A Big Picture for Perspective

Hypothetical Case Study:

Jon (65) and Maria (67) with two grown children and one grandchild.

 

Initial Objective

Jon was an executive at a company and Maria was employed by a school district. They are both now retired. They were receiving traditional investment advice and were interested in ensuring all components of their financial life were working harmoniously.

 

The Challenge

Their current financial advisor offered traditional investment advice which focused on just the investments they were managing (and being paid on). This accounted for approximately 20% of Maria and Jon’s net worth. The advisor did not ask big picture financial questions to discover other areas in Maria and Jon’s financial life that were not working well together.

 

The Conversation

Jon and Maria have had a few financial advisors over the years. Every advisor only spoke to them about the investment they were managing. Jon and Maria are conservative, have been disciplined savers their entire life and have strong overall financial positioning. Although they could afford more, they are conscientious spenders and always looking for good deals, sales, and they traveled on the cheap during their working years. They astutely understood the importance of an all-encompassing plan that offered them financial flexibility. Upon a thorough review of their financial house, we addressed a number of areas that needed attention.

 

The Discovery

• A review of their monthly cash flow was in order and Jon began tracking their monthly spending. Not with the intention of nitpicking every expense. This was simply an exercise in awareness. He discovered multiple areas they were spending their money, which didn’t match up with their values.
• They had rental property in a different state which had a mortgage. Utilizing their healthy cash reserves, they decided to pay the mortgage off. Doing so saved them thousands of dollars of interest had the loan been paid on its original schedule.
  • They also decided to create an LLC for their rental properties. This will serve to provide additional asset protection.
• Their estate plan hadn’t been reviewed in years. It was discovered that their original documents had never actually been filed. They also realized that the titling of their assets was not matching the requirements of their estate plan. Not fixing these could result in their well-crafted estate plan being all for none. They updated the documents to reflect their current situation and retitled their assets to match their plan. Phew!
• Through analyzing their investments, it was revealed they were taking on more risk than was comfortable. Through our deep discussions, we created a well-diversified*, risk-appropriate portfolio more in line with their values.
• A brief discussion on the topic of protection spurred a review of their home and auto insurance programs. They also discovered an umbrella policy was desired. This umbrella policy provided them with an extra layer of liability protection.
• Jon and Maria might also consider the following:
  • Reduce investment costs where possible
  • Discuss a comfortable cash reserve and consider getting the excess working for them, conservatively.
  • Consider social security timing strategies
  • Review current giving strategy
  • Look into contributing to grandchild’s existing 529 plan
  • Review asset location of investments  understanding if the desired assets held in desirable IRS account types

 

*Diversification and asset allocation do not guarantee a profit or protect against a loss.