Client Scenario: Managing Wealth During Retirement
Client Scenario: Managing Wealth During Retirement
Becoming Fully Informed about Your Options
As Bob and Sally were nearing retirement, they sought help from a new advisor to help manage their finances. Bob was an executive at a Fortune 500 company. Over the years, he and Sally had accumulated $4.5 million, most of which was tied up in various company retirement plans. It was Bob’s pension payout that compelled the couple to seek an advisor, as they felt unsure how to manage the sudden influx of liquid wealth. Bob and Sally felt as if they might not have been doing enough in the past to manage their assets, and they were anxious to gain control over their complex situation.
Bob and Sally were eager to explore various wealth management options. In first few meetings with Strategic Wealth Partners (SWP) covered a variety of topics giving SWP the opportunity to discuss Bob and Sally’s goals. Bob and Sally wanted to enjoy retirement by traveling more often, but they also felt it was important to leave each of their two children $1 million in today’s dollars. Finally, they were very concerned about their current investment strategies, as the 2008 financial markets had significantly eroded their investment assets.
Without a spending plan that aligned with their goals, Bob and Sally felt uneasy making significant purchases. In particular, Bob and Sally wanted to know how much they could travel, while still leaving money to their children at their passing.
SWP created a detailed long-term cash flow analysis for Bob and Sally that illustrated various scenario outcomes, hoping to help Bob and Sally to visualize their financial future. Factors considered for these projections included: spending, life expectancy, inflation, portfolio earnings, taxes, health care, gifts, Social Security, mortgage and inheritance. SWP separated Bob and Sally’s travel budget from their regular living expenses.
The team factored into the projections the likelihood that the couple would travel less as they got older. In addition, the cash-flow projections helped to determine when they should take Social Security.
Growth of Assets Throughout Retirement
The chart below shows an illustration of the projected value of Bob and Sally’s portfolio at age 100. The $6 million in assets at the far right is equivalent to about $2 million in today’s dollars (as shown by the black line), consistent with their goal of leaving $1 million to each of their children.
SWP took a closer look at the client’s insurance needs and explained to Bob and Sally determine that since Bob was no longer working, their whole-life insurance policy may no longer be necessary. Further, since it appears that Bob and Sally’s heirs are unlikely to have estate tax liability, life insurance is not needed for that purpose either. Yet Sally, whose father suffered from Alzheimer’s and required nursing home care for more than ten years, was adamant they investigate long-term care solutions. SWP helped sort through the complexities of long-term care insurance, including costs and myriad benefit provisions.
After learning about their options, Bob and Sally chose an insurance strategy. The couple would continue to pay premiums on their whole-life policy for two years until the policy was expected to be paid up. After that, they would plan to take dividends on the policy in cash, which would then be used to pay the annual premiums on their new long-term care policy.
Bob and Sally were worried about their investment portfolio being susceptible to another market decline like they experienced in 2008. The client’s risk profile was determined to be even more cautious than in the past.
SWP constructed several different portfolio options and educated the client on how they were designed with a goal to control volatility. The portfolios incorporated alternative strategies, which, in our opinion, historically have demonstrated the ability to provide reasonable growth, while limiting the likelihood of downside loss. Bob and Sally wanted to be very involved in choosing their investment strategy and they asked many questions. They became more familiar with the various pieces of their portfolio and how they work together. By educating them, SWP aimed to instill confidence that their assets would be better protected and provide well for them in their retirement.
In order to limit the volatility that Bob and Sally had from the stocks in their portfolio, SWP built a portfolio of diversified investments. SWP encouraged Bob and Sally to remain focused on the overall plan and their long-term investment horizon, instead of focusing on the short-term.
In ongoing engagements, SWP still regularly uses their cash-flow projections as a road map when making decisions. And when they aren’t catching the team up on their recent travels, they are discussing other financial issues, such as annual charitable donations, Medicare plans, setting up a scholarship fund, etc.
SWP hopes that Bob and Sally are looking to the future feeling comfortable, secure and free to fully enjoy their retirement years.
Strategic Wealth Partners (“SWP”) is an SEC registered investment advisor with its principal place of business in the State of Illinois. The case study described herein is included for illustrative purposes only and no portion of this writing is to be interpreted as specific investment advice, a testimonial or endorsement of SWP’s advisory services as it is not known whether the client referenced approves of SWP’s services. Investing involves risk, including the potential loss of principal, and investors should be guided accordingly.
Past performance of investments is not indicative of their potential future performance. Reading or utilizing information in this presentation, or contacting or responding to our offices or Registered Investment Advisers does not create an advisory relationship of any kind. An advisory relationship can be established only after the following two events have been completed: (1) our thorough review with you of all the relevant facts pertaining to a potential engagement; and (2) the execution of a Client Advisory Agreement.
Date published: 3/22/2017