Being at Home With a Difficult Challenge : Illness Forces Change in Approach to Finances

Jane LaFazio and Don Strom never used to worry about money.

The San Diego couple traveled widely and dined out frequently. Strom, a high-ranking personnel officer for Hewlett-Packard, managed the couple’s money.

“He handled all the finances; I just went to Nordstrom’s or called the travel agent,” LaFazio recalled with a smile.

That was before Strom, now 51, suffered a near-fatal brain aneurysm five years ago that left him permanently disabled and unlikely ever to resume full-time employment.

“I basically cried for the first 2 1/2 years,” LaFazio, now 46, said.

“On the outside, we look like nothing has changed,” she said. “But now, we don’t have any discretionary income. I worry about finances, and my husband has brain damage and is still learning to read and write” again.

The couple, who have no children, are fortunate that Strom has been covered by a long-term disability policy, were insured with a health maintenance organization and that they had already saved a significant amount of money. Without the wise planning and insurance, the illness would have meant a quick, dramatic drop in standard of living and eaten a big hole in their savings.

But that’s not to say that their crisis has been without severe frustrations. LaFazio repeatedly battled their health-care provider when it attempted to cut off Strom’s speech therapy after a mere six weeks and several times thereafter.

Through it all, friends and family have helped out, earning the couple’s enduring gratitude. For example, a former teacher LaFazio met in an art class now tutors Strom in reading and writing two mornings a week at no charge. Strom has improved, so much so that he now volunteers regularly, doing administrative work for the San Diego Brain Injury Foundation.

But Strom has been unable to fully continue his active, hands-on management of the couple’s finances, relying instead on their longtime stockbroker for help because LaFazio is just beginning to learn about investing.

According to Margaret Wertheimer, a fee-only certified financial planner in Mount Shasta, Calif., this money-management predicament partly explains why Strom’s and LaFazio’s thinking about their finances has yet to be fully adapted to their current circumstances.

LaFazio, a marketing coordinator for an architecture firm, would like to be in a position to consider taking an early retirement so she can spend more time working on her painting, which she took up shortly after Strom became ill. But she wonders whether that will even be possible.

Together, Strom and LaFazio, now married 20 years, grossed about $125,000 a year before he became ill. Today, their income--LaFazio’s salary and Strom’s company and government disability benefits--is less than two-thirds of what it was. As for what they have saved, they have several hundred thousand dollars in various investments, Hewlett-Packard stock options worth slightly more than $50,000 that have not been exercised, and more than $100,000 in equity in their San Diego home.

Overall, 65% of their holdings are in individual stocks such as Hewlett-Packard, Boeing, U.S. Bancorp and Cymer; 28% is in bonds; 3.5% is divided among five mutual funds, the largest amounts being in the GT Global Growth and Income and the Smith Barney Concert Social Awareness funds; and 3.5% is in money market funds.

For a comfortable retirement in California, though, most planners would suggest a couple would need close to $1 million in savings, possibly more if they want to prepare for medical expenses as they age. Strom and La Fazio are now far from that goal and are not adding to their nest egg.

Also making an early retirement less likely, Wertheimer said, is the fact that Strom’s disability payments--now close to 40% of their income--will stop when he turns 65.

“I would be wary about leaving the work force,” the planner told LaFazio. “I don’t think your investments can support your current style of living.”

There may be room for a compromise, though, Wertheimer said. It’s a matter of deciding on priorities. LaFazio has made numerous adjustments--from eliminating dry cleaning to seeking a less-expensive tax preparer--but she could reexamine her finances to search for additional ways to save.

“If you decide that the way you live now is the most important thing, you will have to keep on working full time,” the planner explained. “You need to know how much you are spending and on what. Everything you do has a price tag.”

The planner believes that LaFazio needs to take a more active role in the family’s financial life. For example, LaFazio is still unclear about crucial matters such as whether Strom will be eligible to collect a pension from Hewlett-Packard, and she could not state the difference between a mutual fund and individual stocks.

“I’m not a number cruncher,” LaFazio admitted.

Rather than crunch any numbers herself for the couple, Wertheimer urged them to begin immediately working with a fee-only certified financial planner on a regular basis to start the task of drawing up retirement projections, something that will not be simple in this couple’s case.

“You need to draw up a comprehensive plan,” Wertheimer told the couple, adding that relying on a stockbroker may not be adequate.

Although brokerages are increasingly offering a wider range of services, most brokers focus on picking investments, not addressing the whole range of legal and financial concerns vital to investors’ health. Even for people who get such services from a brokerage, experts advise that they at least consult a fee-only planner for an independent opinion.

The planner pointed out that numerous issues have slipped through the cracks since Strom became ill. For example, LaFazio is her husband’s trustee. However, there have been no legal arrangements made in the event LaFazio should become incapacitated and be unable to continue to act in this role.

LaFazio said she’s discussed the matter with family and friends and that she does have some informal arrangements in place. Nonetheless, a lawyer is probably needed to make sure the plans have legal standing.

“If Jane should happen to predecease Don or is incapacitated, she will need to have reliable successor trustees in place,” Wertheimer advised. “Jane must have a durable power-of-attorney agent who can work with Don on financial decisions.”

Wertheimer said another issue a certified financial planner would probably want to address is whether individual stocks are appropriate for people now unable to follow those investments themselves.

Even if their stockbroker has a great track record, they are still taking a greater risk with so much of their money in a small group of individual stocks and so little in mutual funds. Most funds consist of dozens of stocks, spreading the risk.

In addition, LaFazio and Strom lack significant foreign investments, something that has become increasingly important in today’s global economy.

“The more diversified you are, the less risk you are taking with your portfolio,” the planner said.

Wertheimer also recommended that Strom consider exercising his Hewlett-Packard stock options soon. The reason: The planner believes it’s possible that the stock market will take a downturn soon.

“Markets can be real fickle and then fall apart, and given that the market is now high, I would be inclined to have you sell some of these stock options,” Wertheimer said. The stock’s price has gyrated between $50 and $60 a share this year. However, there are tax considerations surrounding these, and that matter is something for a planner to advise them on.

The money should be invested in carefully chosen mutual funds. “This money should grow for you,” the planner said. “Don’t use it for home improvements or a dream vacation.”

Wertheimer also suggested that the couple may want to pay down their mortgage faster by increasing their payments on the principal. Not only would they save on interest, but they also would have their housing costs taken care of that much sooner--placing them in a better financial position when LaFazio does retire.

There are also insurance matters that need to be resolved.

Most important is that LaFazio, as primary breadwinner for the family, begin investigating disability insurance, Wertheimer said. Should she became ill and be unable to work, the couple could find themselves spending down their savings.

None of this is to say that LaFazio and Strom should resign themselves to a penurious lifestyle with no leeway to pursue any leisure activities. If anything, in fact, Wertheimer is concerned that LaFazio is not devoting enough time to her own needs, risking caregiver burnout. “Jane needs to make sure she takes care of herself,” the planner said. Wertheimer added that one solution might be for LaFazio to attempt to earn income from her artwork.

That suggestion pleased LaFazio, who proudly acknowledged that she had done just that last month, participating in a local art show and netting $1,100. Wertheimer believes this could be a chance for LaFazio to realize a way to earn money when she is no longer working full time.

“Five years ago,” the planner told the couple, “your life went through a dramatic change. Your investment and house look the same, but you are both aware that everything is not the same but very different.

“Serious illness represents opportunities. It’s not something anyone seeks, but if it comes, it represents great challenge to what we think life has in store for us. It can embitter us or empower us--it depends on how we process it.”

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Los Angeles-based freelance writer Helaine Olen is a frequent contributor to The Times. She can be reached on the Internet at [email protected]

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This Week’s Make-Over

* Investors: Jane LaFazio and Don Strom

* Ages: 46 and 51

* Occupations: LaFazio is marketing coordinator for an architectural firm; Strom, a former personnel officer for Hewlett-Packard, is now retired on disability.

* Financial goals: LaFazio would like to learn more about investing and perhaps be in a position to retire early.

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Current Portfolio

The couple’s portfolio is worth several hundred thousand dollars.

Sixty-five percent is in individual stocks such as Hewlett-Packard, Boeing, U.S. Bancorp and Cymer; 28% is in bonds; 3.5% is in four Smith Barney mutual funds and in GT Global Growth and Income; 3.5% is in cash in money market funds.

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Recommendations

* The couple should choose a certified financial planner and begin work on a long-term financial plan.

* LaFazio needs to learn more about investing and be more actively involved in the couple’s finances.

* LaFazio, now designated Strom’s trustee, should legally establish reliable successor trustees to replace her in the event she becomes incapacitated. She also needs to purchase disability insurance.

* The couple should consider moving away from individual stocks in favor of a diversified portfolio of mutual funds.

* The couple should consider selling Strom’s Hewlett-Packard stock options and put the proceeds into mutual funds.