Background: Many financial processes and products are designed for people who are nearing retirement. Why is this? Well, a famous bank robber was once asked, “Why do you rob banks?” He answered, “Cause that’s where the money is!” This leaves a lot of people with intentions of creating a lifelong financial plan potentially underserved.
Our Case: A young professional just starting his career out of medical school was determined to create a financial plan right from the beginning to start on the right track. His stated goal was to have a plan in place before he spends a dime. There are web sites and financial calculators out on the Internet and plenty of places to do it yourself, but some individuals want a qualified professional to create and implement a financial plan.
The Question: There were a lot of questions facing the young doctor. How much to set aside in the 401(k)? Should he participate in the ROTH option of the 401(k)? How much to set aside in a non-retirement account to perhaps create an opportunity to retire early? Where to direct the additional cash flow for long-term tax advantage savings? How to protect his investment in himself? Finally, is there a way to coordinate all of these questions into a single plan that can be monitored and adapted annually to keep him on track?
The Results: Through Business & Estate Advisers’ new ARC process, which stands for Achieving Retirement Clarity, we were able to break down current consumptions needs, debt servicing requirements, and fixed expenses to determine what cash flow and income could be directed towards achieving a predetermined retirement lump sum balance that will be there to draw from during retirement. Once that number was determined then we could direct the available savings into diversified accounts, both from a tax angle and an investment mix. Tax and investment diversification, if started early, can have powerful compounding results. To begin the process early does a number of things; it creates good habits, allows for longer asset growth time and allows a longer time to potentially enjoy tax benefits.
Bottom Line: While still leaving a good portion of his available cash flow to be enjoyed, we were able to show him how to increase his projected asset base by an additional $3,000,000 at age 65. In addition, we identified potential risks that could occur that would derail even the best plans. It was determined these risks could be mitigated and we could still save enough to bridge the retirement asset gap. Through tax and asset diversification, the young doctor had a plan that would help him achieve retirement clarity. Of course, many things will change between now and retirement for younger clients like this, but if they know where they need to be, it’s a lot easier to at least start going there.
This is a hypothetical example for illustrative purposes only. The experience of this client may not be representative of the experience of all clients and is not indicative of future results. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planner. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B & E Investment Advisers, Inc. Business & Estate Advisers, Inc. and B & E Investment Advisers, Inc. are separate entities from ValMark Securities.
To Convert or Not?
