Glen & Amber are sandwiched between their elder parents and three children, ages 15-24. Glen has been managing their investments on his own and would like to retire from his corporate job. With family pressures complicating this decision, friends referred them to us for financial advice.
In our Discovery Meeting, we learned that Glen’s parents are in their late seventies and becoming less independent. His sister lives closest to them but increasingly frequent trips are straining her family. Amber’s parents are divorced; her dad and his wife are stable, but her mom is struggling with health and financial issues.
Seeking comfort for Glen’s career decision, we started with the family needs. Through our Generational Conversations program, we provided comprehensive information on care management options. Hiring occasional home caregivers who report to Glen’s sister proved to be a good solution. Amber’s mother moved into independent senior living at a reasonable monthly cost. She is now happier in a social setting and Amber is greatly relieved. The proceeds from selling her mom’s home combined with Social Security will keep mom financially stable for many years.
The couple’s elder daughter, Olivia graduated college with some 529 funds remaining, which we transferred to their middle child. Olivia is now largely independent with a first job, and gets occasional support from her parents.
In addition to increasing 529 contributions for the younger kids, we opened custodial (or UTMA) accounts. These are irrevocable gifts that a parent controls until the children reach their state’s age of majority. Unlike 529’s, they can receive annual gifts of stock and mutual funds and get a preferential tax rate on sales. Glen gifted some appreciated company stock which was promptly sold. The proceeds can immediately cover some extracurricular expenses and later fund college costs ineligible for 529’s like cars, Greek life and entertainment.
With family issues addressed, we narrowed in on the retirement conversation. We explored Social Security strategies. Glen also expects some consulting opportunities. We all agreed to start managing Glen and Amber’s investments right away. Our paradigm of aligning investments to match expected income needs brings comfort around retirement spending, while capturing growth with longer-term dollars.
Generational Conversations also supports adult children and their elder parents to plan for housing, legal strategies and security needs.
Ann was facing her next chapter in life. She was recently widowed and had been considering retirement. She wanted to live near grandchildren and downsize her home.
Almost all of Ann’s assets were in a company retirement plan, advised by the plan’s financial advisor. Because they told the advisor that they “didn’t want to lose money”, Ann’s allocation was 55% short-term bonds and 45% cash. She was eligible for a widow’s Social Security benefit but was reluctant to retire, fearful that she didn’t have enough money.
Ann’s fear stemmed from her thinking that she needed to preserve the capital and live off the interest. Our philosophy is that retirees don’t need to preserve all their capital for their heirs, they just need to not run out of money. Ann actually had enough to retire but it was too conservatively invested to meet all of her spending needs throughout retirement. Our layered risk approach allows clients to feel more peace spending in retirement. This is because we take modest risk with investments for the next several years of spending, then capture market returns with the majority of assets that can now remain invested long enough to go through market cycles. This also allows for greater spending over time to account for inflation.
Ann has since moved into her new home and is spending more time with her grandkids. She has the peace of mind to enjoy life knowing that her investments will continue to provide supplemental income with minimal short-term risks.
If you’re interested in discussing how we might help you, please give us a call at (404) 941-2800, or reach out to us here.
Karen and Michael were feeling stressed about money and were referred to us for guidance. In our initial conversation, we learned that Karen has a corporate job and Michael is a freelancer. They have significant bank savings to compensate for Michael’s irregular income. They feel behind in saving for retirement and their kids’ educations. They are considering selling their first home to invest the proceeds, rather than continue renting it.
Integras Analysis
From a comprehensive review of their finances, we determined there was more than enough savings to offset Michael’s unpredictable income. Instead, they can direct some excess cash and income towards getting their investment goals on track.
Recommendations
· Because they moved out less than 3 years ago, they can sell their rental house tax-free and reinvest the proceeds towards meeting their goals.
· Since their savings are sufficient, Karen can increase contributions to her 401(k) plan which will help build retirement investments. Because they were paying taxes on the money before saving it, she can put even more pre-tax money into her 401(k).
· Establish a Roth IRA for Michael, which will provide tax-free distributions in retirement.
· Establish 529 education savings accounts for the kids and make monthly contributions. 529s are a great opportunity to grow money tax-free for education.
· Pay off high-interest rate car loans.
· Put the remaining home proceeds into our Income and Dividend Growth strategies. Dividends and gains in non-retirement accounts are taxed at lower rates and will complement taxable retirement distributions later.
Karen and Michael now have greater peace spending today, knowing that they are following a plan for funding their future goals!
Meet Paul, age 56, whose employer of almost three decades offered him early retirement. He’s afraid that if he doesn’t take it, the offer will be smaller next time. His wife, Maria (age 57) has a consulting practice, and would like to see Paul slow down for his health and sanity. They came to us for clarity on their retirement readiness and advice on strategies for moving forward.
In our Discovery Meeting, we learned that the couple has two grown children, who appreciate some financial help on occasion. Their parents are financially stable today but likely will need assistance as elder care needs increase. Eventually, they will downsize their home and dream of a small lake house, if possible. Their only debt is their home mortgage with eleven years remaining. Maria will need a new car soon and hopefully there’s a daughter’s wedding on the horizon.
Paul consistently contributed to his 401(k) and is eligible to receive a pension starting as early as age 60. His offer is for six months of severance pay with health coverage. Maria has some retirement savings from previous employers and the couple has accumulated some non-retirement investments and savings. They agreed that Paul could find work he enjoys and does not need the stress that goes with a six-figure income. Since he wants to see an endgame, we started by exploring strategies for taking Social Security.
Paul’s Social Security check will be the largest, which we suggest deferring, while feasible, so the surviving spouse continues receiving a higher income. (Social Security income goes up about 8% for every year delayed and maxes out at age 70.) We recommend Maria taking a reduced benefit immediately upon retirement, as early as age 62. We also suggested a small business health plan for Maria’s consulting business, which can be replaced by Medicare and Supplemental Policies after age 65.
In facilitating a conversation with his pension administrator, we learned that Paul has a “lump-sum” option, to take an immediate payout in lieu of a lifetime pension. He liked this idea and wants to invest the proceeds in an IRA. This can provide multiple benefits: potential increase in value, flexibility to use the funds when he likes, and protects any remainder for his heirs. These funds won’t be available without penalty until Paul turns 59 ½, which is fine because employees attaining the age of 55 before the end of their last year of employment are eligible to take 401(k) distributions without penalty.
Paul did elect to leave his company, and after a few months accepted some consulting work, which paired with Maria’s income to meet their monthly expenses. They have flexibility to draw moderate 401(k) distributions, as needed for extraordinary expenses. Their goal is to let retirement plans grow for now and eventually take a distribution and use some savings for the down-payment on a lake house, which they might even rent occasionally.
Paul and Maria are more careful about spending for now but are happy and see a comfortable retirement when they downsize. We will help them realize that dream when they have only the lake home mortgage, supported by income from the retirement accounts and two social security checks. We also introduced them to Generational Conversations, our initiative to support adult children and parents explore plans for senior housing options, elder care, financial continuity, and legal strategies.
Meet Pete and Sandra. They have seen both sons married, purchased their retirement beach home and want to retire soon.
Pete has enjoyed a successful career and built considerable savings and miscellaneous investments to complement his 401(k). They came to us for help to define a sustainable retirement income and professional investment management.
Pete and Sandy elected to work with us because they found comfort in our process, appreciated our Service Model and after firing a brokerage firm, no longer want to make investment decisions. In our first meeting, we discussed how to balance their desire to reduce investment risk while achieving the portfolio growth required for distributions to keep pace with inflation
Integras Analysis
Our answer to this dilemma is our Time Horizon Investment philosophy. We advocate reserving conservative assets for near-term income, which allows longer-term assets to be increasingly oriented to growth. We know that the longer growth investments can stay invested, it becomes more likely for those assets to achieve desirable returns.
Together, we defined anticipated expenses and explored strategies for maximizing Social Security. This enabled us to determine the supplemental cash flows needed from investments. Next, we explored timely investment ideas, long-term care protection and caring for parents. We set a time to share our analysis of current investments, recommendations going forward and visual models of their projected annual situation. We use both comprehensive planning tools and proprietary models to determine how to allocate each client’s resources to our Investment Strategies, providing an increasing income for the first 15 years and ample time for the remainder to pursue long-term growth.
Recommendations
Since Pete is a few years away from retiring there is no need for immediate distributions
Rebalance their investments and established a new account targeted to provide initial income needs and reduce their overall stock exposure
As retirement approaches, migrate to more stable assets to fulfill their earliest income needs
Results
We were able to address their desire to reduce risk, both by educating them on the need to outpace inflation and insulating long-term growth investments with adequate time
They also found value in addressing potential long-term care needs and our Generational Conversation services to facilitate discussing elder parent’s finances, care management, etc.
Our paradigm intentionally avoids the practice of drawing across all investments for income, which can rapidly deplete savings in a down market cycle. For an insightful look at why this is important, review our piece on Why Systematic Distributions are Destined to Fail
Meet Megan. She’s in her early 30s, single (for now) and fairly stable in her career, although she may change employers.
Like most younger professionals we work with, Megan was unsure how to get started. She had a couple of previous company retirement accounts and a Roth IRA she started years ago. She had accumulated a sizable bank account but was unsure how to invest, especially after seeing her parents experience mixed results.
Integras Analysis
Our conversations determined that she was living within her means, needed a cash “safety net” (for unexpected car repairs or job search) and besides retirement hopes one day to start a family and own a home.
Recommendations
A modest increase to her retirement contributions, to better fund her primary goal, retirement. A 2% increase for someone earning $100K typically lowers bi-weekly take-home by about $50
Set aside a “safety net” savings account for unexpected expenses
Allocate her remaining cash into two strategic accounts. First, a moderate account seeking 4% to 5% returns for goals in the next 3-5 years. Then, a growth account seeking appreciation over the 5-10 years it might be before settling down
Consolidate her former company plans
Results
With her “safety net” in place, Megan started an automatic bank draft of $100/month to her moderate account and is comfortable making the monthly maximum (currently $500) to her Roth IRA. Besides tax-free growth, once you’ve owned a Roth for five years you can withdraw up to $10,000 without penalty towards a first-time home purchase!
We consolidated her former company plans and helped allocate her current employer’s 401(k)
Now, her retirement investments complement each other, and she has a track to meet her primary goal
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