Financial Plan

Selling A Partnership Share: Need Financial Plan

by Angela Melfi | Apr 8, 2021

Selling your partnership share : need financial plan

How one young entrepreneurial couple used the power of financial planning

Drew and Becky* have been married for the past five years. Drew is 32 years old and currently works for an engineering firm as one of their top software engineers. Becky is a jewelry designer and aspiring entrepreneur. Drew has also retained a business interest in a partnership compensation structure at his company for eight years. After recently selling his partnership share, he realized he needed a financial plan to understand how to best use the proceeds from the sale.

I’ve always been focused on work and haven’t had a chance to think about our finances. So, I needed a financial advisor to help me decide how to best use our funds. My wife and I are planning to buy a home and have children soon, and we wanted a financial plan to begin with a solid foundation.

Drew Lightner

Software engineer, business partner

Planning for a family after selling the partnership shares

Even after selling his partnership shares, Drew currently nets around $250,000 a year from his salary and receives other income from his partnership interest. Becky has turned her hobby of jewelry making into a business that nets a modest income. She is very talented at creating her custom line of jewelry and wants to call it “Becky’s Brand”. She sells the jewelry from her online website. She currently earns around $15,000 a year and has aspirations to get a formal office space and officially launch her business.

Drew received a large payout from selling his partnership shares. When it comes to finances, the Lightners are excellent savers and have no debt, but need education and guidance on how to best invest their money. Drew’s priority is to use the payout to buy a property of land and use it to construct their home and begin a family. However, he also plans to use some of these funds to help Becky expand her business, “Becky’s Brand.” Lastly, the couple wanted to allocate the funds that would bring the family the most security and peace of mind while maintaining a certain rate of return.

Focus on life after selling the partnership shares

Drew and Becky were looking to confirm that they could afford the home of their dreams and support a family with their current financial situation. Their main question was if they should purchase the new home outright or assume mortgage debt in buying their home.

Because the couple is still in their 30’s, it was vital for them to focus on their immediate concerns rather than draw up a lengthy plan that mapped out too many years in advance. There are too many unknown variables at their age, including the potential number of children they would have and how much income Becky’s business would start to generate after expansion.

Their plan needed to be flexible and evolve with changing conditions. So instead of building a plan through to retirement, Drew and Becky agreed that a Phase 1 financial plan that mapped out their finances up to age 55 would work best for them. Therefore, at the “end of the plan” we would make sure to provide a financial cushion that would place Drew and Becky in a good position for Phase 2, retirement planning.

How would they best allocate the cash from selling the partnership shares to their home purchase, entrepreneurial pursuits, and family building?

Sound financial advice and investment

management can keep you on track to the

retirement of your dreams.

A good financial advisor helps you organize all your financial details into a focused and clear picture. A great financial advisor looks at your finances and life values as a whole, incorporating what’s important to you in your financial decisions.

You want a financial advisor who understands your goals and dreams, but also knows what keeps you up at night. An expert and experienced financial team can present unique solutions, see new or different opportunities, and simplify your financial life. A strong financial plan can provide a blueprint for building your assets.

Talk to a Financial Advisor

The Financial Plan Process

We worked with Drew and Becky to get a comprehensive picture of their financial past, present, and future. After the financial plan discovery process, we compiled and analyzed their financial data based on conservative assumptions for inflation, asset growth, and medical costs. We presented three scenarios with a high probability of success. They could choose the solution that made the most sense for them.

Their investments also play a crucial role in building their assets. The best investment management strategy considers market variables and tactics and their personal goals, time horizon, and risk profile.

The Financial Plan Scenarios

Our analysis showed the benefits and disadvantages of paying for the new home in cash or making a large down payment with a mortgage. How would the effects of different spending habits affect their goals as well as the amount left for their financial cushion at the end of Phase I? In all scenarios, we assumed at least two children in the next few years and included 529 savings plans for each child.

We emphasized the emotional benefits of having a mortgage to stave off any poor financial decision-making or overspending, even as it related to Becky’s new business. We suggested a 15-year or 20-year mortgage where there are higher payments and less interest. Potentially they would have the mortgage paid off by the time their first child attends college. The mortgage would come out to about 750K (noting that they can write off the interest up to 750K). Suggested life insurance would give them peace of mind as they started their family.

Investment Portfolio Management

After selling the partnership shares in the business, the couple needed to address tax liabilities and investment of an all-cash payout. We worked with them to determine their risk profile and quickly set up the necessary and appropriate accounts for their goals. Next, we allocated for their cash flow needs, selected the investment strategy unique to their goals with a time horizon set out in their financial plan.

Upon reviewing the financial plan, Drew and Becky were very pleased to learn that they wouldn’t have to change much about their current situation to achieve their financial goals. With their assets invested and continuously managed, they looked forward to enjoying their new home and upcoming family.

I feel like we made the best decision to use a financial advisor to ensure that we could meet our goals. My husband and I feel financially confident. Since obtaining the plan, we have purchased a plot of land to construct our family home. We trust our financial team to continue managing our assets and helping us with any new financial questions.

Becky Lightner

Jewelry designer, entrepreneur

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*This case study is a dramatized composite of client financial planning and financial advice from Platt Wealth Management. This is an example of possible solutions to a given situation and should not be taken as advice or recommendations for your unique set of conditions. We invite you to visit our office for a free consultation to tell us your specific concerns and goals.

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Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

How Much Does a Professional Couple Need to Retire?

by Angela Melfi | Nov 12, 2019

A Financial Plan

for a professional couple

Bob and Sarah’s financial plan gave them confidence and security.*

Bob and Sarah have been married for 35 years, with three children successfully launched from the nest and self supporting. Now that their kids are out on their own, they want to know if they are on track for retirement. If they aren’t, what are their options to prepare for the retirement they have always dreamed of? They asked their friends for a good financial planner, a fee-only advisor. They wanted an independent advisor, someone who charged a flat fee for the financial plan who had no affiliations or conflicts of interest.

We met at a college mixer. I saw her from across the room. It took all night for me to get the courage to go over and ask her name. We got to talking and she invited me to join her travel club. I was bit by love and the travel bug.

Bob

I met Bob at a party my friend was throwing for the holidays. He was wearing a button-down shirt and tie with the funny addition of reindeer antlers on his head. He made me laugh before even walking over to me. I was so surprised he had never visited any other countries. We’ve been traveling to new places ever since.

Sarah

Bob and Sarah are both still working. Throughout their career they have always maxed out their 401(k)s. In recent years they have been doing backdoor Roth contributions. While shouldering the costs of college over the last decade, they were unable to save more in their living trust account. They have no real estate holdings, but will be close to paying off their home mortgage by retirement.

Financial Plan Goals

Bob

Software engineer, 60 years old

“I want to make sure we don’t run out of money in retirement. What if there is a bear market or higher inflation? I want to prepare for any challenges that are beyond our control.”

Sarah

hr recruiter, 57 years old

“Getting our finances is organized is very important to me. We’ve been so focused on making sure the kids have a good start, we haven’t had a chance to figure out our own retirement plan.”

Ideal Retirement Plan

Bob and Sarah’s ideal scenario is to retire in five years when Bob is 65 and Sarah is 62 with core living expenses of $110,000 after taxes. A budget for health care expenses is very important, including several years of private insurance for Sarah before she is eligible for Medicare. We included $15,000/year for health care costs using a higher rate of inflation. Since Bob and Sarah are passionate about travel, they want to include an additional $20,000/year for 15 years of travel beginning at retirement.

Unfortunately, at their current savings level, this scenario has a low probability of success. It is highly likely they will need to make adjustments in retirement to avoid running out of money.

We prepared scenarios looking at three variables that they can control – working longer, spending less, and saving more. How much of an impact would changing the individual variables make to get them up to a reasonable probability of success?

They could work nine years longer.

They could decrease their core desired spending level to $87,000/year.

They could save an additional $160,000/year for the next 5 years.

The Best Financial Plan

After the meeting, Bob and Sarah had many discussions about how to prioritize their goals. They knew they didn’t want to work nine more years, but agreed that six was doable. They began cutting their current spending and directing the savings to their trust account, with the goal of getting to the $95,000/year spending level and $15,000/ year savings within 2 years. They also agreed they could work an additional year if it took them longer to adjust their savings/spending level, or that they could retire in five years if they adjusted their savings and spending level more quickly than anticipated.

I knew we hadn’t been saving enough, and I was dreading the outcome of the financial plan. What a relief to see I have choices on how to make a course correction. I appreciated the stress testing. Even in worst case scenarios, I could see that Sarah and I were going to be fine.

Bob

I loved tweaking the combination of variables. I was able to see what might happen if my mom left me an inheritance or what might happen if we needed long term care. The financial plan helped Bob and I realize what is most important to us. I’m excited to put our new plan into place.

Sarah

Scenario Based Financial Planning

Changing only one variable will likely have a significant impact on their lifestyle or fall short of the goals that are important to them. We presented a sample scenario showing an example of how they could combine all of these variables to find the compromise that was best for them.