Financial Planning Case Studies

One of the regular questions we receive is “Who is your typical client?”. This has always been a loaded question as we work with such a wide variety of clients on an advice-only basis.

The best way for us to share with you who we work with is to provide some example case studies of clients.

It is important to note that these case studies are not based on any particular individual and that information contained in them should not in any way be construed as financial advice. Instead, we invite you to use these examples as a way for you to compare whether the financial advice you are looking for is similar to what we typically provide. These cases are a collection of example situations and services that we see and provide every day.

Current State of Finances

Dr. John and Dr. Emily Smith are a married couple, both working as physicians in their mid-30s, earning a combined W-2 and 1099 income of $680,000 annually. Despite their substantial earnings, they are feeling the weight of their financial obligations. Mainly they don’t know what to prioritize and how everything should be organized especially with all of the new accounts they have access to (403(b), 401(k), 401(a), 457, old employer and IRA accounts).

They live in a beautiful four-bedroom house in a high-cost of living area, valued at $800,000, with a remaining mortgage of $700,000 at a 4% interest rate. They’d love to own a vacation home in the next 10 years.

The Smiths have two children, aged 5 and 7, for whom they’ve started a college savings plan, currently holding $40,000. Their goal is to fully fund their children’s education, estimated to be $200,000 each by the time they attend college. Additionally, they have outstanding student loans totaling $300,000 at a 6% interest rate. Emily will likely be eligible for PSLF so this will reduce some of the burden in 4 more years.

Their monthly expenses, including mortgage, loans, utilities, insurance, and living costs, amount to approximately $15,000. Money continues to stack up each month and they’ve managed to save $150,000 in a joint savings account and have $200,000 in retirement funds. However, they lack investments outside of retirement and savings accounts and have no clear strategy for debt management, cash deployment, or retirement planning.

Financial Advisor Insights: What are we thinking about?

Tax Efficiency: What accounts do they have access to and how much should they be contributing? Emily will likely have access to a 457 plan while John could work with his private practice on different investment options. In addition, they need to start saving in a brokerage account which increases complexity around saving, but will offer them more liquid savings and opportunities for tax efficiency through asset location strategies.

Strategy: The Smiths are falling into the trap of cash just being built up in a checking/savings account because it doesn’t have a job. There is no strategy. Cash without a job gets lazy and prefers either not to move or be spent on things that don’t increase financial security. Implementing a strategic financial plan could significantly improve the Smiths’ financial health and future. We need to break down their financial goals from retirement, renovations, and college funds to an easily manageable strategy i.e. “Save $XXX each month in your brokerage account and allocate it to these 4 funds…”

Protection: Money is coming in and net worth is growing. Do they have the right amount of life, disability, and liability insurance? How does their estate plan look? Are they implementing steps to protect their personal data and growing wealth?

Current State of Finances

Mr. Joe Davis is a single entrepreneur in his early 40s, whose tech startup has recently begun to take off. Despite the business’s rapid growth and expansion, managing the inconsistent income has been challenging. On average, he takes a salary from the business of $100,000 along with distributions of ~$350,000 annually, but these distributions fluctuate significantly month-to-month and year-to-year.

He has one child, aged 10, for whom he wishes to save for college, aiming for a fund of $150,000 by the time they reach 18. Currently, he has set aside $30,000 in a college savings plan. Mr. Davis owns a home with a mortgage of $400,000 remaining and has personal savings of $1,700,000 (not including business equity and mostly in cash).

As his business grows, Mr. Davis is also considering potential exit strategies for the future, whether that’s selling the business, finding a partner, or moving to a less stressful role within the company and letting an employee take the reins. Additionally, he’s aware of the need to save for retirement, particularly in tax-deferred accounts, but hasn’t yet established a clear plan and doesn’t have the time to research which accounts would be best and how to allocate them.

Financial Advisor Insights: What are we thinking about?

Flexibility: Joe’s situation requires a flexible but robust financial strategy. We need to smooth out his income fluctuations by working backwards from his financial goals and coming up with a goal monthly income to accomplish his goals. Once that is established then his personal budgeting and saving should become more predictable and we can consider how different exit strategies would affect his plans.

Savings: For college savings, investing in a 529 plan could provide tax advantages and potentially grow his existing savings more efficiently. Regarding retirement, as a business owner, Mr. Davis has several options like SEP IRAs, Solo 401(k)s, and a pension that all offer higher contribution limits and tax benefits. Despite the plan options, he is still in a high risk financial situation so keeping a large chunk of his savings liquid and accessible before 59 1/2 would likely be a focus.

Business Sale: We need to evaluate the value of his business, understand the market, and plan for various scenarios so that Joe knows if any exit strategy really could work or is there a number he needs to hit with a sale for him to be able to reach his financial goals.

Current State of Finances

The Jim and Lisa Thompson, both in their late 60s, have recently retired and are now focusing on managing their significant wealth and enjoying their golden years. They have successfully paid off all their debts and have accumulated a wealth of $6 million, primarily in retirement accounts, stocks, and real estate. They spend about $180,000/year plus $60,000 on travel.

As they navigate retirement, their primary concerns are understanding and optimizing their Social Security benefits, planning for Roth conversions, handling Required Minimum Distributions (RMDs) from their retirement accounts, managing Medicare and healthcare, planning frequent travel, and establishing a legacy for their children and grandchildren. They currently pay substantial annual Asset Under Management (AUM) fees for financial advising but are considering self-managing their accounts to reduce expenses and take a more hands-on approach now that they are no longer working.

Financial Advisor Insights: What are we thinking about?

Income Sources: For the Thompsons, we are facing a ticking RMD time bomb. Their savings is primarily in tax deferred accounts and will be subject to RMDs despite them not nearly the amount of their RMD to live off of, pushing them into an unnecessarily high tax bracket. They may benefit from delaying their Social Security benefits to maximize their monthly payouts and also providing “room” for annual Roth conversions.

Legacy: We need to review their estate plan to make sure our financial recommendations are in line with their legacy goals. Do they have a trust set up? How much could they leave their family without hindering their ability to travel and continue the lifestyle that they enjoy? We could also discuss ways for the Thompsons to see the impact of their wealth on their family now opposed to after they pass, such as establishing annual gifting amounts, helping the grandkids with college, and taking family vacations.

Self Managed Accounts: We need to help increase financial literacy and walk the Thompsons through trades in their investment accounts before transferring over the holdings from their AUM manager. This will save them tens of thousands of dollars each year and allow them more control. We would meet with them to regularly rebalance their portfolio and provide specific trade recommendations for each account so that they can execute their own investment management strategy.

Current State of Finances

Jane and Keith Martin are in their early 60s and find themselves at a financial crossroads as they contemplate retirement. Jane is a Vice President at a Fortune 50 company, with a significant portion of her seven figure compensation coming from bonuses, deferred compensation, and a schedule of Restricted Stock Units (RSUs). The RSUs and deferred comp will vest and require payout in the 3 years following retirement. Keith has been managing their family’s many rental properties, which have been a steady source of income but also a point of uncertainty regarding their future financial strategy.

Their three children are finishing college, and while the Martins are proud to have supported their education, it has been a substantial financial commitment. They have managed to amass a significant nest egg, but with various income streams and asset sales to consider, they’re unsure when they can afford to retire and what their lifestyle would look like when they do.

Financial Advisor Insights: What are we thinking about?

Mixed Compensation: The Martins need a comprehensive financial plan that considers all elements of their complex situation. We need to model and understand the implications of Jane’s deferred compensation and RSUs as this is crucial. We need to forecast the value of these assets over time, considering market conditions, tax implications, and the company’s performance.

Real Estate: A deep dive into the real estate portfolio is necessary. This would include evaluating the current market, the properties’ income-generating potential, the cost basis of the properties, and their role in the Martins’ retirement plan. They might decide to sell some or all properties, continue managing them, or hire a property management company, depending on their retirement timeline and income needs. A big consideration here is whether they want to continue being a property manager.

Retirement spending: Calculating the Martins’ retirement needs will involve a thorough review of their expected living expenses, desired lifestyle, and potential healthcare costs. We would use this information to determine when they can retire comfortably and what their annual spending could look like. Additionally, as their children finish college, establishing a clear boundary between supporting their kids and focusing on their retirement savings is important. This might involve setting expectations with their children about financial independence and helping the Martins understand

Clean up: There is a lot going on here and we need to pull all these pieces together. Our plan would incorporate their assets, projected income throughout retirement, investment allocation plan, asset protection and personal goals to provide a clear picture of when they can retire and how they can manage their finances to enjoy a comfortable and fulfilling retirement.