The Whittingtons have it together. Dwayne and Hermennia, who goes by “Mina,” are both college educated, and Dwayne has an M.B.A. With an income of $120,000, the couple ranks among the top 6% of African American households. Furthermore, their net worth exceeds $200,000, largely because, between the two of them, they’ve stashed away more than $165,000 for retirement. The Sicklerville, New Jersey, couple is only four years away from kissing their mortgage goodbye.
Dwayne and Mina, both 42, have established a solid financial foundation for their sons Michael, 17, Marcus, 15, and newborn Malcolm. But why settle for good, when they can have financial freedom?
First, though, the Whittingtons must confront the debt created in the early part of their 20-year marriage. There was always something to buy for the four-bedroom house. And for the two boys, there were clothes, Christmas presents, and more to buy. Before long, they had run up a lot of debt. Today, they owe more than $26,000 on credit cards. The boys’ college expenses are on the horizon, and the Whittingtons haven’t set aside funds for college costs. They hope to tap the equity in their home or, if necessary, their retirement savings.
Meanwhile, the Whittingtons are looking to trade up to a bigger home in a few years. By age 55, Dwayne, an investment banker and Mina, a postmaster with the U.S. Postal Service, say they would like to be retired.
Past debt is problematic, but they are not discouraged. They’re likely to put the $2,000 contest winnings toward making a dent in those credit card bills. They have learned from past mistakes and are more disciplined about sticking to a budget. “I’m pleased that we have a lot of equity in our house and, overall, we’ve not done badly. But, there’s room for improvement,” says Dwayne. “Even though I have a financial background, we still need guidance.”
THE ADVICE
To move the couple further along on the path to financial independence, David Hinson, principal at Wealth Management Network in New York City, analyzed their situation. He identified several risks to their financial success.
The Whittingtons have no emergency fund. If one or both were to lose their jobs, they do not have the money to sustain themselves without tapping into retirement funds. They have just $250 in checking and savings accounts. “This is a major structural risk,” says Hinson. They could use the $2,000 Financial Fitness Contest winnings to start their fund.
Even more significant, the Whittingtons’ assumptions don’t add up. “While the Whittingtons maintain a budget without many frills, their spending is still more than they can afford, given their goals of providing for their sons’ education, while simultaneously seeking financial independence,” says Hinson.
The Whittingtons have almost $170,000 in retirement assets, but that is not nearly enough to consider retiring at age 55. To achieve financial independence, assuming current spending levels and adjusting for 3% annual inflation, they would need about $1.47 million of investable assets by age 55, says Hinson. Building that kind of reserve while trying to