By Chris Palabe, CFS®, AIF®
Recently a client approached us with a dilemma. This couple wanted to retire early without hurting their long-term financial longevity. They wanted to spend their golden years doing what they love to do without worrying about running out of money. They needed our help to create a plan that enabled them to retire early with financial confidence.
At Palabe Wealth, we love helping clients implement the financial tools today that will enable them to pursue their retirement goals tomorrow. In this case study, we describe how we helped this particular couple address their goal of retiring early to chase their post-career life goals.
This couple came to us early this year to review their retirement plan. The husband is 61 and the wife is 59. They were hoping to retire later this year and start enjoying their golden years together. They both have a very low risk tolerance and were concerned about running out of funds during retirement.
As self-employed individuals, they had $950,000 in a SEP and various other IRAs and $450,000 in a taxable brokerage account. With total assets of $1.4 million, they worried it might not be enough.
Although they were doing quite well financially, this couple was looking for the freedom to spend more time as a family and retire early. While these are reasonable goals for any couple, this client came to us with less than a year before their desired retirement date. We had much to accomplish and sort out before they took that first step toward retirement.
They wanted their financial plan to cover several areas. Here are the steps we took to address their needs:
- Start a Roth conversion: This would allow them to minimize future tax liability. With a large number of tax-deferred retirement assets, this couple would be subject to hefty required minimum distributions and taxes starting at age 72. Though we had several years until this point, it made sense to start converting their funds to Roth accounts to avoid RMDs and reduce their overall tax liability. We were able to calculate exactly how much they should pull from their traditional IRAs without causing their current year tax rate to go up.
- Delay Social Security: Since both spouses have longevity in their family, it was important to maximize their Social Security income so that they don’t have to worry about income down the line. They had a substantial retirement nest egg already built, so we decided it would be best to draw from those assets first and delay Social Security to get the maximum benefit increase.
- Create guaranteed income: We recommended that the couple annuitize a portion of their assets to meet fixed expenses now and in the future. This included things like their remaining mortgage payments, food, clothing, and everyday living expenses. By annuitizing, the couple is now guaranteed a fixed income stream for life.
- Take taxable distributions: Lastly, we worked with the couple to design a withdrawal strategy to begin taking distributions from their taxable brokerage accounts at the end of the year. We came up with an appropriate amount to withdraw each year that will allow them to meet their remaining income needs without having to worry about overspending. On an ongoing basis, we will look for tax-loss harvesting opportunities to further reduce tax liability where we can and we will ensure 30-40% of the portfolio is dedicated to low-volatility assets. Not only will this meet their risk tolerance levels, but it can also ensure portfolio longevity by avoiding large swings in the market.
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At Palabe Wealth, we strive to provide our clients with the very best financial tools available and unbiased guidance to maximize their wealth management strategies. If you are interested in working with us, schedule a 15-minute introductory phone call or call us at 847-249-6600 to learn if we are the right fit to help you accomplish your financial goals.
Chris Palabe is the founder and CEO of Palabe Wealth, a financial services firm providing retirement plan strategies for businesses and individuals. For 25 years, Chris has been serving his clients with customized plans and a boutique approach. He started his firm because of his passion for making a difference in others’ lives and a genuine desire to build long-term relationships with his clients so they can seek to achieve their ideal retirement and manage risk. Chris is a Certified Fund Specialist® (CFS®) and Accredited Investment Fiduciary® (AIF®) professional and has a degree from Université Denis Diderot (Paris VII). When he’s not working, you can usually find him riding horses and competing in dressage at a national level. He also loves reading, watching movies, and eating out. To learn more about Chris, connect with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
No strategy assures success or protects against loss.
This material was prepared for Palabe Wealth Inc.’s use.
Guarantees are based on the claims paying ability of the issuing company.