Business Owners Approaching Retirement
Situation:
Richard and Nicole own a business, are in their early sixties, and considering retirement. They are self-directed investors who always max out their retirement accounts and are currently selecting their own investment options. Despite selecting their investments, they never put much time into evaluating their portfolio and analyzing underlying funds and returns. Heading into retirement, growth is a priority, but don’t want excessive risk or to experience a substantial downturn. With so many decisions coming down the pike, they are ready to get an outside opinion on their financial planning and investment management needs.
Concerns:
Can they retire?
How much can they spend in retirement?
Cash flow: Which accounts to pull from to minimize taxes and maximize returns (IRAs or Taxable Accounts)? When to file for social security benefits?
How can they minimize taxes?
Do they need long-term care insurance, or can they self-insure?
Solution:
Our team ran several timeline scenarios i.e., retire in one year versus two and reviewed the difference in their projected monthly income.
Analyzed benefits of a Roth IRA conversion in their mid-sixties when retired. We ran an analysis comparing withdrawing money on a pro-rata basis (equally from taxable, tax-deferred, tax-free accounts) with no Roth IRA conversion vs executing a Roth IRA conversion up to the 24% tax bracket. The report displays a $400,000 lifetime tax savings if Richard converts his IRA into a Roth IRA over several years.
Social Security Benefit Analysis: Recommended Richard delaying until 70 and Nicole filing at full age. Nicole has longevity in her family, and Richard’s benefits are higher. By delaying, Richard is ensuring Nicole will receive the maximum amount of spousal benefits if he predeceases her.
Coordinated a meeting with a Long-Term Care Specialist to discuss pros and cons of procuring a Long-Term Care insurance policy.
Investments: Stress tested a proposed portfolio in bear markets which displays downturns they would experience when markets do not cooperate. This exercise provides comfort knowing a likely range of returns rather than solely focusing on an average return. Richard and Nicole consolidated their accounts for professional management. Snyder Asset Management transitioned their portfolio primarily composed of exchange traded funds and added Alternative Investments which historically offer more consistent returns and additional diversification. The portfolio will be re-balanced quarterly. Helped Richard and Nicole connect all accounts to a central portal so they are organized, which helps Snyder Asset Management maintain a holistic view of their finances and easily track their progress.
Outcome:
Richard and Nicole decided to work two more years rather than one. Comparing scenarios allowed them to view the additional income they can anticipate receiving by delaying retirement an extra year, which can be used for additional vacations. Running several scenarios made it clear they can self-insure in the event they need extended in-home medical care. They now have a plan heading into retirement, know what they can spend, and how to strategically minimize taxes. They feel confident their investments are being monitored, re-balanced, and properly diversified.
Retired Couple Working With a Financial Advisor
Situation:
Tom and Katie retired last year and currently work with a commission-based financial advisor. As they learn more about their retirement funds, they realize their advisor regularly places them in mutual funds and annuities which have higher internal expenses. Their advisor placed them in over 100 funds, which are difficult to track. Additionally, they are taking large distributions from their portfolio and don’t feel like they have a sound distribution strategy. They rarely hear from their advisor and when they do meet, they don’t receive value and leave the meetings feeling like it’s a waste of time. Tom and Katie do not feel like their Advisor understands their situation, and a sound investment management and financial planning strategy is not articulated. They are unsure if their advisor is acting in their best interest.
Concerns:
How often should they hear from my advisor and when they do what value should they expect?
Do they need to adjust their expenses?
What is their monthly spending limit if they want to leave a $1,000,000 inheritance to their daughter?
Solutions:
Our Service model ensures Tom and Katie receive value quarterly. Examples are a portfolio analysis review, making sure beneficiaries are accurate across all accounts, income projections or simply educating on tax law changes and how this impacts them. We meet in-person semi-annually, but communicate regularly through phone calls, e-mails, snail mail, or video.
Our team evaluated annuities which had excessive fees, liquidated them, and simplified portfolio into 1-2 dozen funds instead of 100+.
For retirees, we utilize a Guardrails approach pertaining to recommending monthly expenses and portfolio distributions. Based on their situation, we told them exactly how much they can spend per month if the portfolio stays between the lower and upper guardrail. If the portfolio declines below the lower guardrail, a minor spending adjustment is recommended. This type of planning ensures the clients will not outlive their assets, as long as they are willing to follow our guidance and adjust their spending.
Outcome:
Tom and Katie feel more assured working with a fee only Registered Investment Advisor who is a fiduciary, and not a commissioned salesperson. They know we have nothing to sell them, and our interests are aligned.
Our service model is designed to stay in regular contact and educate Tom and Katie throughout the duration of our relationship. Tom has access to financial planning software which allows him access to various reports such as Net Worth or Asset Allocation statements. Nailing down their monthly income utilizing a guardrails approach has given them confidence of having a plan. They know exactly how much they can spend as long as their portfolio remains between guardrails, and the exact deduction they will have to make if their portfolio breaks through the lower guardrail. They can now focus on spending time with friends and travelling in retirement.
Widow
Situation:
Jane and Paul have been retired for 15 years and Paul handles the investments. Jane never participated in the decision-making process. Paul recently passed away. Jane wants to spend time gardening and with Grandchildren, not focused on investing and financial planning needs. She has an old 401k and various accounts titled in both their names. Jane has I-bonds in certificate form and cash spread out across a dozen bank accounts. She gives money to charities from her checking account.
Jane is a conservative investor whose primary goal is capital preservation and income. However, she wants to leave a large legacy for her heirs.
Concerns:
How much can she give to charity?
Should she give gifts to her children?
What is the best investment allocation now that her situation has changed?
Does she need her Estate Plan evaluated?
How much cash should Jane have and at which bank accounts?
Solutions:
Helped Jane consolidate and re-title accounts.
Minimize taxes: Instead of using cash to fund charitable gifts, Jane now sends money directly from her IRA to her church. This Qualified Charitable Distribution is not taxed which lowers her tax liability.
Transferred her I-bonds from paper to electronic format at Treasury Direct which is more secure and consolidated bank accounts from 12 institutions to 3. Connected all accounts to our central portal which makes it easy to track.
Discussed the Pros/Cons of excess cash. We typically recommend 6-12 months of expenses in cash reserves, but Jane preferred 3 years of living expenses in cash and cd’s. We helped her source banks which offer highest rates.
Riskalyze: Answer a risk tolerance questionnaire which scored Jane’s risk on a scale between 1-100. Jane scored a 40, which is in line with conservative portfolio (40% stocks). We proposed a portfolio and stress tested this model which allowed her to view a range of returns. She settled on a slightly higher risk model to target growth for future generations.
Estate plan- Introduced and coordinated a meeting with an estate planning attorney who reviewed documents and updated her Trust.
Ran Monte Carlo simulations to show Jane a wide range of projected returns in addition to a Guardrail analysis.
Outcome:
After reviewing the Monte Carlo simulations and Guardrails report, Jane can clearly increase her expenditures. She decides to increase gifts to children/grandchildren and spend time doing what she loves in retirement. Jane’s mind is at ease knowing accounts are consolidated and her net worth statement can be generated from a secure portal. She requested that her daughter be more involved in the process, and we added her as a “trusted contact” to her accounts.
We meet with Jane 2-3 times annually to update her plan and keep her abreast on the markets and tax law changes that impact her.