Blueprints For Retirement Peace Of Mind — A New Case Every Month

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 involves Alice. Alice is age 66; she is a self-employed consultant and wants to know the pros and cons of retiring now versus at age 70. Actually, she is already retired from the County of Sonoma, but has continued to work. Alice has accumulated $42,000 in a 457 plan, has a Roth IRA worth $64,000 and a non-retirement account of $48,000. She is also 50% owner in a commercial building valued at $400,000. Alice’s Social Security benefit at age 66 would be $23,818 per year, or it would be $31,761 at age 70. She has a nice manufactured home in Santa Rosa valued at $80,000 and a condo in Florida valued at $200,000. No mortgages on her properties. She has been practicing good financial management and has no consumer debt. Her one child is a successful lawyer. Alice’s financial objectives are:

1) Retire ASAP with $36,000 of annual retirement income,

2) Increase her assurance that she can in fact retire—without worrying about running out of money,

3) Get her estate documents in order, and

4) Position her assets so that they provide guaranteed lifetime income. She wants to live 9 months out of the year in Florida and 3 months in Santa Rosa.

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 Alice’s pyramid:

1) Having no living trust would cause $15,000 in probate fees when she passes,

2) Having no power of attorney or healthcare directive forms would cause delays in medical attention and/or money, if she was unable to act on her own,

3) There was a flaw in the title to the commercial building of which she was half owner,

4) She was uncertain about her ability to afford retirement,

5) Her investments were underperforming a typical retirement portfolio,

6) She had cancelled her long-term care insurance, and

7) She had$280,000 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 Alice’s financial objectives could be realized.

We suggested a shift of $106,000from growth investments into UPS in order to reduce her stock market anxiety and increase her retirement certainty. We suggested she have the four crucial estate planning documents drafted ASAP! Please note: there is nothing “cookie-cutter” about this plan! It is completely driven by the Clients’ goals–not product-driven in any sense.

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

❶Alice’s $42,000 Retirement Account, previously in the stock market, was moved into a UPS—noted at #5.

❷ The Non-Retirement Account section holds a trust account and a Roth account—the Roth account was moved into a UPS, noted at #6.

❸ The Annual Cash Flow section of the projection shows the flow of money from the Non-Retirement Account and all the other sources of income to meet her $36,000 annual income objective.

❹ In this version of the plan, Alice must start Social Security now in order to retire right away.

❺ Alice’s 457 retirement account of $42,000, once moved into a UPS, will pay her $2,394 guaranteed for the rest of her life.

❻ Alice’s Roth IRA of $64,000, once moved into a UPS, will pay her $4,219 guaranteed for the rest of her life.

❼ The Total Income column summarizes all the various income sources.

❽ Her Budgeted Living Expense objective was $36,000 per year. This projection includes an inflation factor of 2.8% in order to maintain her purchasing power.

❾ The last column on the projection is for “Over or Under” and reflects the annual income she will have over and above her stated objective. Notice that the Non-Retirement Account shows an $83,995 balance even out at Alice’s age 90 life expectancy (Alice’s chosen age projection). This projection shows her living comfortably for the rest of her life. Alice has flexibility, she’s in control and we can continue to help by updating this projection periodically. Also, note that her $280,000 home equity and $200,000 commercial building investment has not been tapped into, but could be—if and when she is ready to do so.

The third illustration shown here is the Implementation Plan developed to help Alice carry out the necessary action items to make this plan and her financial objectives a reality. This particular case includes nine 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: We ran a “Plan B” version of the projection with Alice doing a gradual retirement, cutting back her work until age 70. This had several positive impacts. If she waited until age 70 to begin taking Social Security benefits, her lifetime benefit would increase by $70,265.

We discussed and resolved the problem of the title for the commercial building. We recommended that her Trust investment account be put under our management in our Stable Income Portfolio, as it matches her very conservative investment style. This account gives her a growing source of funds for unexpected needs, in an account she controls and can easily access. The checklist also addresses Alice’s life insurance policy and the need to confirm that the beneficiary designations are correct. The Implementation Plan concludes with a note regarding the $85,265 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 quality of life issues.

When Alice first came in she was nervous and uncertain about her financial future and ability to retire. Going through this planning process reassured her and gave her the ability to make sound financial and retirement decisions today. Alice had her daughter attend the planning meetings with our team, which we very much encourage. Beyond the three pages of the plan shown here, there are many, many pages of supporting documentation which point to the reasoning used in our planning. As there was in this case, sometimes our plans include multiple versions and “what if” scenarios. Once drafted, our team sits down and patiently explains the plan to our client, page by page.

No matter what point of retirement planning you are at, the Montgomery Taylor Wealth Management team in Northern California is here to help you plan a stable, secure retirement.