Chris and Cynthia were planning for retirement, and needed to know what they should do to be financially prepared

There is nothing more rewarding than knowing you’ve raised three self-sufficient kids. When we first met Chris and Cynthia, their youngest had just graduated college, and was moving into her first apartment. They were officially empty nesters, and were ready to begin their next chapter in life. But when the dust settled, they realized they didn’t know how much they’d need for retirement, or how they’d manage cash flow when their paychecks stopped coming.

Both aged 55, Chris and Cynthia had enjoyed successful management careers in the corporate world, and were about 10 years from retirement. The problem was that while they had been juggling their kids and busy careers, they had lost track of their finances. With the kids moved out, not only had life quieted down, but now there was an extra $3,000+ in their checking account each month. They weren’t sure what to do with it, but knew they should be doing something. And in terms of planning for retirement, they didn’t know where to start.

The first step in our process was understanding what they needed their money to do, and helping them define their life plan for retirement. During our discussions we learned that for retirement to be truly fulfilling, they needed an ample travel budget. Raising three kids had felt like a non-stop blur, and they wanted to catch up on all the trips they had postponed. In the end, their goals were to retire at 65 so they could travel when they were young enough to enjoy it, and to leave enough money behind to help their children purchase homes for their families.

After we learned their vision for the future, we collected data on their current and future income sources, including pensions, Social Security, and their retirement accounts. Next, we developed a spending plan that gave them a sense of what retirement would cost, and a Social Security claiming strategy that maximized their benefits. Last, we organized their investment portfolios, and developed a structured cash flow and investing plan for the remaining accumulation years before retirement, and a decumulation strategy that minimized drawdown on principal when they retired.

As we organized Chris and Cynthia’s assets and accounts, we found that they had roughly $1,000,000 in IRAs and 401(k)s from their current and previous employers. They also had $200,000 in cash, which had been goosed by the recent reduction in spending. Based on data simulated from their life plan, we determined they needed about $2,500,000 to support them throughout retirement if retired at 65. Essentially, they needed to double their investment assets over the next ten years.

The first step in the action plan called for Chris and Cynthia to pay off their mortgage. Using $150,000 of their cash, they were able to go debt free, and save $25,000 in interest. Next, we consolidated their retirement accounts to a single IRA for each of them, and reallocated their brokerage account to provide cash for their lifestyle expenses before they started taking distributions from their retirement accounts. Last, we had them max out their Roth 401(k)s to provide asset location diversity, and a source of tax-free income in retirement. By consolidating and coordinating their account allocations, and automating monthly contributions, we were able to implement an investment strategy that protected their principle while providing steady income in retirement.

A year after meeting with Chris and Cynthia, they were confident, and ready for their next stage in life. In fact, thanks to the plan, they were flush with cash. This allowed them to start phasing into their life plan a little earlier and take their kids on a weeklong trip to Italy. As it turns out, travelling energized them even more. They began taking the trips they had always imagined, while their brokerage and retirement portfolios continued to grow. They now have confidence that they’ll be able to live the lifestyle they imagined in retirement, and leave behind the legacy they envisioned for their children.

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