Client: Mr. Roberts, a vice president of a Fortune 500 company, was contemplating retirement in approximately four years. He had diligently saved and built a significant portfolio via a 401(k) plan, deferred compensation and employer stock.
Challenge: With so many moving parts and significant involvement in the company, he was unsure how to make the most of what he had worked so hard to attain. His family and work obligations took most of his free time, and yet so much was dependent on careful planning of his retirement.
Course of action: To help ascertain the likelihood of Mr. Roberts retiring on his desired date, our team would perform a detailed cash flow analysis and look at different deferred compensation payout scenarios. We would also look at finding a tax-efficient way to draw down the income he would need to maintain the lifestyle he was accustomed to living.
Because of the many complexities associated with the extensive company stock options he had accumulated during his successful career, advanced planning would be essential. This planning would include evaluating his options using sophisticated tools such as Black-Scholes Option Modeling, ensuring that we conformed to mandatory holdings policies, looking at hedging opportunities, and exploring ways to potentially reduce or eliminate the alternative minimum tax.
To help achieve Mr. Roberts' goals, the team would determine the appropriate mix of assets and perform portfolio stress-testing to illustrate the impact that certain events may have and help him determine his appetite for risk.
With Mr. Roberts’ knowledge and approval, our team would assume the discretionary management of his core assets to effectively manage them on a tactical basis, implementing strategies such as tactical hedging opportunities based upon market risk levels, and laddering a federal tax-free municipal bond portfolio designed to provide income and liquidity.
To mitigate the erosive effect of market downturns, a strict risk management discipline would be implemented by us with a sell philosophy designed to prevent wealth destruction.
To satisfy Mr. Roberts’ desire to leave a legacy for his loved ones and cherished charities, we would work closely with his estate attorneys to develop a plan to meet this important goal, while also helping to ensure proper titling of his accounts, assets and beneficiary designations, and help reduce the effects of the estate and transfer taxes.
Finally, to help Mr. Roberts and his family organize and track all of their financial matters, our team would aggregate his accounts into one convenient access point online, create a secure area for storage of important documents, and automatically maintain constant upkeep of records and financial data.
This hypothetical example is for illustrative purposes and is not representative of any actual experience. Individual results will vary. It is presented only as an example and not intended as investment advice. This is not a recommendation and you should consult with your financial advisor for advice based on your personal situation, financial goals and objectives. Asset allocation and diversification do not guarantee a profit nor protect against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of principal. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.