Case Study… Need to Retire, But Feeling Nervous. Help!!

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A secure retirement doesn’t just happen – it’s the product of careful planning, strategic decisions and a disciplined approach.

Here’s The Story…This month’s case study involvesCarl and Heidi. Carl is age 63; he is a Physician and needs to retire soon for health reasons. He is currently working part-time and collecting disability income, which will continue until age 65. Heidi is age 62 and currently unemployed outside of the home. She may or may not want to go back to work. Carl was employed with Kaiser for many years but left them and rolled over his $631,000 retirement fund to an IRA. Heidi has accumulated $293,000 in retirement accounts. Neither Carl nor Heidi has a company pension available at this point. Carl’s Social Security benefit at age 66 would be $26,892 per year, and Heidi’s benefit at age 66 would be $23,364 per year. They have a nice home valued at $540,000, and 29 years remaining on a $249,000 mortgage at 4 1/8%. They have been practicing good financial management and have no consumer debt. They have two children who are self-supporting.

Carl and Heidi’s financial objectives are:

  • retire ASAPwith $72,000 of annual retirement income,
  • increase their assurance that they can, in fact, retire—without worrying about running out of money,
  • get their estate documents in order,
  • position their assets so that some of it keeps pace with the stock market and some of it provides guaranteed lifetime income, and fill as many gaps in their financial pyramid as possible.
  • position their assets so that some of it keeps pace with the stock market and some of it provides guaranteed lifetime income, and fill as many gaps in their financial pyramid as possible.

The first step of our team’s Wealth Integration Review is to map the Client’s financial resources into the various blocks of our Peace of Mind Retirement planning pyramid as shown below. Here is what we discovered in examining their pyramid:

Peace of Mind Retirement planning pyramid

  • too much of their wealth was concentrated in the “Growth Investments” peak of the pyramid,
  • they had no “Uninterrupted Pension System” (UPS) to provide guaranteed lifetime income, causing them to worry since they were anxious about the stock market and wanted more certainty,
  • their investments were underperforming a typical retirement portfolio by 3% per year,
  • they would lose out on $51,245 in Social Security benefits if they just claimed at retirement age without “optimizing,”
  • Carl had long-term care insurance, but Heidi had none, and
  • they have$127,000 in cash and $291,000 in home equity earning zero percent rate of return. With some repositioning of assets and creation of a new “Recommended” pyramid, our team could see how their financial objectives could be realized. We suggested a shift of $388,375from stock market investments into UPS in order to reduce their stock market anxiety and increase their retirement certainty. We suggested they deposit $75,000 of their cash into an asset-based long-term care policy for Heidi. Please note: there is nothing “cookie-cutter” about this plan! It is completely driven by the Clients’ goals–not product-driven in any sense.

Retirement Cash Flow Calculation

To illustrate how this Plan works we run Retirement Cash Flow Calculation projections—as shown.

  1. Carl’s Retirement Accounts in the stock market were reduced by $183,967 and this money was moved into a UPS—noted at #7. Heidi made a similar move with $204,408. The remaining $535,625 was reallocated to a more tactical investment strategy which has an exit plan (in case of a major market crash) and a dynamic style which adjusts with the ups and downs of the economy.
  2. The Non-Retirement Account section holds cash and a few stocks—this is the source for the $75,000 to fund LTC for Heidi.
  3. The Annual Cash Flow section of the projection shows the flow of money from the Retirement Account and all the other sources of income to meet their $72,000 annual income objective.
  4. Carl’s earned income is projected as zero (so he can retire right away), and we assume Heidi retires as well.
  5. Carl receives disability income until age 65.
  6. To optimize their lifetime Social Security benefits, we provided a claiming strategy which increased their benefits by $51,245, and these details are built into the cash flow projection.
  7. The Uninterrupted Pension System (UPS) is funded and then allowed to mature for 3 years, while Carl is collecting disability pay. In three years the UPS, for both Carl & Heidi, begins paying out monthly income distributions—which will continue for the rest of Carl and Heidi’s lifetimes, guaranteed by an insurance company. We are projecting that Carl’s UPS will pay out $12,000 per year. However, due to his poor health, we are having this plan medically underwritten, which will provide a higher lifetime payout due to his shortened life expectancy.
  8. The Total Income column summarizes all the various income sources.
  9. TheirBudgeted Living Expense objective was $72,000 per year. This projection includes an inflation factor of 2.8% in order to maintain their purchasing power. The last column on the projection is for “Over or Under” and reflects the annual income they will have over and beyond their stated objective. It is nice to see these large positive numbers. Also notice that the Retirement Account shows a $775,015 balance even out at Heidi’s age 87 life expectancy (Heidi’s chosen age projection). Carl used a life expectancy age of 82 due to his health. This projection shows them living quite comfortably for the rest of their lives. Carl and Heidi have flexibility, they’re in control and we can continue to help by updating this projection periodically.

The third illustration shown here is the Implementation Plan developed to help Carl and Heidicarry out the necessary Implementation Plan action items to make this plan and their financial objectives a reality. This particular case includes twelve action items all spelled out, with potential savings noted and a place to check items off as they are completed. In addition to the items already discussed above, the following issues are also addressed by the Plan: $75,000 was deposited into a LTC plan which provides $382,032 in LTC benefits or, if LTC is never used, pays out a death benefit to their children of $127,344 (they could also get their $75,000 refunded at any time!). This is a great use of bank CD money earning next-to-nothing in interest. The checklist also addresses Heidi’s life insurance policy and what to do with it. A note about the problem of naming multiple Successor Trustees to their family trust is also included. The Implementation Plan concludes with a note regarding the $358,277 of savings provided by this planning, and further notes that most of the action items have no monetary savings which can be calculated but could relate to the quality of life issues.

When Carl and Heidi first came in, they were nervous and uncertain about their financial future. Going through this planning process reassured them and gave them the ability to make sound financial and retirement decisions today. Note: any terms used herein which are unfamiliar to you are explained in Monty’s book “Before It’s Too Late,” available for purchase in our office or through .