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.
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.
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
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.”
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.
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.
*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.
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.
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