A comprehensive financial plan always begins with a complete understanding of your goals and objectives and an inventory of your assets and liabilities. That was the starting point for each of the case studies described below. Each of these case studies is a composite of similar situations, not a true description of a single person or couple. The names are not real.
Situation: When Can We Retire?
John and Beth, a married couple with no children, were nearing 60 and thinking about retiring in the next couple of years. They wanted to know whether they were in a position to do so. During retirement, they planned to buy a second home and to travel extensively.
Finding Solutions: John and Beth’s resources included John’s government pension, Beth’s 401(k), their bank accounts and other savings, and anticipated Social Security benefits. Their expenses included estimates of annual travel expenditures and an estimated cost for the second home they wanted to purchase. The outcome was a discussion with John and Beth about their possibilities and the trade-offs. They considered several combinations of possibilities. For example, having a second home was a stronger possibility if they delayed retirement. Or if they reduced the annual travel budget, there would be more income to enjoy the home of their dreams. John and Beth decided on their priorities and we implemented a plan to meet their retirement goals. We continue to review the plan periodically and adjust it as necessary when circumstances change.
Situation: My Husband Just Died!
Susan’s husband Ben died suddenly when she was in her forties and their two daughters were still in high school and college. Susan had not worked outside of the home for a number of years. While still grieving the loss of her husband, Susan needed a transition plan. She could no longer rely on Ben’s income to meet the family’s expenses and fund her retirement. Instead, she would need to use insurance proceeds, retirement accounts, and other savings to pay for college and secure her own expenses for the rest of her life.
Finding Solutions: Flexibility was key for Susan while she coped with the loss of her husband. Insurance proceeds were held in a money market account for maximum flexibility during the year following Ben’s death. A portion of the proceeds were temporarily “designated” to meet college expenses. Susan wanted to fully fund college for both daughters. However, that decision needed to be postponed until there was a clearer picture of Susan’s new financial circumstances. Ben’s employer plan allowed Susan to opt for a pension payment or a lump sum withdrawal. After analyzing the risks and benefits, Susan opted for a pension payment. Ben’s IRA assets were split into two accounts: an inherited IRA which Susan could access penalty-free at any time and an IRA that she would treat as her own. As we continued to work together, Susan’s financial plan was adjusted to take into account her changing situation when she began working part time and downsized her home. Our work together gave Susan the information to weigh her options and the comfort of being able to make informed decisions about her future.
Situation: Time for a New Career
Bob had just met the age and years-of-service requirements to retire from his public service career. Nearing age 50, he planned to “retire” from that position and secure other employment in a different field. When we met, Bob and his wife Janet wondered how best to use their savings during the period between jobs, and whether to take a pension payment or lump sum distribution of Bob’s employer retirement plan account.
Finding Solutions: We looked at several scenarios for using savings while Bob was between jobs (i.e., Bob goes back to work within 3 months, or 6 months, or 12 months, etc.) and the effect that would have on their financial situation in the long-term. This information allowed Bob and Janet to arrive at a target date for Bob to begin working again. It also allowed them to know what the likely consequences would be if it took longer to find a job. With regard to the decision about receiving a pension or taking a lump-sum payout, I provided Bob and Janet with possible options. We evaluated various options for taking a pension (Bob’s lifetime only as well as various scenarios based upon Bob’s and Janet’s joint lifetimes). We evaluated investing a lump-sum distribution then drawing on it for their lifetimes. We also discussed Bob’s and Janet’s risk tolerance and their behavioral attributes that may affect the success of one or more of the options. Bob and Janet selected the option that took into consideration not just the dollars and cents, but also their personalities and their comfort with risk.
Disclosure:
Vibrant Life Financial Planning, LLC, is a registered investment adviser located in Illinois. Vibrant Life Financial Planning, LLC, may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Case studies presented are based on actual clients, however, some of the information has been changed. These studies are provided for educational purposes only. Similar, or even positive results, cannot be guaranteed. Each client has their own unique set of circumstances so products and strategies may not be suitable for all people. Please consult with a qualified professional before implementing any strategy discussed herein.