Let’s imagine that Professor William Jones is 66 and his wife, Professor Margaret Smith, is 62 and they aspire to retire in 3 or 4 years. They both have TIAA accounts through the university, but William opened an SRA with Fidelity many years ago. Margaret has an IRA from her time in private industry, and they have $160,000 in CDs and bank savings accounts.

They periodically speak with representatives from the four different financial companies where they have investments, but do not have a clear picture of how all the pieces should fit together. Additionally, the couple has two young grandchildren and would like to help with their college education expenses.

They also tell us that they want to keep $100,000 as savings and invest the other $60,000. Neither has opened a 457b plan with the university, which would allow them to tax-defer another $30,500 each from their salaries.

They decide to do so, thereby saving significantly on their income taxes on the combined $61,000 they put into the plan. That extra deferral keeps them under the income limits for contributing to a Roth IRA, so they both do that as well. They also put $5,000 into a 529 college savings plan for each grandchild, allowing them to deduct the combined $10,000 on their Michigan income taxes.

Optimizing for the best retirement

One strategy might be like this: TIAA has some compelling and unique investments, as does Fidelity. We review William and Margaret’s holdings, then reallocate the whole portfolio in an integrated fashion, choosing certain funds that utilize TIAA’s attractive options and others that make use of Fidelity’s areas of strength.

In Margaret’s IRA, we choose from thousands of top-ranked, no-load mutual funds available. Once we restructure the couple’s portfolio, we take action as necessary – generally following a more aggressive strategy in the winter months when the stock market is typically stronger, and a less aggressive one in the typically weaker summer months.

Each quarter, we provide the couple with a consolidated statement showing holdings from all of their accounts, how they are allocated, and the overall performance (after our fees are deducted) versus an appropriate benchmark. Professors Jones and Smith are able to track the growth of their wealth quickly and easily.

Analyze

We start by discussing their risk tolerance and reviewing current holdings while researching other available investment options.

Restructure

We reallocate their portfolios in line with our strategy, considering cost, performance, and tax ramifications.

Report

Every quarter, we produce a consolidated statement for William and Margaret so they can easily track their portfolio’s performance.

Setting up for long-term success

We run a cash flow analysis and are pleased to report that William and Margaret are prepared for a comfortable retirement. From here, their Retirement Income Solutions advisor continues to manage their overall portfolio and stands ready to provide advice when they retire on how best to draw from their nest egg in the most tax efficient manner; offer guidance on when to start receiving social security and whether to pursue Roth conversions now that their income is low; and help them with all of the various TIAA, Fidelity and IRA withdrawal forms to get the income flowing.

We will periodically interact with their CPA and estate planning attorney to help ensure that all of the couple’s other financial professionals are working together trying to help this family achieve their goals.

This case study highlights how we coordinate and try to optimize our clients’ entire financial lives. We select the investments available to help ensure that every dollar that is invested is placed in the right vehicle, be it a Roth IRA, workplace retirement plan, or after-tax investment account. Then at retirement, we advise on what we believe to be the best withdrawal strategy from the various accounts to help minimize taxes and maximize the growth of the overall portfolio.
— H. Todd Kephart, CFP®

Important Notes

No investment strategy or investment plan, including a well-diversified portfolio rebalanced periodically, can guarantee a return or that losses will not occur.  Losses can occur from any investment, including those recommended by RIS, and it is likely any assumption used herein will not occur as estimated.   Factors such as size and performance of investment positions and accounts, length of time positions are held, the amount and timing of purchases and sales, client objectives and restrictions, tax issues, interest rates, cyclical securities price trends, news pertaining to investments and markets, changes in client plans and other factors all influence performance and assumptions materially.

Nothing contained in this case study should be construed as offering specific investment advice, legal, accounting and/or tax advice.

 

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