Sunday, February 25, 2007 - Page updated at 12:00 AM

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Your Money

Mary Bartley | Prescription for divorced mom: Save for retirement

Special to The Seattle Times

Mary Bartley, 54, carries mail for the Postal Service, rents in Enumclaw and is divorced with two sons, 17 and 15, who spend equal time with her and their dad. Selling her house after the divorce allowed her to pay off credit-card debt and keep some money.

What she has

Bartley earned $50,000 in 2006. She has $100,000 in a savings account since selling her house, $46,500 in the government's equivalent of a 401(k) — she contributes 6 percent; the maximum contribution is 10 percent — and a pension valued at $300,000 if she retires at age 60. She is debt-free, but as part of her divorce settlement, she will have to pay her ex-husband 25 percent of her pension.

What she wants

Retire at age 62 with an annual income of $30,000 a year. She'd also like to buy a new home, preferably with a mother-in-law unit for her mom. Dick Harsin, a certified public accountant and certified financial planner with Harsin Retirement Planning in Lynnwood, offers good news: By reallocating her assets, she can retire comfortably and buy the home.

What she needs

Buy municipal bonds: If Bartley doesn't buy a home by spring, Harsin says she could invest that $100,000 in municipal bonds, which are nontaxable and yield 5 to 6 percent interest on average. As with her savings account, she can withdraw the money if she needs it immediately, although she would pay a 1 percent surrender charge.

Roth IRA: Regardless of whether Bartley buys a home, Harsin recommends she open a Roth IRA this year to diversify her retirement accounts, instead of increasing the amount she puts into her 401(k) to the full 10 percent. The Roth IRA isn't taxable if she doesn't withdraw the money for five years. Bartley says she'll likely open the account and contribute the maximum $5,000 she's allowed this year.

Fixed-rate, interest-only loan: If Bartley buys a home, Harsin suggests a 7- to 10-year interest-only loan at a fixed rate. When the loan expires, he recommends Bartley get another such loan, which would continue to free up more of her money for higher-interest investments.

What she thinks

"It sounds like it would be fairly easy to keep up this lifestyle when I retire, which was really reassuring," she said. Bartley, though, opted to put her $100,000 of savings into a home, choosing a 30-year fixed-rate mortgage. That may also allow her sons to receive more financial aid for college.

Information in this article, originally published February 25, 2007, was corrected March 3, 2007. A previous version of this story incorrectly stated that people cannot contribute to their Roth IRA after age 70. Anyone with a taxable income can contribute to a Roth IRA at any age.

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