Bob & Suzie’s Story
Bob is 63 and about to retire as a mid-level manager from a local corporation. Suzie is 60 and plans to work for three more years as a local public school teacher. Bob has a good size 401(k) at work, two IRA’s and a small pension from a previous employer. Suzie will receive full state employee pension benefits according to her years of service and has accumulated money in the state DROP program. The couple also has several cash savings accounts and CD’s. In years past they have worked with an insurance agent and a stock broker but no coordination between the two has ever taken place. For the most part their financial plan has been self managed. They are concerned about their ability to navigate retirement now that Bob’s employment is coming to an end. They have two children and three grandchildren all of whom live out of state.
The Hitchcock Maddox Financial Partners’ discovery process uncovered several interesting things. Bob and Suzy have always had a desire to do mission work with their church. Work schedules had always prohibited anything more than a weekend outreach. We also learned that one of their grandchildren was born with cerebral palsy. They are currently caring for Bob’s mother who is in a full time nursing facility which is very costly. Their home is paid for and they have very little other debt but are concerned about their ability to maintain their lifestyle as Bob has earned over $100,000 for several years. Bob and Suzie would like to retire responsibly, visit children several times a year and pursue mission work. They also would like to provide for their disabled granddaughter through their estate plan.
- Using our Discovery Process profiler we conducted a comprehensive review of all portfolio assets, liabilities, estate documents and insurance coverage. As a result we crafted a goals based financial plan that took into account their desire to maintain lifestyle, increase mission work and visit family.
- Bob and Suzie’s need for income mandated an investment approach focused on stability and sustainability. As a result we took two actions:
- Combined Bob’s IRA’s and lump sum pension and created a personal pension plan through insurance company products that distribute income.
- Converted Bob’s 401(k) into a segmented distribution portfolio and established a monthly direct deposit into the family checking account.
- Suzie’s DROP money will eventually be rolled into an IRA and used to supplement income once she has retired
- Cash/CD’s were maintained at current levels as part of their total portfolio
- We reviewed Bob and Suzie’s estate documents to determine if they were sufficient in meeting their goals of reducing taxes and providing for their disabled granddaughter. As best we could tell they did not. They also did not have Health Care Directives (i.e. Living Will). We coordinated with a trusted local attorney to draft new estate documents which included a trust for their granddaughter.
- Bob’s mother had personal savings and a pension that she continued to receive after her husband’s passing. However, after a number of years in full-time nursing care all personal savings had been exhausted. This was discouraging to the entire family. As a result we recommended Long Term Care insurance to protect the assets they would prefer passing to their children and grandchildren.
- Provided secure electronic, back-up storage of estate documents, insurance policies, passports, etc. Now Bob and Suzie have access to important documents when they are traveling and not able to access their safety deposit box.
- Established a quarterly portfolio review and annual Family Financial Review. These reviews created a healthy, on-going dialogue about Bob and Suzie’s financial plan, opportunity to adapt their plan as needed and address any new events that inevitably arise.
By conducting an overall income analysis we were able to combine Social Security, Pension Income and Investment Income to produce nearly 20% more income than Bob & Suzie needed to maintain their lifestyle. This allowed us to re-invest a portion of the income that was produced from investments. That means we increase the likelihood that Bob & Suzie’s portfolio will grow over time. We also addressed their goal of providing for their granddaughter through the establishment of a trust and their desire to avoid the significant “spend-down” (and subsequent loss of inheritance) experienced by Bob’s mom. Finally, Bob and Suzie feel more confident in their financial plan for retirement and the direction they are heading.
*Our case studies are based on a combination of actual and hypothetical client circumstances and are provided for reference purposes only. Each client interaction and outcome is unique. The names used are fictional.