Steven and Sarah
Steven and Sarah are a couple in their 50’s with strong family values and a dedication to hard work. Steven has built a career as the VP of a Fortune 500 company and has logged the long hours and workdays to prove it. While he has enjoyed his tenure as a B-Suite Executive, he longs for better work-life balance during his remaining years in the workforce. Sarah works as a part-time speech pathologist, which she’s now able to enjoy more freely as their two sons enter adulthood. With their children grown and working their way through college, Steven and Sarah look towards their next chapter: retirement.
They have both worked hard to accumulate their high net worth. Steven earns $225,000 annually with yearly bonuses amounting between $25,000 and $75,000. Sarah earns roughly $32,500 per year. Through diligence and good decision-making, they’ve built a net worth amounting to a total of $2.5M with $1.5M in investable assets – $500,000 in a taxable account and $1M in a qualified account. Steven is also the successor trustee and partial beneficiary of his mother’s estate (amounting to roughly $750,000 split between taxable accounts and an inherited IRA), and he is now faced with navigating the financial and emotional burdens of his mother’s passing.
As Steven and Sarah approach retirement, they want to ensure that they are well-prepared for this next stage of life. They also worry about their sons, still young adults, inheriting a large sum of assets. It’s important to Steven that he is able to step away from the high stress of corporate America in his remaining years of work without worrying about the need to accrue additional retirement assets. They also need to ensure a family estate plan is in place with provisions that protect both their wealth and their children. Although their goals and financial situation was complex, we at Stewardship Wealth Advisors helped Steven and Sarah navigate these complexities and develop a plan that worked for their lifestyle.
Below are some of the discussion and recommendations we made to help them achieve their goals:
Saving Them Money
- Working closely with the couple’s CPA, we provided an income-tax analysis from the last two years and identified fixed-income securities that were being held in the taxable account, creating a current year “tax-drag”. We repositioned these securities to a qualified account (401k, IRA, Roth), shifting about $500,000 in fixed-income securities to an IRA and saving over $5,000 annually in taxes.
- We identified an opportunity to diversify the inherited portfolio, accomplished by taking advantage of a step-up in basis. This resulted in avoiding capital gains tax.
Updating Current Positions
- We provided an assessment of Steven’s qualified assets, held outside of our firm in an employer-sponsored 401(k), and found that the fixed-income security options that were available were low in quality. We rebalanced by keeping equities in the qualified account, improving the fixed income securities in the managed portfolio, and maintaining a better overall risk tolerance, while preserving the desired aggregate balance of an 80/20 portfolio.
- We provided analysis on existing 529 plans, and found plans were fully invested in Fund of Funds: Moderate Growth. Now that they have left the accumulation phase and entered the distribution phase, we recommended a rebalance. We advised repositioning $20k in each fund in capital preservation, and remaining assets to stay in Moderate Growth. We wanted to make sure that we were protecting capital for the immediate school year’s needs should the market experience a negative event.
Planning for Peace of Mind
- We then updated estate planning documents, verified the beneficiaries on all qualified accounts, and retitled the taxable account into a newly established trust – providing peace of mind that all assets were properly planned for and their family would be cared for, regardless of future outcomes.
- We built work-life balance accommodation into Steven’s retirement model. Retirement analysis was built around the client stepping away from his existing high-hour position at age 60, and into a less strenuous position from 60-67. This model factored in a stronger accumulation until age 60, with no additional accumulation required during final working years in a less stressful position.
- Steven and Sarah were concerned that one of their sons has not demonstrated wise financial management skills and felt uncertain about his ability to manage an inheritance if anything were to happen to them. After introducing a partnered estate planner, we set up a trust that listed their older son as the primary successor trustee, with provisions that their younger son must fulfill certain requirements prior to receiving any large sum; for example, obtaining his degree would allow partial disbursement at age 25, and the remaining disbursement at age 35. Steven and Sarah have demonstrated remarkable intentionality through their financial success, and the provisions in their family estate plan will help to continue to instill those principles in their children.
Our careful review of the couple’s financials and portfolio allocations revealed areas we could improve to better prepare for retirement, while still providing financial support for their children through college. We took a strategic, life-focused approach to Steven and Sarah’s plans, allowing for Steven to step back from a highly stressful career as he phased out of the professional environment. Now Steven and Sarah can rest assured that they are approaching their retirement years with plans in place for confidence, ease, and peace of mind.
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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.
