Michael & Jennifer | Gen X ages 58 & 56 | Seeking to Lock in their Vision of the Next 30+ Years

Both Michael and Jennifer are high earners who have worked professionally for 35 years. Michael has a Pension and a 403b Plan. Jennifer has a 401k Plan, Company Stock Options and Deferred Comp. 20% of their retirement savings are in taxable accounts, including bank accounts and taxable brokerage accounts. 70% of their retirement savings are in Traditional Qualified Tax-deferred accounts, 401k and 403b. Only 10% of their retirement savings is in Qualified Tax-free Roth Accounts. Although they are both diligent savers and live well within their means, they came to us for help best answering the following questions:


  • Based on their current savings when is the earliest they could retire with a high probability of success if they live until age 90?
  • What is the most they could spend annually in retirement on living expenses, including travel and entertainment, while still maintaining that high probability of success?
  • How do they most tax-efficiently draw down their retirement savings accounts?
  • Jennifer has a very low cost basis on her company stock options and wants to know how she can reduce the capital gains taxes and concentration risk of a single stock position?
  • Michael wants to know what is the best of five options with regards to claiming his pension?
  • How do they both reduce the income tax burden when withdrawing money from their traditional 403b and 401k plans, especially when Required Minimum Distributions kick in at age 75?
  • When should they start claiming their Social Security benefits?
  • What should they do about health insurance until Medicare kicks in at age 65?

 

Observations & Next Steps

  1. We gather all of their information and plug in all their variables (Savings & Investments, Income, Expenses, etc…) into our planning software, then run a Monte Carlo simulation to solve for their “Earliest Retirement Age” with a high probability of success.
  2. Once we know their “Earliest Retirement Age”, we run another simulation to solve for “Maximum Annual Retirement Spending”.
  3. Once retired, we employ a strategy to convert dollars up to a certain amount each year from tax-deferred accounts to tax-free accounts to help reduce their overall income tax bill in retirement and give them more degrees of freedom down the road once RMD’s kick in at age 75.
  4. We recommend either an Exchange Fund, Direct Indexing SMA and/or a Net Unrealized Appreciation strategy to solve for Jennifer’s unrealized capital gains tax exposure and risk inherent in her concentrated stock position.
  5. We recommend Michael take the lump sum distribution from his pension, make an asset allocation recommendation and provide empirical data to show how the strategy fits into their overall plan.
  6. Because Michael and Jennifer both have their own Social Security record and are relatively close in age, we present a claiming strategy where the lower earner takes their Social Security earlier and the higher earner delays as long as possible. We also provide the empirical data to show how the strategy impacts their overall plan.
  7. Finally, we add in the cost of private insurance prior to age 65 (Medicare) and show how that impacts their overall plan in the short term.


We collaborate with Michael and Jennifer to share our observations and recommendations, and they advise us on the Base Plan Strategy that that they would like to pursue. We set them up with access to their plan through their own secure personal website and on their mobile devices. They can view their plan and net worth summary at any moment in real time. We also establish a 6-month cadence to meet either virtually or in person to review the plan and make any updates or changes.