Case Study

hello everyone I'm going to review a

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couple of case studies it's actually the

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same couple at two different phases in

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their life and then show how you can

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model that sort of thing uh easily for

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clients so we have ai and Shireen 55 and

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51 retiring in 12 years uh they have

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some assets so AV has a 401k has a

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403b they have a joint mutual fund

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account and a money market account that

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includes a

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$100,000 uh recent inheritance ai's

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making $145,000 a year Shireen 90 and

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they are saving each of them 12% of

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their salary to those uh retirement

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accounts plus they're putting in 5% of

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their total earnings into that mutual

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fund account for a

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177% uh total savings they're looking

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forward to social sec at ages 67 and 63

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and these are their anticipated benefit

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amounts now it's 10 years later AI is 65

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Shireen is 61 they're now retiring in

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two years instead of

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12 their assets have gone up so Obi

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still got his 401k Shireen has her 403b

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they have that mutual fund account

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they've been saving to these accounts

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right Obi salaries now a little bit

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higher as is

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shireen's and they still have the same

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177%

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savings plan which of course means

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they're saving more than they were

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before because their income has

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grown and social security benefit

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estimates are a little bit different

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than they were 10 years ago but not not

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by a

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lot and here is AI and shireen's plan at

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uh in pre-retirement when they're 12

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years away from retirement this is in a

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software program called income lab which

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is used for retirement income planning

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I'm going to go over how we we entered

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this data and then the kinds of visuals

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that you can show clients so we have

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aian Shireen uh retiring at 67 and

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63 nothing much here um but we've put in

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those four

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accounts um we've just done a kind of a

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6040 stock Bond allocation here for

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income we're estimating using the uh in

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the case of AI because he's retiring at

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full retirement age I just put it in as

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primary Insurance amount um and then for

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Shireen she's retiring earlier so I

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chose to to say hey she's going to get

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1100 on a specified date lots of other

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ways you could do it you could estimate

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it from the their annual income from

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their earnings history from the benefit

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at age 62 and so on and then we've

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chosen um in this case to start Social

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Security at the same date uh January of

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2036 um of course there are other

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options you know Shireen for example

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could start at full retirement age which

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for her is in

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2040

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but we're going with

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this we have their two salaries that are

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Wages that's important for getting the

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taxes

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right and here's their savings plan so a

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couple ways to view this with a client

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this is something called life Hub which

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is a mind map a way of it's kind of an

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enhanced balance sheet um there's ways

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if you wanted for example just to focus

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on a few sections um you could say okay

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we're in 2024 here's our salary here's

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our savings plan see how that changes

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over time because in this case we

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assumed that the salaries will go up

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with

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inflation and we can show Social

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Security starting in

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2036 and some portfolio withdrawals

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starting as well to

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supplement that um that

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income expanding the whole thing we can

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see estimated account balances at that

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time as well which uh shows the effect

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of their savings and of the uh the

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growth of their accounts now they're 12

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years out from retirement but even so

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they may wonder what's an estimate of

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something they might be able to spend in

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12 years they're not going to hold their

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advisor to this right it could be could

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be very different but here's the

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projected balance and their projected

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space spending capacity so that's

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answering the question hey given

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everything we think we'll have all the

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resources which includes their account

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balances but also Social Security um

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what do you think we'll be able to spend

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what's a reasonable uh level of

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spending can see also how they would be

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putting

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together that income so here we have the

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pre-retirement period when they're both

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making some money that's the yellow and

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and purple and then we have all the rest

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of their retirement income coming from

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so security and their accounts so let's

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go to 10 years later now we're 2 years

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away from

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retirement the assumptions in this case

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have us with a lower balance than what's

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projected in the last one so that's

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that's definitely interesting so

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basically at this point they did maybe

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they didn't save as much or they um

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didn't have as good of returns as we

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originally

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assumed and here it is two years later

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we go from of our income coming from

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salaries and we're saving money the next

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year all of our income is coming from

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Social Security and portfolio

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withdrawals uh and we're no longer

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saving money again we're answering that

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question for them how much can I spend

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given my resources and those resources

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are all of those portfolio accounts and

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Social

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Security in this case they only have two

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years of additional salary coming and

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then they're able to spend um total of

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about 11,2 200 per

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month and look at that it's 134,000 a

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year now the fact is there's actually a

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range of things people could spend given

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their resources there's no one number so

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some people will be very conservative or

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they will uh be very frugal and they can

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afford to take less from their accounts

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and in exchange have a a a a wide buffer

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before they would actually have to trim

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their spend and spend less others you

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know they they might want to live a

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little um and so they might want to

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spend more understanding

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that that will raise their risk and give

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them a higher chance that at some point

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in the future they would have to Pi make

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an

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adjustment here we see kind of a middle

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of the road setting so right now they

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have about

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2.57 million uh plus that Social

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Security and they're spending

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111 these guard rails are saying if that

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2. 57 goes up to

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2.93 they'll be able to spend more if it

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goes down to

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1.75 they may want to tap the breaks so

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this is a way to talk with clients about

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what they can spend what could change

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that spending and what those changes

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could look

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like you can also walk them through some

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scenarios to help them understand what

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an actual re retirement could look like

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so for example for them I've taken this

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plan and run it through in this case the

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global financial crisis and asked okay

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if if we actually had retired in

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November of 2007 instead of you know two

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years from now in 2026 and we'd

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experienced the returns and inflation

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from that period on how would things

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have developed would we have hit

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guardrails and in this case sure enough

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if they had they would have actually

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seen some some nice growth between uh

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you know now and two years later when

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they retired and then as we all remember

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between November 07 and February of 09

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they would have seen their account

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balance go down and they would have hit

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that lower guard rail and had a $300 pay

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cut um hit in February of

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09 by March of 2017 8 years later they

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would have popped back up and in this

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case actually popped above their

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original plan and again had another pay

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raise in December of 19

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so this is a great way to talk with Obi

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and Shireen about hey you know we're

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planning to retire two years from now we

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don't know what's going to happen

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between now and then and we certainly

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don't know what's going to happen during

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your retirement but if we were to

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experience something like the global

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financial crisis this is the kind of

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thing that we would have done we would

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have made these kinds of adjustments is

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this the kind of thing that you can uh

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handle is it is that kind of a a

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reasonable set of adjustments for you if

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not then they may want to be more

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conservative or make some other changes

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they may even say hey that's that's

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barely anything we want to be a little

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more aggressive let's spend some more

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that's so that's a great conversation

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that you can have with them so this is

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just an example of how entering some

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pretty basic information about assets

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current income future income in the in

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the case of Social Security uh and so on

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can can be used to present the clients

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with a full picture of their financial

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life including in this case is in this

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case tax assumptions you can certainly

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get more complex you can add things like

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Roth conversions you can do scenario

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planning you know what if we took social

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security at 70 instead of right right in

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2026 what if we retired now what if we

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retired a little bit later all of that

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can be done on the same set of inputs um

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so it definitely doesn't have to be done

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on a yellow pad or in a in a

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spreadsheet the other grade thing is

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some of this is inputs but then

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everything that you see beyond that you

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know we can go all the way out to rmd

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phase here um we see the taxes all of

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that is actually produced by the

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software let's take an example where I

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copy this plan and add Roth

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conversions so I've just taken that plan

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we were looking at that didn't have Roth

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conversions and asked this software how

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should I withdraw money from those

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accounts and should I include Roth

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conversions and in this case it looks

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like they could benefit from Roth

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conversions it can bring their overall

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tax rate down a bit and they would be

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targeting the

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12% bracket so what does that

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mean it means that starting at

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retirement in

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2026 they would be filling up in this

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case it'll be the 15% bracket because

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we'll be after 2026 is uh tax cuts and

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job act sun setting they'd be filling up

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that bracket and that would be an

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$85,000 Roth conversion that year and we

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can also see that back here in what we

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call Life Hub if we go to 2026 when

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those conversions start we have $85,000

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in

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conversions we see where the portfolio

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withdrawals are coming from and that's

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the clarity that a lot of clients want

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to have for exactly how they're going to

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do this thing called retirement how

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exactly are they going to fund it uh

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where's the money going to come from how

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does that change over time uh what what

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funds are moving from one account to

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another and we did that all with those

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basic inputs there's nothing nothing

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additional I've done here but then we

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use software to fill out the picture to

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do analysis to figure out how much they

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can spend to figure out the Roth

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conversions and so on I hope you enjoyed

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this walk through a couple case studies

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and happy planning