Chris & Melinda
Chris and Melinda have mastered the art of balancing busy work lives with a busy family life, but they hope not to have to do this forever. With more than 30 years in the pilot seat, Chris has reached a point where he is ready to retire early after a rewarding but demanding career. At 60 years old, Chris is looking to retire within the next two years, before he “terms out” at age 65 – currently earning $330,000 per year. He plans to work until they get their youngest through college. Meanwhile, his wife Melinda sells real estate. She is 57 and typically earns between $10,000–$40,000, depending on family commitments and travel schedules. They have three kids, with one from a prior marriage; two are out of college and one is finishing his last two years. Chris and Melinda have accumulated a nice net worth of $4.3M, with $2.5M in investable assets and $1.2M in rental properties.
Early retirement for Chris requires strategic planning during the final years of his career and preparing for the transition into the new normalcy of life at home. Chris wants to retire knowing his hard work will result in a stable income, new adventures with his wife, and seeing their youngest through college.
Chris, as is the case with many retiring and soon-to-retire pilots, will face the challenge of ‘normalizing’ his schedule. He is excited to wake up in his own bed every morning, but he is also concerned about how he will stay busy with his newfound free time at home and, most importantly, staying in his wife’s good graces. Chris and Melinda want to prioritize maintaining their existing lifestyle in retirement, and they are conscious about how they will handle the transition regarding their new day-to-day. We respect that this transition might be particularly hard for a pilot with three decades of demanding routine to come down from, so we wanted to mitigate as many sources of stress as possible.
Below you will see some of the discussion and recommendations we made to ease the transition process:
Optimizing Retirement Income Sources
- We worked alongside their CPA to develop a 5-year income projection and tax strategy. After a close analysis, we determined that Chris could take Roth conversion up to the top of the 12% bracket during the early years of retirement – specifically while income is low due to absence of W2 income and prior to Social Security kicking in, commencement of IRA distributions, and anticipated increase in tax rates when the SECURE Act goes away. This strategy will optimize Chris’ own retirement savings and ensure the family is well taken care of before Social Security kicks in.
- We applied analytical decisioning tools and implemented capital preservation strategies to adjust the withdrawal rate as needed to ensure income availability for a lifetime with minimal market risk. Chris and Melinda can rest assured that they won’t run out of retirement income early.
Preparing for the Transition
- We recommended they ‘go slow to go fast’ in retirement. This means that we do not make any big decisions in the first 3-6 months, giving Chris time to decompress and adjust to his post-pilot lifestyle. Chris has spent much time thinking about the new hobbies & activities he could explore with this new-found time, so this was something we highly encouraged.
- We worked with Chris and Melinda to deleverage before the transition. With 20k remaining on a vehicle, a 25k boat loan, and 35k on their rental property, we advised that they pay off all debts before entering into retirement. Chris was willing to fly extra hours for premium pay to accomplish this goal. We even challenged them to become completely debt free and pay off their home prior to retirement – and this was a goal they achieved! Now they don’t have to worry about making payments from their retirement income.
- We recommended that Chris and Melinda form an LLC to house rental property operations to shield personal assets from the exposed liability. This helped give them peace of mind that their personal assets would never be at risk.
Knowing that lifestyle adjustments were a main concern for Chris and Melinda, we structured their retirement planning to mitigate any unnecessary adjustments for them. In addition to helping them optimize their retirement income sources through Roth conversion and capital preservation strategies, we also wanted Chris to know that we fully supported his need to adjust to retirement on his own time. We strongly encouraged the extra peace of mind that would come from paying off their remaining debts and housing their rental property operations in an LLC, so that Chris could focus solely on implementing his new routines and starting his new endeavors with Melinda.
If you’re anticipating a tough adjustment to retirement, we’re here for you. We want to help you make good financial decisions that align with your need to transition into this new stage of life, all the while prioritizing peace of mind.
This is a hypothetical case study provided for informational purposes only and is not intended to be a projection of current of future performance or indication or future results. The information provided is not based on actual current or past clients. All situations are unique, and results will differ depending on individual situation. Past performance is not indicative of future results.