Am I invested properly, being proactive in my tax planning, and is my estate plan really in order?
Is it really possible to put your financial house in perfect order?
Retiree Names: Dr. Kevin and Julie Retiree Ages: 67 and 65
Kevin and Julie are a husband and wife duo. Kevin has a specialized medical practice, and his wife, Julie, recently retired as an executive assistant. They have two daughters and a son, who are doing well.
Both Kevin and Julie have accumulated a substantial amount of retirement money. Kevin would like to retire in his mid-70s, as he has a passion for his work and wants to practice as long as he is able to while adding more balance to his life.
Although they have an investment advisor, a CPA, and an estate attorney, Kevin and Julie feel that their overall financial plan needs some work. There is no overarching plan that holds each party involved accountable. This forces them to continually move the ball from one professional to another with limited effectiveness. They want to make better use of their time by doing the things that are more important in life, all while having a more effective overall financial plan.
What’s the next step?
Kevin and Julie's Concerns
They feel that although professionals are working on their behalf, they are still disorganized because multiple parties are handling different aspects of their finances with no communication, coordination, accountability, or master plan. They are concerned that their investments are not correctly allocated, and they may be paying more in income taxes than necessary. They are also worried that their estate plan is not adequately in order.
Some of their key questions and concerns included:
Does our investment strategy make sense and give us the highest probability of fulfilling our goals?
Are we maximizing our income tax opportunities?
Is our estate plan sufficient?
Our Organized Process
Through the planning process and learning more about what was really important to both Kevin and Julie, we were able to have a clear picture of what they wanted their financial house to look like. This allowed for the creation of an overarching financial plan that would tie all the pieces of their financial life together in a much more effective and efficient manner, giving them the confidence and peace of mind that had been absent for so long.
One big takeaway from the planning process was that even though 80% of their plan was in place, the remaining 20% was the most important and impactful. As my uncle would say, "It’s the belt and shoes that make the outfit." The following pieces ended up tying together any loose ends that existed in their prior plan:
- Based on the client’s financial plan, we reallocated their portfolio to leverage dividend-paying stocks for income and growth, while adding diversified bond holdings and inflation-linked securities to deliver income while acting as a hedge against volatility. This brought down the risk of their portfolio while simultaneously increasing their probability of reaching their stated goals.
- We were able to lower the internal expenses of the underlying investments.
- We increased their portfolio diversification.
- We reallocated non-retirement investments to a more tax-efficient strategy.
TAX PLANNING: Through our separate tax practice, David Burgio CPA, LLC, we were able to review their past three years of tax returns along with a draft of their current tax return before it was filed. In doing so, we found some errors relating to the cost basis of stock sold. It turned out that they overreported a capital gain of approximately $60,000. We restructured their non-retirement investments to be much more tax efficient. Through our planning process, we identified future years in which we could do Roth conversions. Although their income didn't qualify for Roth IRA contributions, we educated them on backdoor Roth IRAs, which will help create tax-free income in their retirement years. Additionally, we did some income planning to help them save money on their Medicare premiums.
LEGACY PLANNING: Although they had recently created estate documents, after our Estate Focus™ planning process, we went back to the drawing board to create a new estate plan. Their attorney did a nice job of preparing the original documents based on what our clients directed them to do. However, the problem was that no planning had been done prior to the attorney meeting. By looking at the entire picture, including net worth, asset protection for spouse and kids, legacy goals, and tax planning considerations, we were able to have their attorney redraw the estate documents based on what was truly important to our clients. The result was much more confidence in their overall estate plan.
With the creation of their overarching financial plan, we were able to create a proper estate plan, investment strategy, and an annual tax plan that gave Kevin and Julie the confidence and peace of mind that was missing from their prior planning.
They were also able to regain some precious personal time to focus on things they truly wanted to do.
They felt reassured with our Custom Wealth Inspection™. Of course, we would also meet with them regularly to reflect, review, and discuss their plan. The Custom Wealth Architect™ will provide our clients with dynamic and relevant financial strategies that evolve with their changing needs and goals. We will help ensure that their goals are on track, be proactive in their financial lives, and help them make better financial decisions going forward.
In summary, having an advisor that Dr. Kevin and his wife Julie could lean on to do the necessary coordinating and communicating with all parties involved was ultimately key for them. When clients are put in a position where they have to do the coordination themselves, it takes time away from their ability to express their goals to the planner. This should never be the case, as client goals always dictate the financial plan, and having a clear understanding of those goals is vital to a successful plan.
*This is a case study and is for illustrative purposes only. Actual performance and results will vary. This case study does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted. This case study does not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people or situations is purely coincidental.
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