Case Studies

Case Study #1: Professors Look Toward Retirement

Let’s imagine that Professor Stephen 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 Stephen 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.

After getting to know Stephen and Margaret and their goals, objectives, and risk tolerances, we would put together a plan of action.

One strategy might be like this: TIAA has some excellent and unique investments, as does Fidelity. We review the Jones’ current holdings, then reallocate the whole portfolio in an integrated fashion, choosing certain funds that utilize TIAA's top-ranked 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 how they are growing (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.

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 $22,000 each from their salaries. They decide to do so, thereby saving roughly 40% in taxes on the combined $44,000 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 decide to put $5,000 each into a 529 college savings plan for each grandchild, allowing them to deduct the combined $10,000 on their Michigan income taxes.

We run a cash flow analysis and are pleased to report that Stephen and Margaret are well prepared for a comfortable retirement. From here, their Retirement Income Solutions advisor continues to manage their overall portfolio and stand 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 purchase long-term care insurance; and help them with all of the various TIAA, Fidelity and IRA withdrawal forms to get the income flowing. We will occasionally interact with their CPA and estate planning attorney to help ensure that all of the couple’s other financial professionals are working together to help the Jones family achieve their goals.

Case Study #2: Helping the Family’s Finances Work Smarter

In this example, let’s consider a fictional client we’ll call the Evans family. Dr. John, 52, is in private practice, and his wife Nancy, 49, is an engineer with Ford. They have two children. Dr. and Mrs. Evans plan to retire in 15 years. They both have 401k plans where they work now, plus 401k plans from prior employers and $50,000 saved for their children's college in three after-tax mutual funds.

After getting to know their goals, objectives, and risk tolerances, we would put together a plan of action. Our strategies would include the following:

Dr. and Mrs. Evans each roll their old 401k accounts into IRAs that we can independently manage, choosing from top-ranked no-load mutual funds available in the marketplace. We manage their current 401k accounts as well. We review all of their current holdings, then reallocate the entire portfolio in an integrated fashion, choosing from the current 401k options. Each account itself may not be completely diversified, but the overall portfolio certainly is. For instance, the investment choices in John's 401k plan contain a few excellent stock funds, but very poor bond fund choices. So we may have his 401k account reallocated so that he is 100% invested in various stock funds, then use his IRA and Nancy's IRA to fill in the gaps in diversification with various types of bond funds and other non-stock alternatives (commodities, etc.) that we select ourselves.

Each quarter we send the family a consolidated statement showing their holdings from all accounts, how they are allocated, and how they are growing (after our fees are deducted) versus an appropriate benchmark. John and Nancy are able to track the growth of their wealth quickly and easily.

With two kids headed to college in the future and a mortgage to pay off, we help them assess the adequacy of their life-insurance coverage. Although we don't sell life insurance, we can analyze current coverage and suggest alternatives. Since interest rates have come down significantly since they first bought their home, we also counsel them to refinance their mortgage.

As for the family’s college savings, it turns out that unfortunately the $50,000 in mutual funds was worth $75,000 when they purchased the funds at a high point in the stock market in 2007. We explain that they could sell the mutual funds to "harvest the loss" of the $25,000, and use those dollars to lower their future tax bills, while placing the proceeds in the Michigan 529 plan. In the 529 plan, $10,000 of each yearly contribution is deductible from Michigan income taxes (saving $430), and the future earnings will be tax-free if used for higher education expenses anywhere in the country.

Managing your

University TIAA
and Fidelity Accounts

Managing your

IRA, Roth IRA, 401k,
Trust and Taxable Accounts