my financial story - advice appreciated!

[1kickassgal]

Thanks in advance.  This site has truly changed my life in so many ways.  I was hoping for any advice or comments on my situation.

52 years old - divorced 3 years ago.  Complete financial ruin at that point.
In the past 3 years I have paid all debt off (no small task) except a car payment of $350 ($6,110 balance, 5% int.  I have a mortgage on a new home with a balance of $154,000, 3.4% int but do carry MI b/c FHA mortgage, less than 20% down (was broke). 
My job pays on percentage collected, (self-employed) so conservative estimate of yearly salary is $70K.  I have saved $15K to date.  I have 3 kids in college and a wedding just paid for.  I know, I know, I know.......old habits die hard.  I am learning....... :)

From the divorce - pension from Ex of $2500 per month from the day HE retires (currently age 59), to the day I die. 

That's it in a nutshell.  I am pretty conservative with my spending habits, however did I mention 3 kids (26, 23, 19)???  My weaknesses are my children and my desire to financially help them in spite of the fact that I need to financially help myself first.

Biggest downfall is that I have absolutely NO knowledge of investments, etc.  I opened an E-trade account and my 15K is just sitting there, paralyzed.  I feel that I need some liquid savings in the event I were to lose my job or suffer some unexpected health issue, neither anticipated at the moment.  I do pay my own health ins ($305 monthly). 

So my questions are:
Should I pay off the car?
Should I try to get rid of the mortgage insurance as soon as I can (I believe it's 5 years in and 20% for FHA)?
What do I do with the $15K and where do I put future savings? 

And, most importantly - I would like to retire at 65.  Any words of wisdom on how to bring that to fruition?

Thanks so much for any and all help you guys can give me!

Diane

[Fishingmn]

Hi,

We are same age with same aged kids. Luckily not divorced.

To answer your questions -

- I don't think you need to pay off the car as the 5% interest rate is decent. If you have extra and really want to get rid of it that's fine but I'd build up an emergency fund first. Good rule of thumb is to pay it off if you don't think you can beat a 5% return on any investment

- Yes, get rid of PMI as soon as you pass the required time

- You should have a reserve emergency fund of at least 3-4 months expenses. After that I'd start by reading something like Bogleheads guides to beginning investing - http://www.bogleheads.org/wiki/Getting_started  The simple 3 fund plans they recommend would be a good place - that's how I have all of our IRA money invested

- You don't mention expenses but obviously, that's where MMM really shines. You should make sure you have a handle on that. In order to project out how you might fare at 65 I'd run some different scenarios through FireCalc - http://www.firecalc.com/  You'll need to input things like expenses, future savings and expected social secuirty bu it's pretty easy and can give you good guidance on whether 65 really will work or not.

Good luck!

[1kickassgal]

Thank you! Looks like a wealth of information there!  My expenses are reasonable; they are a work in progress.  Unfortunately, I became wise to this money stuff all too late in life, but am trying to catch up as quickly as I can.

Thank you for your advice!

D

[MDM]

Any words of wisdom on how to bring that to fruition?

In brief: "Live up to your username" when it comes to spending less than you earn.

More details:
1) Analyze what you spend, and reducing that spending where you can.  Mint, Quicken, spreadsheets, YNAB, etc. can be helpful.
2) Start investing as much as you can.
    a) First, give yourself a 5% return by taking $6K out of your E-trade account and paying the car loan.  This is debatable (e.g. see Fishingmn's comments) but is defensible.
    b) Take the rest of the money out of E-trade and put it into Vanguard, perhaps in their Target Retirement 2025 fund.  Again debatable but defensible.
3) Contribute $5500 to a traditional IRA
4) Set up an individual 401k (e.g. see https://investor.vanguard.com/what-we-offer/small-business/individual-401k) and contribute as much as practical.

There's more, but the above is plenty for now.  And you are getting essentially the same here as Fishingmn's advice, albeit with slight nuances but no substantial disagreements.

[1kickassgal]

Thanks! Maybe I'll settle on a combo package - pay off the car by December, make sure my emergency fund is adequate by then, and in January start with a fund and an investment plan.  Meanwhile, cut my expenses even further and learn as much as I can about investing. 

And yes, I try to live up to my name every day..... :)

[Fatmouse]

Breaking the trend here, but my advice is to keep the cash.  I completely agree with the poster that, in her circumstances, it is important to have significant emergency savings.  She owns a home, and $15k is not an unreasonable emergency fund for medical expenses, she has a variable income, etc.

The other suggestion is to keep the cash somewhere where original poster is not tempted to give it to her kids, absent a true emergency they face.  Perhaps visit a bank and set up a CD ladder?  CD rates are of course pretty miserable right now, but the main purpose here is psychological.

The money could always be used later to make a lump sum mortgage payment to drop the PMI. Some of the money could also be used to fund a Roth IRA, but the poster has at least six months to decide if she wants to do this for tax year 2014.

In the meantime, I think poster would be reassured by slowly studying investing, developing an investment plan, etc, for the next six months or so, before actually investing a dime.

[1kickassgal]

I think the psychological component is an important one, Fatmouse.  I don't see myself dipping into savings for my kids, but rather not saving as much by getting sucked into some of their drama with their finances.  Kind of the same thing I guess :(

*******I can't find a calculator to do this but basically what I'm trying to do is calculate how much I need to save for retirement in 13 years if the pension yields 2500/monthly, social security min of $1500/month  (I'm guessing - SS site says $1950), and my home paid off, no debt, and spending of less than $35K a year (not taking into account inflation because I have no idea how to factor that in).  Once I figure THAT out, I can put all my efforts figuring out HOW to get that amount into savings. *******

Can you guys help with that? 

[Rezdent]

I suggest that you quantify what you'll be spending after retirement.  You will only know what you need to save once you have an idea what you'll be spending.
If you haven't already read it, the book "Your Money or Your Life" has excellent advice on how to track spending, forecast future spending, and determine what you will need to fund that spending.  The book is a bit dated on the investing advice so recommend other sources for investing.
I followed the book's advice and it has been very helpful for me to track and predict spending.

[MDM]

*******I can't find a calculator to do this but basically what I'm trying to do is calculate how much I need to save for retirement in 13 years if the pension yields 2500/monthly, social security min of $1500/month  (I'm guessing - SS site says $1950), and my home paid off, no debt, and spending of less than $35K a year (not taking into account inflation because I have no idea how to factor that in).  Once I figure THAT out, I can put all my efforts figuring out HOW to get that amount into savings. *******

$0, because you're there already*.  See attached (and here for qualifiers).  Adjust as needed for your situation.

*Other qualifiers: yes, inflation will matter, so the $2500/mo won't be as useful in 30 years.  But SS will go up with inflation so that will help.  For now, it's a reasonable assumption that if you do a good job of developing your own nest egg, that in combination with pension and SS will be enough.
The attached spreadsheet is "too optimistic" regarding spending if your spending really will be an inflation-increased amount equal to $35K today.  But the spreadsheet is also "conservative" because
a) some of your SS income will not be taxed, and
b) you will not being paying SS and Medicare taxes on your income.

No guarantees, but from what you have posted, and assuming consistent kickassity, there seems good reason for optimism.  Good luck!

[Fatmouse]

*******I can't find a calculator to do this but basically what I'm trying to do is calculate how much I need to save for retirement in 13 years if the pension yields 2500/monthly, social security min of $1500/month  (I'm guessing - SS site says $1950), and my home paid off, no debt, and spending of less than $35K a year (not taking into account inflation because I have no idea how to factor that in).  Once I figure THAT out, I can put all my efforts figuring out HOW to get that amount into savings. *******

Can you guys help with that?

I heard an interview with the author of this book, and it sounds like it has information that may be useful to you.  It is "The Five Years Before You Retire" by Emily Guy Birken.
http://www.amazon.com/The-Years-Before-You-Retire/dp/144056972X

[Jennifer in Ottawa]

The biggest gift you can give to your children is to force them to be responsible for themselves.   Our goal as parents is to raise adults, not children.

The second biggest gift you can give them is to not have to worry about supporting you financially in your dotage, and you can only do that by worrying about yourself first, and their financial missteps not at all.

You've done your part as a parent, now they have to learn from their own mistakes, and they won't as long as you continue to bail them out.

I'm sorry if that comes across as rather harsh.

[1kickassgal]

Jennifer - not harsh at all!  I tell myself this everyday, I'm happy to hear it again.  I love the way you put it as well.  Thank you! 
Fatmouse, MDM, Rezdent - thank you all.  Great advice.  I AM optimistic and do feel that I can make this happen, whereas before MMM and 3 years ago I would have said I'd be working until I die. 
Now to clean up the loose ends and start kickassing my way into FI!