To Live and Plan in L.A.

Rob Bergstein never planned to save a penny for retirement. He didn’t expect to make it that far.

Bergstein, now 40, learned in 1987 that he was HIV-positive. But new drug therapies for the virus that causes AIDS have given him a new lease on life--and a new problem.

“As much as I tried to live with a sense of hope, I never really planned for the future,” Bergstein said. “Now I think there are quite a few of us who have the ‘Oh, no, I’m not going to die! What do I do now?’ syndrome.”

What Bergstein’s going to do now is really plan for the future.

“I don’t want my retirement to be a struggle, and I don’t want to be eating cat food out of a can just to get by,” he said.

Fortunately, he didn’t do what some HIV-positive people have done.

“We have a number of clients who ran up their credit cards to the limit, figuring why should they worry, they wouldn’t be around to take the consequences. Well, now they are,” said Jacques Chambers, a benefits specialist with the community group AIDS Project Los Angeles.

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But Bergstein continued to take it one day at a time, living within his means if not saving for a future he saw as unlikely.

Just as he began suffering from AIDS-related health problems three years ago, protease inhibitors and treatments involving combinations of drugs were revolutionizing the treatment of HIV-positive individuals. He’s never been so ill that he’s had to quit working and depend on disability payments.

“I really scraped by under the wire,” Bergstein said of the new treatments becoming available for his condition. “I don’t have a lot of friends my age. I stopped counting the losses at 200.”

Today, Bergstein’s financial situation is stable. He earns $41,000 a year as a paralegal, and he has about $25,000 equity in his West Hollywood condominium, which is worth an estimated $105,000. Over the last few years, his parents have transferred some of their assets to him and his siblings. These include about $56,000 in Chemical Financial Corp. stock and part ownership of some commercial property in Michigan.

Bergstein has saved about $18,000, now in an individual retirement account, and about $3,000 in his firm’s 401(k) plan, with both those accounts invested in mutual funds. He also has about $4,000 in another mutual fund outside a retirement account. In addition, he holds a private disability insurance policy that would help defray his expenses should he need to leave the work force for a significant period.

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Mark Gleason, a fee-only certified financial planner and chartered financial analyst in Glendale, commended Bergstein for having considered his insurance needs but said his investment strategies need revising.

For instance, money originally intended as emergency savings--the $18,000 in the IRA--Bergstein now considers a retirement investment. He keeps only a few hundred dollars in his checking account and has no pool of readily available cash. For someone with a life-threatening illness, that lack is something that should be dealt with soon.

And there are other needs to consider. For instance, when Bergstein needed a new refrigerator and repairs to his car last summer, he charged both to his credit card, leaving him with a balance that took months to pay off.

“You need to have assets available for unusual events,” Gleason told him.

One of those needs could be medicine, an issue of particular concern to HIV-positive people, or to anyone with a serious or chronic condition. Many insurers won’t pay for drugs or treatments deemed “experimental” or that don’t appear on pre-approved lists.

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In determining the way Bergstein’s non-real-estate assets should be allocated, Gleason proceeded as Bergstein requested, recommending a mutual fund portfolio suitable for a healthy 40-year-old. Cash and bond savings would constitute at least 20% of Bergstein’s portfolio, international equities would account for another 20%, a fund that invests in real estate would take up 10%, and the rest would be in a mix of U.S. large-, mid- and small-cap stocks.

Of course, how long any individual will live can’t be known. However, financial advisors who specialize in planning for those with long-term illnesses argue for special caution, knowing that a client’s chances of needing special care are high.

“I don’t structure the portfolios of my HIV-positive clients like the usual portfolios,” said Margie Mullen, a certified financial planner in Los Angeles and a specialist in planning for HIV-positive individuals. “We have a higher percentage in bonds. These portfolios should resemble those of little old ladies. There are so many unknowns out there: We don’t know if these drugs are going to cause other opportunistic diseases 15 years down the road.”

Today, the financial problems faced by HIV patients are akin to those confronting people with progressive or degenerative diseases such as multiple sclerosis or rheumatoid arthritis, or some types of cancer or heart disease. Having such a condition can bring on conflicting emotions in a more urgent and uncertain variation of the spend-or-save decisions everyone must make.

On the one hand, patients are tempted to spend what they have or even go into debt when they feel good and can enjoy what money will buy. The opportunity to travel and pursue hobbies and entertainment becomes more precious.

On the other hand, for those who are not already poor, a fear of being sick as well as destitute brings a powerful inducement to save, and to be certain those savings will be secure.

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Furthermore, if they can afford sufficient help, even extremely ill people can enjoy a significant degree of mobility. It may be, then, that the extra expense of special aides and equipment would be worth far more to people when they’re ill than the entertainment and travel would be worth to them when they felt good.

And, of course, some patients want to leave an inheritance or at least a life insurance policy to help loved ones who may be sacrificing their own financial futures to help the patient.

As for Bergstein and the here and now, if he decides he wants to make immediate changes to the way his assets are allocated, Gleason said, he could liquidate his Chemical Financial stock and two of his mutual funds, although this course would subject him to a capital gains tax liability and a back-end load on one of the funds. A more conservative strategy would be to have him retain his current holdings as his future savings are applied to new choices. (Bergstein intends to keep the Chemical Financial stock for family reasons.)

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Bergstein recently switched health plans, saving himself about $200 a month. Gleason would like to see him use that money to start creating a true emergency savings fund, with contributions being parked in Vanguard Fixed-Income Securities Short-Term Corporate Portfolio (five-year average annual return: 5.8%) and the newer Vanguard Fixed-Income Securities Intermediate-Term Corporate Portfolio.

Bergstein, on the advice of a broker at one of the large houses, rolled over about $18,000 in a 401(k) from a previous employer into an individual retirement account invested in Putnam New Opportunities Fund (five-year average annual return: 27.3%), a mid-cap growth fund. In addition, he put $4,000 into the newer Putnam Capital Appreciation, also a growth fund.

About 75% of Bergstein’s current 401(k) contributions, which total about $200 a month, are going into the large-cap Alliance Growth Portfolio (five-year average annual return: 22.1%), and the rest into Lazard International Equity Fund (five-year average annual return: 16.9%).

Gleason approved of Bergstein’s 401(k) choices, but he pointed out that, with the exception of the Lazard fund, all of his savings are in U.S. large- and mid-cap equities, meaning a big chunk of his investments are dependent on continued strength in those parts of the economy. Gleason also thought Bergstein might do better to stop contributing to the Putnam funds, which, although they are above-average performers, charge loads.

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The planner recommended investing instead in the large-cap Oakmark Fund (five-year average annual return: 23.8%) and in the newer mid-cap, concentrated Yacktman Focused Fund. To add a small-cap component, Gleason suggested the newer Third Avenue Small Cap Value Fund. Gleason said he admires Donald Yacktman’s savvy and believes the other funds offer prospects of good returns at reasonable risk and lower expenses.

As for Bergstein’s international holdings, Gleason recommended that he start raising those to a maximum of 20% of the portfolio once he has his emergency fund in place. New savings would be divided about equally among BT Investment International Equity Fund (five-year average annual return: 21.7%), Morgan Stanley Emerging Markets (five-year average annual return: 10%) and the newer Scudder Emerging Markets Income Fund.

One caveat: The Morgan Stanley and Scudder funds are known for large capital gains distributions because of unusually active trading of their portfolios. Gleason pointed out, though, that if Bergstein holds these in an IRA, he will not have to pay capital gains taxes.

As a further diversification move, the planner recommended that some of Bergstein’s large-cap money go into Gateway Index Plus Fund (five-year average annual return: 9.6%) to help protect him in a market downturn. The core of this fund’s portfolio is the Standard & Poor’s 100, but, unlike with a true index fund, the manager has the leeway to purchase options and puts to dampen risk. Practically speaking, this means the fund generally won’t rise as high as the S&P; 100 itself, but neither will it fall as far in a downturn.

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And for an investment not tied to the financial markets, Gleason suggested a mutual fund that invests in real estate investment trusts, such as Cohen & Steers Realty Shares (five-year average annual return: 14.8%).

Finally, Gleason touched on the issue of inheritance. Although Bergstein’s parents have turned a portion of their assets over to their children, Bergstein says the family has never discussed in detail what he or his siblings might expect from them in the future. The planner urged raising the issue, in order to determine what Bergstein’s future resources might be, as well as to learn how his inheritance might be structured, given his health needs.

For Bergstein, all this advice presents a lot to consider.

“I think God has plans for me,” Bergstein said. “That’s why I’m still around.”

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Helaine Olen is a regular contributor to The Times. To be considered for a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Situation

* Investor: Rob Bergstein, 40

* Gross annual income from employment: $41,000

* Financial goal: Devise a retirement savings strategy.

* The problem: Bergstein is off to a late start in retirement planning.

* The plan: Begin diversifying investments.

Meet the Planner

Mark Gleason is a fee only certified financila planner and senior financila advisor with Wescap Management Group in Glendale. He has a bachelor’s degree in economics from U.C. San diego and a master of business administration degree from USC.

* This Week’s Make-Over

* Investor: Rob Bergstein, 40

* Occupation: Paralegal

* Gross annual income from employment: About $41,000

* Financial goal: Devise a retirement savings strategy.

Current Portfolio

* Individual stocks: About $56,000 in Chemical Financial Corp.

* Real estate: About $25,000 equity in West Hollywood condominium worth an estimated $105,000; Bergstein also co-owns two commercial buildings in Michigan.

* Retirement accounts: About $18,000 in an IRA invested in Putnam New Opportunities Fund; about $3,000 in a 401(k) invested in Lazard International Equity Fund and Alliance Growth Portfolio

* Other savings: About $4,000 in Putnam Capital Appreciation

Recommendations

* Build an emergency fund, investing the money in bond mutual funds.

* Bergstein should diversify the non-real-estate part of his holdings. Financial planner Mark Gleason suggests that Bergstein increase his international holdings and add small-cap funds and a fund that invests in real estate investment trusts.

Recommended Mutual Fund Purchases

BT Investment International Equity: (800) 730-1313

Cohen & Steers Realty Shares: (800) 437-9912

Gateway Index Plus: (800) 354-6339

Morgan Stanley Emerging Markets: (800) 221-6726

Oakmark: (800) 625-6275

Scudder Emerging Markets Income: (800) 225-2470

Third Avenue Small Cap Value: (800) 443-1021

Vanguard Fixed-Income Securities Short-Term Corporate Portfolio: (800) 662-7447

Vanguard Fixed-Income Securities Intermediate-Term Corporate Portfolio

Yacktman Focused: (800) 525-8258