To help Herbert prepare for the possibility of disability, black enterprise and Katrina Everett, certified financial planner and vice president with Wells Fargo Advisors, came up with a plan to help him reach his goals.
• Get real about the house: While Herbert is set on staying put in his home for now, Everett thinks otherwise. “It’s hard to justify putting almost $5,000 a month toward a mortgage when you have health issues. A mortgage of more than $800,000 is a lot of mortgage for someone at his income level. I recommend he sell now and live a modest lifestyle and accumulate extra savings for medical expenses,” says Everett. “He says he wants to live life, to entertain his family and friends in his home. For him, it’s about living, not saving. It takes cash to service that house—I wouldn’t want him to be house rich and cash poor,” she adds. Herbert has quite a bit of equity in his home, unlike most Americans right now. He could possibly sell his home and walk away with some money in his pocket. He may have to consider looking into assisted living or leaning on family in the event his condition becomes worse. But assisted-living facilities are very pricey and can easily exhaust some or all of his savings. That is why it is very important that he saves as much as possible in his working years, adds Everett.
• Stop spending lavishly and save more: Everett says Herbert is counting on his house to be his retirement pot of gold, but the truth is, she says, he could easily be a millionaire if he controlled his spending. He takes home $10,000 a month after taxes. “He has spending problems. He has to work on his discipline. He should automate his savings, much like his 401(k). This will force him to save,” says Everett, who says Herbert needs a financial planner to hold him accountable. “He has to realize that he is spending money on things that depreciate.” Given his health, there is understandably temptation to live for today because who knows how illness may impact tomorrow. But medical advances could change the picture in his favor. He should still think long term, says Everett.
(Continued on next page)