Ideally, he should save one-third of his income, between his IRA, 401(k) and other savings. “That $2,000 and more a month he spends willy-nilly should be put in a brokerage account or a short duration bond fund,” says Everett. He should continue to max out his 401(k) every year, she suggests. He is currently putting away $16,500, plus his company matches 6% of his contributions. Everett recommends he save a minimum of one year’s expenses in an emergency fund. Herbert should also commit to putting an additional $1,000 per month toward his mortgage if he decides to stay in the home and another $500 to $1,200 per month in a brokerage account. She also says he should have $500 to $1,000 automatically deducted from his paycheck and put into a brokerage account for long-term savings. He should put the $2,000 Financial Fitness Contest winnings in his emergency fund, or, if he qualifies, contribute to a Roth IRA or non-deductible traditional IRA.
• Expect the unexpected: “He has a sense of comfort about his job. But we’ve learned the last few years that nothing is promised. He could lose his job at any time. He won’t be able to eat that Versace jacket,” says Everett soberly. While Herbert has a heads up about what may be down the road, not everyone gets advanced warning. Many people don’t think they need life or disability insurance, but they do. You have to ask yourself what will happen to your family if you can’t work and you can’t pay the mortgage. Herbert doesn’t think he needs life insurance because he is single, but life insurance can make sense even for singles. It can be a tool to leave a tax-free legacy to relatives or charity. You can also build on an existing policy once you’re married instead of initiating it when you’re older and it is costlier. Everett advocates buying long-term care insurance because health problems can be the juggernaut that drains assets in your golden years. It’s less expensive to get life and long-term care insurance when you’re young and healthy. Long-term care insurance would be ideal for Herbert, but unfortunately, due to his existing health problems, most insurers will not insure him for “long-term care,” and if they did, it would be very expensive. He should hold on to his job so he at least keeps disability coverage and should check into getting a supplemental disability policy beyond what he has at work. People should consider supplementing employer provided coverage with a policy of their own. “If Rodd loses his job, that disability policy through work pays nothing,” points out Everett. He should qualify for Social Security Income that will net him about $2,300 a month, not nearly enough by itself.
• Create a will: “I have no kids. When I’m gone, I’m gone. The money that’s left will be for my mother, my family,” says Herbert. But wishes are best put in writing. Quite simply, says Everett, “Everyone needs a will.” He should have an attorney prepare the medical directives. A well-conceived estate plan will ensure that his heirs/family will enjoy the security of his assets. In addition, creating an estate plan with a trust can be an effective way to avoid probate, to pass his assets on as he intended, and to keep his financial matters private. BE