A Concerned Retired Teacher Gets Some Lessons in Money Management


by Ron D. White

Source: Los Angeles Times

For years, Sasha Firman worried that her students were moving through high school unprepared for the world ahead of them.

Her language students needed help with basic grammar, spelling, punctuation — things they should have mastered long before.

"You wondered about them just sitting down and trying to fill out job applications," Firman said. With as many as 49 students in a class, individualized attention was impossible.

"I loved my job," Firman said. "I did the best I could."

Now seven years into retirement, the 67-year-old Firman knows the anxiety some of her students must have felt facing an unknown future.

"I have this fear of the money running out, of winding up homeless," Firman said, sitting in the 1950s-era living room of her rented Los Angeles apartment. Her thrift-store couch is covered in plastic to protect cushions she can't afford to replace.

Firman's 30 years as a teacher paid off in a way that mostly only civil servants enjoy these days: a pension.

Her monthly income, after taxes and deductions, is $3,800. Firman's savings are modest, about $153,000 in a retirement account.

But the pension she worked so hard for isn't going far enough. Her bank account has been overdrawn often.

"I'm formally educated. I even think of myself as a little street-wise," Firman said. "But I cannot seem to avoid debt, and I need help."

Firman said she was willing to talk about her financial situation because she fears that too many other women may wind up in a similar bind.

She obtained her undergraduate degree at the Monterey Institute for International Studies, then earned a master's from USC. Her specialty is teaching English to people who speak other languages.

But now she wishes she had spent time learning more about money and how to invest and spend wisely.

Most of her $160,000 in assets came from the sale of a condominium in the San Fernando Valley she had to unload last year when her tenants stopped paying rent. Firman had hoped that renting out the condo would bring in enough income to cover her own rent and add to her small savings.

A good chunk of the proceeds from the sale were eaten up by the higher taxes associated with selling a rental property, as opposed to a primary residence, and by medical bills.

Her problems aren't unique. In March, a telephone survey of 1,000 workers and 501 retirees by the nonprofit Employee Benefit Research Institute found that only 44% had tried to calculate how much money they would need to retire comfortably.

More seniors today are spending a greater share of their financial resources on mortgages or home equity lines of credit, according to a report by the National Center for Policy Analysis.

As a result, retirement age doesn't necessarily mean an end to working. According to a 2013 MetLife survey of the oldest baby boomers, 21% are working full time and 12% are working part time or seasonally.

Firman will need to become one of them if she wants to find a way to enjoy a few simple pleasures without running through her money at an alarming rate, financial planner Lara Lamb said.

Firman has been spending more than her pension and investments bring in by as much as $1,818 in a month, Lamb said.

That's not uncommon among some retirees, Lamb said, who make the mistake of "spending money like they are still receiving their old paychecks" and fail to adjust to their lower retirement income.

Lamb, director of financial planning for Abacus Wealth Partners, said Firman's situation requires immediate attention.

"She hasn't been facing the numbers for a while," Lamb said, adding that Firman needs to understand "what a dire situation she is in if she doesn't do something about this."

In the worst case, Lamb said, Firman "could run out of liquid assets after seven years" if she doesn't make any changes.

Firman has been lulled into thinking that her spending is under control because her money doesn't go for extravagantly expensive things.

"I buy my clothes at secondhand stores," Firman said. "I get my hair done by students who are learning" to be stylists.

When she eats out, "I only go to the least expensive places," Firman said. She has no smartphone, no cable or pay TV. Books come from the library.

But she's still spending far too much money.

Lamb would have advised against the credit union loan Firman recently took out to help her buy a used Toyota Camry, but she suggested that Firman take advantage of its 1.99% loan terms to pay off some high-interest debt.

By eliminating her $6,000 in credit card and other debt, which carry interest rates of 7.75% to 26.99%, Firman could get rid of $750 a month in interest payments, Lamb said.

Next, Firman has to stop using the credit cards.

"You can't just wipe the slate clean without having a plan," Lamb said. "Otherwise, you'll get right back into another hole."

Firman is paying far too much on housing, with rent and utilities at about $1,900 — half of her monthly pension check.

"She needs to consider relocation," Lamb said. "If she could find cheaper housing, that would give her more room for discretionary spending."

Next, Firman is "doing cheap things, but doing too many of them," Lamb said. "You think you are doing the right thing by cutting back on the cost of each item, but you still have a lot of items."

Firman should have separate bank accounts, one for irregular costs, such as dental work or care for her two cats.

The more important account is for regular costs, which need to be scaled way back, Lamb said.

"She has to have a budget and an allowance every week, and that is what you have to spend," Lamb said. "That way you don't have to track every single receipt. It's a way to help her control it."

Another key component: sustainable withdrawals from her $153,000 retirement account of $6,100 per year, which covers the rest of her worst monthly shortfall.

"She will need most of that to meet her revised budget," Lamb said. "It doesn't allow for any other unexpected expenses."

Firman will face some significant spending cuts. Lamb is suggesting, for example, $50 a month for clothing, rather than $180; $80 for eating out, instead of $207.

This also leaves room for the $285-a-month car payment for Firman's Camry.

But there's another option Firman should strongly consider, in addition to looking for a cheaper apartment and cutting back on her spending: With her friendly and caring personality and strong language skills, Firman would make an excellent tutor for students needing help to get ahead, Lamb said.

"I think that would be an excellent idea for her and she would only have to do it a few hours a week," Lamb said.

For Firman, coming to grips with her finances and marshaling herself to exert control over her spending hasn't been easy.

"The first few hours after the meeting, I just cried," Firman said, partly a lament over not seeking this kind of information much earlier in her life.

"But I'm glad I did it," Firman said. "And if this can help just one other woman avoid being unprepared like this, it will have been worth it."