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AARP The Magazine

Mend Your Money

Fixing One Family's Finances

One couple's cash crunch, and a solution for getting back on the savings track

Terry and Randy Drummond on vacation

Unplanned medical bills caused the Drummonds to overspend, build debt and tap into savings; now the couple needs to save more for future health care costs. — Courtesy of Terry and Randy Drummond

Meet Terry and Randy Drummond of Hebron, Indiana, the first family selected by AARP The Magazine as part of its new column examining the financial challenges many 50-plus Americans face. Rick Mayes, a fee-only financial planner in Carlsbad, California, helps them boost their savings.

The People

Terry, 63, is a retired public school teacher.

Randy, 63, is a retired industrial engineer.

Their Finances

Taxable Income: $79,000; Total Debt: $138,000; Net Worth: $450,000

In 2012 the Drummonds collected $67,982 from Social Security, their two pension plans and mutual fund dividends. They also withdrew nearly $11,000 from Randy's IRA, which resulted in a higher tax bill. Their debts consist of a $96,000 mortgage, $31,000 on credit cards, $1,164 on a car loan and $9,470 in education loans. Their respectable nest egg includes two IRAs, a variable annuity, mutual funds and $30,000 in home equity.

The Problem

Unplanned medical bills caused the Drummonds to overspend. (Last year, they spent $93,372, which added to their credit card bills.) Among the circumstances that forced the couple to build debt and tap into their savings:

  • High premiums: The Drummonds receive their health insurance through Terry's former employer, but spouses pay their own premiums. Last year Randy's rose to $16,238.

  • Poor health: Randy had high blood sugar and can't find lower-cost health insurance. Terry had colon cancer and faced $5,580 in unreimbursed bills.

  • A special splurge: To celebrate the end of Terry's chemotherapy, the couple spent $6,000 on a family trip to Hawaii with two of their three grown children.

The Plan

The Drummonds need to save more for their future health care costs. The new health care law, and Medicare, should eventually lower the Drummonds' insurance costs. But they need to plan for retirement medical bills. Fidelity puts an average retired couple's health care costs at $240,000.

  • Leave the IRAs Alone: Withdrawals are taxable. They can also result in a higher bracket for taxes on Social Security.
  • Find Ways to Lower Bills and to Live Within Their Means: Suggestions include trimming the phone, cable and Internet expenses, which are costing $5,000 a year. Opt for low-cost vacations, entertainment and restaurants.
  • Invest in Low-fee Mutual Funds: Financial planner Mayes suggests a 50-50 mix of stocks and bonds with the goal of reinvesting investment dividends to increase the nest egg.

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