LIFETIME INCOME CASE STUDY

Transcription

1 Taxes: How to Minimize Their Impact LIFETIME INCOME CASE STUDY Presented by Financial Sense Advisors, Inc. Registered Investment Advisor Richard & Gina Blanchard

2 Important Notice: This is a hypothetical illustration based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult with a financial advisor prior to investing. Financial Sense Advisors, Inc. Registered Investment Advisor

3 ESSENTIAL INFORMATION Client: Richard & Gina Blanchard Ages: Both age 61. Retirement: Both retired at age 65. Life expectancy: Lukas age 90. Ana age 92. Risk tolerance: Moderately Aggressive. Investment objective: Growth with Capital Preservation.

4 WHO ARE RICHARD & GINA? Name: Richard Age: 61 Job: Senior Engineer Lukas has been working for the same company since college. Up to this point, he has managed all his own investments but is becoming increasingly concerned about market conditions and wants help from a professional advisor. He is an aggressive buy and hold investor with large exposures to small cap and emerging market stocks. He is concerned about taxes after a large raise at work this year boosted their income. Name: Gina Age: 61 Job: Nurse Practitioner Ana is looking for help to manage their finances, especially college planning since they have two children in high school. Their oldest will start college in the fall and she is concerned about their ability to pay for it while saving for retirement. Given they both have great incomes, Ana is also concerned about managing taxes.

5 RICHARD AND GINA S CURRENT RISK TOLERANCE? Most Conservative Most Aggressive Current Risk Score Portfolio Risk Score 46 75

6 WHAT IS IMPORTANT TO RICHARD AND GINA? Protecting their nest egg Minimizing taxes Saving for retirement Affording college expenses

7 RICHARD AND GINA S CURRENT BUDGET Essentials: Discretionary: $105,000 $25,000 TOTAL: $130,000 Richard s Salary: Gina s Salary: Surplus: $250,000 $75,000 $195,000

8 RICHARD AND GINA S RETIREMENT BUDGET Essentials: Discretionary: Combined Social Security: Pension (1): Surplus: $85,500 $14,500 TOTAL: $100,000 $37,000 $90,000 $27,000

9 RICHARD AND GINA S ASSETS Primary Residence: Non-Investment Assets $750,000 Investment Assets Ricard s Retirement Accounts: Gina s Retirement Accounts: $2,000,000 $50,000 Taxable Accounts: $115,000 Total Investment Assets $2,165,000 Total Assets: $2,915,000 Liabilities: -$200,000 Net Worth: $2,715,000

10 RICHARD AND GINA S FINANCIAL PLAN CHALLENGES 1. Reducing risk in their investment portfolio. 2. Managing competing goals of paying for college and savings for retirement. 3. Minimizing taxes they have to pay.

11 GOAL BASED RECOMMENDATIONS FOR RICHARD AND GINA Goal Strategy Minimizing taxes We recommended that Lukas and Ana utilize tax-loss harvesting in order to reduce the impact of capital gains taxes each year by using existing capital losses to offset up to $3,000 in income each year that they are qualify for. Reducing the future impact of taxes We advised that Ana begin to max out her contributions to both the optional 457 plan and her 403b. Ana s 457 plan would allow her to save an additional $18,000 per year tax-free. Protecting the nest egg We encouraged Lukas and Ana to focus on tax location by repositioning their investments in order to help with tax efficiency. Paying for college For college, we advised that they utilize a bond ladder to cover future anticipated expenses. Lukas and Ana both agreed that they would pay the costs equivalent to a 4-year public university and that their kids would need to cover the difference on their own if necessary.

12 Disclosures: 1. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. 2. The payment of dividend is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. 3. Fixed annuities are long-term investment vehicles for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 1/2 are subject to a 10% IRS penalty tax and surrender charges may apply. Financial Sense Advisors, Inc. Registered Investment Advisor

13 Financial Sense Advisors, Inc. Registered Investment Advisor If you have any specific questions or comments, please give us a call at (858) We re happy to speak with you. Post Office Box San Diego, CA Thornmint Road 2nd Floor - San Diego, CA (888) Toll Free (858) Tel (858) Fax Advisory services offered by Financial Sense Advisors, Inc. An SEC Registered Investment Advisor.