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 Tony, age 56, whose employer of almost three decades just offered early retirement. He’s afraid that if he doesn’t take it, they won’t offer it next time. His wife, Maria (age 57) has a consulting practice and would like to see Tony slow down for his health and sanity. They came to us for clarity on their retirement readiness and strategies to move forward.
In our Discovery Meeting, we learned that the couple has two grown children (who appreciate help occasionally) and parents that are currently stable but likely will need assistance. Eventually, they will downsize their home and would love to own a small lake house, if possible. Their only debt is the mortgage with eleven years left. Maria will need a new car soon and hopefully, there’s a daughter’s wedding on the horizon.
Tony has consistently contributed to his 401(k) and is eligible to receive a pension starting as early as age 60. His package is six months of severance pay and health coverage. Maria has some retirement savings from previous employers and the couple has savings and non-retirement investments. They agreed that Tony could find work he enjoys and does not need the stress of a six-figure job. Since he wanted to see an endgame, we started by exploring strategies for taking Social Security.
Tony’s Social Security check will be the largest, so we will defer and let it increase as long as feasible (at least until age 66), so the surviving spouses continues receiving a higher income. We projected Maria taking a reduced benefit immediately upon retirement, as early as age 62. We also recommended securing a small business health plan for Maria’s consulting business, which can be replaced by Medicare and Supplemental Policies after age 65.
Next, we facilitated a conversation with his pension administrator and learned that Tony had the option of taking a “lump-sum” payout in lieu of waiting for the pension. He liked this idea and wanted to invest the proceeds in an IRA to potentially increase the value, have flexibility to use the funds when he likes, and protect any remainder for his heirs. These funds won’t be available without penalty until Tony turns 59 ½, which is fine because employees attaining the age of 55 during or before their last year of employment are eligible to take 401(k) distributions without penalty.
Tony was approached shortly after leaving his company for consulting work of his own, which paired with Maria’s income, met their monthly expenses. They have flexibility to draw moderate 401(k) distributions, if needed for extraordinary expenses. Their goal is to let the retirement plans grow and pair a distribution with savings for the down-payment on their new lake house, which they can rent occasionally to help with the costs.
They are having to control spending for now but are happy, and see a comfortable retirement when they downsize, have only the lake mortgage, and income from the retirement accounts to supplement 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 Karen and Michael. They have two young daughters and recently upsized their home.
Karen and Michael were referred to us after sharing their need for financial expertise. They were renting their first home but wanted to sell and invest the proceeds. Karen has a secure corporate job and Michael is a successful freelance writer. They had significant savings, in part to compensate for Michael’s irregular income. They felt they were behind on retirement and saving for their girls’ educatio
Integras Analysis
We agreed that there was more than enough in savings to cover Michael’s unpredictable income and that they could direct some excess cash and discretionary income to investments. Karen’s employer offers great health and disability benefits but the life insurance is expensive. We compare coverage from almost all major carriers and guide clients through the application and approval process. After reviewing income, expenses and objectives we crafted a comfortable plan to help them reach their goals.
Recommendations
Sell the first house and increase Karen’s retirement contributions
Pay off car loans and contribute to Roth IRAs
Establish a high-yield online savings account with automatic drafts for mortgage, car loans & investments
529 accounts for the girls with initial investments and monthly contributions. In Georgia, the Path2College plan offers state tax deductions on the first $4,000 per child, per year
Set up term life insurance
Results
Karen increased her retirement contributions to the deductible maximum (currently $19,500)
The girls’ 529 accounts are growing tax-deferred and distributions for education (limited to $10,000 annually for private K-12) are tax-free!
Term insurance is the best way to replace anticipated income and if you’re healthy, individual policies are usually significantly cheaper than employer options
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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