Ages: 50 & 53
Professions: Senior Director of Human Resources & Freelance Web Developer
Primary Goal
To get help after moving to a new city for a promotion at a new company.
Mark and Christopher knew they could leverage Mark’s recent promotion to secure their financial future, but how could they do that? And what about Mark’s old 401(k) and stock options? We’ll examine these questions in this retirement planning case study.
The Issues
The job offer that Mark received was unexpected, but it would be a big promotion at a great company. He and Christopher decided that it was a great opportunity and, before they knew it, they were house shopping in their new city.
Because of the nature of Christopher’s job, he could work from anywhere in the country. He had done well, and their combined income allowed both of them to save for retirement. But Mark’s pay increase at his new job would allow them to save – or spend – much more than they were accustomed to.
Here were the issues:
- Could they afford a bigger lifestyle and still be okay for retirement? The mortgage broker told Mark and Christopher they could afford a bigger mortgage than they expected. But was that true? Would they be able to take that extra vacation every year?
- What did they need to do with Mark’s old 401(k) and restricted stock? Mark still had plenty of savings in his old employer’s retirement plans. How could those best be managed? What about all the taxes?
- When was the earliest they could retire? While Mark and Christopher both loved their jobs, stress was an issue, especially for Mark. He still had something to prove, but wanted to have the option to retire early, if things got to be too stressful.
The Plan
Mark and Christopher realized that they were at a critical point in their financial lives. They wanted help from someone with extensive experience with executive compensation plans as well as retirement planning.
For Mark and Christopher, the financial planning process looked like this:
- Gather the data. This included the details of all their investment accounts, their tax returns and their current lifestyle expenditures.
- Consider all the options. The next step was lay out all of their options. While retirement wasn’t far off, they still had plenty of time to make changes. Could Mark retire early? What about the beach house they’d dreamed about building? Each scenario had different probabilities of success.
- Create a vision. Understanding that, in time, they may change their minds about retirement, they picked a tentative strategy that they could work toward. They then mapped out what they would need to do in order to accomplish that vision.
- Establish new accounts and execute the plan. Finally, it was time for Mark and Christopher to take action and make the changes needed make their vision a reality.
Seeing all of the options side-by-side allowed them to make a confident, informed decision. They knew that their actions today would pay off down the road.
The Results
While they could have easily afforded to buy a bigger house with a bigger mortgage, Mark and Christopher opted to instead buy a less expensive townhome in a lovely neighborhood. They save some of the extra money from Mark’s new job, knowing that this creates an option for early retirement for both of them.
They also take an extra vacation every year. While Christopher still worries about Mark’s high-stress job from time to time, he likes that they both get more time to slow down and enjoy life together.
They were able to create a plan for Mark’s old company 401(k) and restricted stock. As the restrictions went away over a series of years, they diversified out of the old company stock without paying a ton in taxes.
They also increased Christopher’s retirement savings into his SEP IRA. They know what they are doing with their current investments all work together to achieve their vision.
The financial planning process helped Mark and Christopher in many ways:
- Mark and Christopher were able to know exactly how much house they could afford and how much they could increase their lifestyle – all while still tracking toward retirement.
- They created a tax-efficient plan for Mark’s restricted stock from his old company as well as what to do with his old 401(k).
- Finally, they chose to keep early retirement on the table by dialing-in the right amount of savings and investment rather than to simply leave it to chance.
Today, Mark still loves his job, but is on track for early retirement. Christopher, ever steady, has been able to increase his billing rate while taking on fewer projects. Instead of building a second beach home, they are now planning to relocate to the beach when they retire early.
They can both sleep well at night knowing that they have a sustainable retirement plan in place. They regularly review their plan to see if they need to make minor course-corrections along the way.
For privacy reasons, the case study described in this retirement planning case study is hypothetical and the facts do not apply to an actual Prana Wealth client. This case study should in no way be construed as a guarantee that a current or prospective client will experience similar results or levels of satisfaction if he or she engages with Prana Wealth for wealth management services.
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