Case Studies

Meet Jane

Jane, a federal worker who was getting close to retirement, wanted to make sure she was ready. She entered the workforce late and was aggressively saving in an effort to establish a retirement nest egg. In our initial meeting she also informed us that she had over $40,000 in student loans that she was planning to pay off with inheritance that she had recently received. She also told us that she had previously looked into public service loan forgiveness but believed she had missed the opportunity by not applying for her previous work experience at the time. Since she only had a few years remaining before retirement, she did not believe that she would be able to obtain the work history necessary for forgiveness if she started the process now. 

In that first meeting, we told her to hold off on using the inheritance to pay her student loan off until we could do some research. We subsequently helped her enroll in a special waiver program that allowed her to look back in time and we were able to get her entire student loan balance forgiven through the public service loan forgiveness (PSLF) program.

Additional planning efforts with Jane focused on development of her retirement plan. We helped her to refine her budget for pre- and post-retirement, planned for a European vacation with her grandkids to kick off retirement, planned for a relocation in retirement to be near family and have helped arrange for the purchase of a retirement car. We also redirected her savings from a Roth to a traditional retirement account, which has greatly reduced her current tax bill and will take advantage of lower tax rates when she enters retirement.

Her plan is currently being executed and her investments are being managed in a tax-efficient manner to achieve her retirement goals. As with all financial plans, her plan is not static and we continue to reassess plan assumptions and review various scenarios to best position Jane on her journey into and through a prosperous retirement.

Note: Case studies are fictitious and are not the experience of actual clients.  Studies are presented as an example of services that can be expected when working with Personal Prosperity.

Meet Jim and Amanda

Jim and Amanda came to us right when Jim was entering retirement. Amanda was already retired and collecting a state pension. Jim had a varied and successful working life and was collecting pensions from three sources in addition to establishing a sizable nest egg from his project management and engineering career. Jim and Amanda were most concerned about efficient retirement cash flow and management of taxes considering that over 80% of their nest egg was held in traditional retirement accounts that are taxed as ordinary income when withdrawn. Additionally, Jim and Amanda wanted to leave a legacy for their children and wanted the plan to include the cost to relocate in retirement.

In diving into their plan, it became readily apparent that a “tax torpedo” was headed toward Jim and Amanda. The tax torpedo occurs when IRS required retirement account distributions increase over time and push the taxpayer into higher and higher tax brackets. In addition to higher tax rates, the higher income also results in higher taxes imposed on Social Security benefits and higher costs for Medicare. These taxes and additional fees can take a significant bite out of retirement wealth. We assist Jim and Amanda develop a plan of aggressive Roth conversions to move some of the funds out of the traditional retirement plans by paying taxes now to minimize future tax rates. Additionally, and just as important, we developed a tax-efficient asset allocation plan with Jim and Amanda to manage growth and future cash flow from the various accounts, and to add to the legacy to be passed to their surviving family. We also assisted with development of a distribution strategy that can weather market fluctuations and maintain tax efficiency, which is another critical aspect of retirement planning. The financial plan that we developed for Jim and Amanda was projected, over their lifetimes, to more than double their wealth when compared to the path they were currently on.

Another challenge with Jim’s plan involved a retirement plan that held employer stock that had appreciated over time. This kind of stock can receive special tax treatment if proper procedures are followed. On the other hand, sometimes (as was found to be the case with some of Jim’s employer stock) the special tax treatment is not worth payment of current taxes that are required to achieve the tax break. Therefore, we developed a plan with Jim for distribution of the company stock through a couple of different methods. When Jim went to self-implement the plan with his broker, the broker did not follow the plan. We subsequently had to get together with Jim, his broker and accountant to fix the error. Come tax time, we assisted with determining the amount and proper classification of gains associated with the transactions. We also identified that IRS instructions allow for gains on the employer stock to avoid the additional 3.8% tax imposed on investment income.

With a solid retirement plan in place, Jim and Amanda are able to focus on enjoying their retirement so they are able to enjoy their prosperous and happy lives.

Note: Case studies are fictitious and are not the experience of actual clients.  Studies are presented as an example of services that can be expected when working with Personal Prosperity.

Meet Lori

Lori is an engineer looking to join the Financial Independence Retire Early (FIRE) movement in her 50’s. Lori is in her 40’s, has done well with her finances by saving throughout her career and is well-positioned for a standard retirement in her 60’s.

In order to meet Lori’s goal of financial independence in her 50’s, we discussed how she would need to accelerate her savings to build up her nest egg. The challenge for her is to not sacrifice too much of her current lifestyle while meeting the savings goals needed for early retirement. The planning process began by analyzing her current budget and identifying where cuts could be made that would not be too detrimental. Lori identified that travel was very important to her but that she could reduce some of her shopping expenses in order to provide additional funds for savings.

To further improve her plan, we also identified that incorporating a commission-free annuity as a component of her portfolio could reduce risk, improve plan performance and could provide financial independence 2 years earlier than without the annuity. Annuities have become much more attractive recently with rising interest rates and can provide a valuable component of a retirement plan that otherwise relies solely on investment assets. Therefore, we assisted Lori in helping her purchase a commission-free annuity through an insurance broker.

Lori’s savings strategy has been tailored to minimize lifetime tax payments with her savings being distributed amongst taxable investments, IRA/401k accounts and Roth accounts. Another important aspect to meet her FIRE goal is tax-efficient asset allocation amongst her various accounts, where each specific security is located within an account considering the tax characteristics. Tax-efficient allocation and investment management will improve her after-tax portfolio performance and will speed up her journey to financial independence.

Lori is currently on track to retire at 56 and her financial plan is reviewed annually to verify progress and adjusted as needed/desired. When life changes occur (as they always do), her financial plan is also reviewed and sometimes modified in an effort to achieve an earlier retirement date. 

Note: Case studies are fictitious and are not the experience of actual clients.  Studies are presented as an example of services that can be expected when working with Personal Prosperity.