A second set of children, a second set of challenges

Patricia Kimball takes the measure of her life once a month when issues of Parenting and AARP magazines drop simultaneously through the front-door mail slot of her North Hills home.

“I never thought I’d end up with four small kids at this age,” said the 65-year-old special education teacher and mother of three adult sons.

The disparate magazines mirror the joy she has with four adopted children, ages 3 to 7, and her concern that they’ll be stretching her financial resources, including state funds she receives for taking care of the special-needs children.

Kimball had wanted to retire in a few years, even though she has saved only $69,000. But now she’ll have to work a decade longer to pay for the children’s upbringing and for her retirement, said financial planner Donald Hance, president of Glenmore Financial in Pacific Palisades.

“Having those kids is a fabulous thing. God bless you,” Hance told her, while also cautioning that she needs to save more money. “You don’t have the cash reserves to carry you through rough times.”

Pixie-small, with a dazzling smile, spiky gray hair and an eyebrow ring, Kimball looks like a hippie version of a fairy godmother. But she doesn’t have a magic wand to help her do more for her children.

She earns $85,000 a year at the Glendale Unified School District and receives $32,880 from the state for the children’s care. She doesn’t live extravagantly, and her only debt is $157,000 left on the mortgage on her home.

But fate has left her without a fortune or much of a nest egg. That she has any savings, much less a home, is more a testament to her perseverance since her husband died from a stroke 22 years ago. At the time, their sons were 7, 12 and 16; she was a housewife and wasn’t aware of the family’s financial situation.

After her husband’s death, she found out that their house had gone into foreclosure and that he had allowed an $8,000 federal tax debt to balloon to $50,000 over eight years.

She sold the home before the bank took it over and used the proceeds to pay a negotiated settlement with the Internal Revenue Service. Nevertheless, she went into bankruptcy, which ruined her credit, and spent eight years in a hodgepodge of jobs, including aerobics leader and teacher at a preschool for autistic children.

In the process, Kimball repaired her credit and took classes to improve her job prospects. At 51, she earned her credentials to teach special education.

Without credit cards for years, Kimball used cash for everything, including her 2002 Honda Odyssey van. And she was able to dip into savings last year to give her son Damon, now 30, a $25,000 loan, which he plans to start repaying soon. Only for her North Hills home, which she bought in 1994, did she need to borrow money.

“I understand where my limits are,” she said.

Her expertise in special education gave her a window into the minds of children with special needs, and she decided to adopt a baby girl who might otherwise have spent her formative years in institutions. After three sons, she was ready for a daughter.

But in 2001, a foster-care agency offered her a baby boy, one she couldn’t resist. A year later, the baby girl came into the home. The girl’s mother then had two more children that foster care quickly sent to Kimball.

“I am grateful to God that she didn’t have another” child, Kimball said. Damon has developed a bond with the adopted children and has agreed to be their guardian should anything happen to his mother.

With such family matters sorted out, a debt-free Kimball now faces the challenge of staying that way. If she stops working at 71, Hance figures, she would receive a little more than $4,500 a month from her teacher’s pension. However, if she waits five more years, that amount increases to nearly $5,400.

To Kimball, a monthly bump of $850 didn’t sound like enough to delay retiring. “I’m getting tired,” she told Hance. “I feel like taking a vacation.”

But five more years, Hance said, would mean not only an increase in her pension income, but also five more years of income at her top salary.

“She might need that for her living expenses,” Hance said. “With raises, that’s probably half a million [dollars] she’d be forgoing over those five years.”

Kimball acquiesced: “Oh, I hadn’t thought of that.”

Hance suggested several steps she should take.

He asked her to check with the Social Security Administration to see if she was eligible for survivor payments from her husband’s benefits now that she is of retirement age. In a quick call, she learned she was entitled to about $1,000 a month.

Not only will that money increase Kimball’s own savings, it will help her save more for her children’s college educations. That’s important, Hance said, because a retirement fund and four tax-free college savings plans she set up several years ago won’t bring in the funds that a brokerage salesman had promised.

The salesman, she said, told her that saving $30 a month for each child would give them about $20,000 each by the time they entered college. But Hance said the most each account would be worth was $6,000, assuming a 4% return to reflect current market conditions. To get close to her goal, she would have to put $100 a month into each account, and that would grow to about $17,000 for college expenses.

He also noted that the salesman had put 100% of her children’s savings and 70% of her own into stocks, which means the value of her holdings has plunged recently. She should have no more than 40% of her assets in equities at her age, Hance said, and the balance in fixed income.

Hance also suggested that Kimball make sure she was getting the maximum state support for her children. She said she recently applied for an increase in her oldest son’s benefit from $450 to $751 a month because he had developed more problems than were known when he was a baby.

For Damon’s debt, Hance said Kimball should create a promissory note detailing the terms of the loan, including a reasonable interest rate, and have her son sign it. Damon’s eventual inheritance should be decreased by any unpaid balance.

Because Damon agreed to be the legal guardian of her adopted children, Kimball listed him as the sole beneficiary on her $250,000 term-life insurance policy.

However, Hance said each of her seven children should be beneficiaries, sharing equally. That’s the only way, he said, to ensure funds actually go to each child. Otherwise, there is no legal mechanism to ensure one child uses the money for the others.

“It’s funny, when people get money, what they do,” the planner said.

Given Kimball’s discipline with money, Hance suggested she apply for a credit card to accumulate points she can use for airplane tickets and other travel expenses. Kimball brightened at the idea. Recently, another son announced that he was getting married in Virginia, and she wondered how she was going to pay for airfare for the younger children.

“The idea of getting airline miles is critical,” she said. “Now we’re actually thinking about traveling because everyone is toilet trained.”

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This month’s makeover

Who: Patricia Kimball, 65

Income: $117,880

Goals: Raise and contribute to college funds for four adopted special-needs children. Save enough for retirement.

Assets: $143,000 in equity on four-bedroom home in North Hills. $69,000 in savings. Expected pension income of $4,500 to $5,400. Outstanding $25,000 loan to one of three adult sons.

Debts: $157,000 mortgage on house at a fixed rate of 4.875%.

Recommendations: Work 10 more years before retiring. Complete paperwork to receive Social Security survivor benefits of about $1,000 a month. Secure higher state payments for eldest son. Reduce investment in stocks from 70% to 40% of savings. Create a promissory note for $25,000 loan to son, reducing his portion of an inheritance by any unpaid balance. Change the beneficiary on her $250,000 term-life insurance policy from one child to all seven, equally divided.

About the planner: Donald Hance is the president of Glenmore Financial in Pacific Palisades.