Everyone, no matter where they are in life, needs a financial plan. Let Oak Street Advisors show you the power of personalized, fee-only financial planning.
Financial Planning can be confusing. Many people are confused by the term because they have been offered a financial plan by an insurance agent as a means of selling them more insurance, or by a stock broker looking to sell them investments. We thought sharing some of the solutions the financial planning process has provided our real-life clients might help you understand the value that true financial planning can provide.
Income Tax Planning
Bill and Anne were in their mid-40s when they first came to us; Bill was retired due to a disability. Bill received $5,500 per month from a disability policy he had purchased through his former employer and $2,200 per month in Social Security disability benefits. Bill had about $140,000 in a 457 retirement plan and Anne had about $65,000 in an old 403(b) plan. Bill and Anne were very disciplined in their spending and savings, putting aside about $2,900 each month to replace the disability insurance payments which would end when Bill reached age 65.
Because Bill's disability income was not taxable and the couple would not need income from his retirement plan until after age 60, we recommended they rollover the retirement plan assets to a Rollover IRA account. Once the assets were in an IRA, we could use the Roth IRA conversion rules to convert around $18,000 each year from the IRAs into Roth IRA's without any state or federal income tax liability. By using this approach we have been able to take money that would have been taxable in the future and convert it to tax-free income in the future-- without paying taxes on it ever!
Although this is an extreme example of using Roth IRA conversions to avoid taxes, there are many other cases where we find such opportunities for the newly retired.
Because Bill's disability income was not taxable and the couple would not need income from his retirement plan until after age 60, we recommended they rollover the retirement plan assets to a Rollover IRA account. Once the assets were in an IRA, we could use the Roth IRA conversion rules to convert around $18,000 each year from the IRAs into Roth IRA's without any state or federal income tax liability. By using this approach we have been able to take money that would have been taxable in the future and convert it to tax-free income in the future-- without paying taxes on it ever!
Although this is an extreme example of using Roth IRA conversions to avoid taxes, there are many other cases where we find such opportunities for the newly retired.
It's Not Always About Your Investments
Hank came to visit because he had a $100,000 CD maturing and the bank was offering him a paltry 0.9% interest rate to renew. Hank thought he needed an investment that could provide him with an extra $300 per month in income.
Hank was retired and could meet most of his needs with the pension and social security benefits his wife and he received, but he relied on this CD and a few other investments for 'extras' each month. When we talked to Hank about his current investments and his budget, we learned Hank was a very conservative investor who would not be comfortable taking a lot of risk. We also learned Hank had a mortgage that cost him $920 each month for principal and interest payments and his mortgage rate was higher than the interest he was receiving from his CD. We also found his mortgage balance was less than $100,000.
Rather than suggesting Hank invest this money, we suggested he simply pay off his mortgage. Not paying $920 each month was equivalent to adding $920 each month in income and he could do so without taking on any additional investment risk.
Hank was retired and could meet most of his needs with the pension and social security benefits his wife and he received, but he relied on this CD and a few other investments for 'extras' each month. When we talked to Hank about his current investments and his budget, we learned Hank was a very conservative investor who would not be comfortable taking a lot of risk. We also learned Hank had a mortgage that cost him $920 each month for principal and interest payments and his mortgage rate was higher than the interest he was receiving from his CD. We also found his mortgage balance was less than $100,000.
Rather than suggesting Hank invest this money, we suggested he simply pay off his mortgage. Not paying $920 each month was equivalent to adding $920 each month in income and he could do so without taking on any additional investment risk.
Maximizing Social Security Benefits
Lisa came to us a a newly retired divorcee. After a 33-year marriage Lisa was on her own and needed help managing her investments and moving from saving for retirement to generating retirement income. Lisa had experience with investments and was comfortable with risk, she just wanted to know how much she could expect to spend during her retirement without running out of money.
Lisa had about $485,000 saved for her retirement and received a teacher pension of about $1,860 per month. Lisa also expected to receive Social Security benefits of $2,380 each month when she reached her normal retirement age. She owned her home free and clear and lived within her means.
As we worked through Lisa's financial plan, she was pleasantly surprised to learn that she would be able to claim Social Security benefits of $1,000 per month based on her ex-husband's work record when she reached her normal retirement age of 66, while deferring benefits based on her own earnings record until age 70. This resulted in Lisa being able to grow her Social Security benefit, through accumulating delayed retirement credits, to $3,000 each month at age 70 while still receiving a benefit to supplement her income at age 66.
Lisa had about $485,000 saved for her retirement and received a teacher pension of about $1,860 per month. Lisa also expected to receive Social Security benefits of $2,380 each month when she reached her normal retirement age. She owned her home free and clear and lived within her means.
As we worked through Lisa's financial plan, she was pleasantly surprised to learn that she would be able to claim Social Security benefits of $1,000 per month based on her ex-husband's work record when she reached her normal retirement age of 66, while deferring benefits based on her own earnings record until age 70. This resulted in Lisa being able to grow her Social Security benefit, through accumulating delayed retirement credits, to $3,000 each month at age 70 while still receiving a benefit to supplement her income at age 66.
Insurance Planning
George came to us because he was nearing 50 and knew he was unprepared for retirement. His wife worked and had a 401(k) plan, but George was self-employed with very little in retirement savings. The bulk of George's retirement funds had somehow ended up in a universal life insurance policy providing a $1,200,000 death benefit; The policy projected to have cash value of $250,000 when he retired at age 65. George was paying $700 each month for this policy and it limited his ability to fund a SEP-IRA for his retirement.
Although Oak Street Advisors does not sell insurance (we are fee-only, and insurance products pay commissions to agents), we were able to work with an outside vendor to find a replacement policy for George and his family that provided the same death benefit and reduced his monthly insurance cost to $135 each month, freeing up $565 each month for retirement savings.
Although Oak Street Advisors does not sell insurance (we are fee-only, and insurance products pay commissions to agents), we were able to work with an outside vendor to find a replacement policy for George and his family that provided the same death benefit and reduced his monthly insurance cost to $135 each month, freeing up $565 each month for retirement savings.
Estate Planning
Larry and Tina have been clients for a very long time. Unfortunately, Larry passed away leaving Tina alone to make financial decisions. As Tina grew older, she became forgetful. Sometimes bills would go unpaid even though there was always enough money in her account to pay them.
We called Tina to discuss these lapses and she admitted that sometimes she was confused and forgetful. Tina also admitted that her nieces and nephews had reached out to her for financial help and she was unable to tell them no. Although Tina had a sister-in-law who served as a durable power of attorney, we could see that more help was needed to protect Tina's interests as she aged.
We scheduled a second meeting with her sister-in-law to discuss these concerns and recommended Tina work with a local estate planning attorney and corporate trust company to provide oversight of her assets, pay her bills, and provide a buffer for relatives who viewed Tina as easy access to extra funds.
Sadly, Tina soon developed Alzheimer's and had to move from her home to an assisted living facility. Ten years later Tina is still being cared for professionally, but the good news is she still has the money to pay for her care and well-being with an estate that should last her the rest of her days.
We called Tina to discuss these lapses and she admitted that sometimes she was confused and forgetful. Tina also admitted that her nieces and nephews had reached out to her for financial help and she was unable to tell them no. Although Tina had a sister-in-law who served as a durable power of attorney, we could see that more help was needed to protect Tina's interests as she aged.
We scheduled a second meeting with her sister-in-law to discuss these concerns and recommended Tina work with a local estate planning attorney and corporate trust company to provide oversight of her assets, pay her bills, and provide a buffer for relatives who viewed Tina as easy access to extra funds.
Sadly, Tina soon developed Alzheimer's and had to move from her home to an assisted living facility. Ten years later Tina is still being cared for professionally, but the good news is she still has the money to pay for her care and well-being with an estate that should last her the rest of her days.
Can You Afford Not to Know?
Maybe your financial solutions will not be as dramatic as some of these examples. Many times we find a need to just tweak someone's 401(k) investment allocations or up their contribution rate for retirement savings. Maybe you need help budgeting or using the right account type to achieve your financial goals. We won't know until we go through the financial planning process what solutions will work best for you, but having worked with hundreds of families, we can safely say there will be something that will improve your financial life. Can you afford not to know?
Call us today at 843.946.9868 to schedule a complimentary meeting and start down your personal road to financial success or use the handy web form below.
Call us today at 843.946.9868 to schedule a complimentary meeting and start down your personal road to financial success or use the handy web form below.