him down. I really wanted to do this for him, but I can’t,” she said.

She’s also realized how stingy she’s become with herself over the years.

“It’s not like I don’t have a good time,” she said. “But it would be nice to go to the theater or take a class or go to San Francisco and see an exhibit I’ve wanted to see.”

She refuses to sell her car, though, joking that if things got really bad she could sleep in it. She plans to give the Volvo to Chris.

But she’s already putting some of McIntosh’s advice into place, having recently arranged with her bank to borrow the remainder of her credit line and stash it in a savings account. Andrews also decided to devote some of the time she used to spend caring for her stepfather on the weekends to resurrecting her consulting practice.

“I know what I have to do, and now that I have a road map I’ll just start and see where it takes me,” she said.


Do you need a money makeover? Each month, the Sunday Business section gives readers a chance to have their financial situations sized up by professional advisors at no charge. To be considered, send an e-mail to Include a brief description of your financial goals and a daytime phone number. Information you send us will be shared with others.



This month’s makeover

Who: Sandy Andrews

Income: $88,000

Goals: Reduce the burden of paying for her son’s college education; save for retirement

Assets: $750,000 condominium; $181,000 in an employee retirement account; $23,000 in a Roth Individual Retirement Account; $2,500 in savings

Debts: $206,000 mortgage; $34,000 home equity line; $13,000 car loan; $9,000 credit card balance

Recommendations: Stop funding her son’s college education and help him get student loans and financial aid. Plow money into savings, contributing $300 a month to her Roth IRA and building an emergency fund of $30,000. Use the $100,000 home-equity line to improve short-term cash flow and reduce car loan and credit card debt. Renew consulting practice to bring in more money. Purchase a long-term care insurance policy. Start spending some money on fun things such as entertainment and dining out.

About the planner: Alfred McIntosh is a certified financial planner with McIntosh Capital Advisors Inc. in Los Angeles.