Dave, a 60-year-old former business owner, and his wife, Sharon
Dave was two years past the sale of his small business. At 60 years old, he didn’t want to start a new company. He had a good understanding of investments and wanted to be very involved in the process. His wife, however, had no desire to be involved with investing.
Because the business was successful, Dave was able to fund the couple’s IRAs and SEP accounts and pay off their debt. But as a small business owner, he had no pension and did not want to start drawing Social Security until he reached age 66. He was also concerned with market risk and the low interest rate environment since all his retirement income will need to come from accumulated assets. He was very concerned about his wife if something should happen to him, considering her lack of understanding of their financial situation.
Potential course of action:
First, we would gain a complete understanding of the couple’s financial situation. We then would have thorough discussions to determine their needs, wants and wishes. Using Goal Planning & Monitoring software, we would create a comprehensive financial plan that would help determine whether their financial resources were adequate to fund the couple’s goals.
As we would with a business to manage investments and liquidity, we would implement a core-and-satellite investment approach. We first provide for cash flow with a “satellite” portfolio made up of one-, two-, three-, four- and five-year CDs that were the amount of income the couple would need to live on in retirement. Each year a CD matured, they would spend all the interest and principal held in that CD.
We would place the rest of the money into a “core” portfolio. Each year, any dividends and/or gains generated from this portfolio would then be invested into a CD to backfill the maturing CD from the “satellite” portfolio. As time progresses, we will keep adding “rungs” to the ladder of the satellite investment portfolio through this method.
By taking this approach, the couple will not directly withdraw a dollar out of the core investment portfolio and, because of the five-year laddering of the CDs, will not be forced to sell holdings in a down market.
By engaging Sharon in the goal planning process and encouraging her input on determining their needs, wants and wishes, she could gain confidence and understanding of how her money would be working for her and that she could rely on us as a resource in the future.
This material is hypothetical in nature and not intended for use as investment advice. It does not guarantee the attainment of your retirement goals. Individual results will vary. There is no assurance that any investment strategy will be successful. Investing involves risk and investors may incur a profit or a loss. Asset allocation and diversification do not ensure a profit or protect against a loss. Past performance is not indicative of future results.
*The projections or other information generated by Goal Planning & Monitoring regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Goal Planning & Monitoring results may vary with each use and over time.