Paul: 47 year old Business Owner
Mary: 45 year old Homemaker
Children: 2 (16 and 19)
Annual Household Income: $600,000
Investable Assets: $700,000 (Joint account)
Employer Qualified Plan: $550,000
Business Value: $10,000,000
Wills & Powers of Attorney: Executed 10 years ago
Life Insurance: $2 million term life policy on Paul; $500,000 term life policy on Mary
Disability Insurance: Paul is covered through his company
iThrive Life Planning Process™
Vision: Sell the business in 10 years and retire; Finish paying for children’s education; Have enough money to live a comfortable lifestyle but also to provide support and care for their son with special needs (their greatest concern).
Awareness: Our analysis revealed they were above the Confidence Zone with a 99% probability of success in achieving their Vision if they continued on their current path.
Plan: In a live planning session, we demonstrated how to optimize their financial plan to put them in the Confidence Zone with a planning score of 90%. This enabled them to spend more, reduce their investment risk, give to charity, buy the vacation home they always wanted, and continue to leave a significant legacy behind for their children and charity.
Implement: Thrive Implemented their plan (savings, investments, insurance, estate plan, tax management) every step of the way.
Monitor: Thrive continues to annually confirm their Vision, test their plan, and hold them accountable so they stay on path.
Business: Thrive worked with Paul & Mary to create a team of advisors (accountant, lawyer, and business growth coach) to properly plan for the future sale of their business. This process created efficiencies that increased annual revenue, rejuvenated their drive for the business, and their personal income jumped to over $1 million per year.
Investments: Paul had a difficult time resisting the urge to continue putting money into the business. Mary, on the other hand, was uncomfortable with the risk and welcomed the idea of diversification. Thrive held them accountable to taking an additional $100,000 out of the business every year to help build up their after-tax savings in their joint account. Thrive also took over management of Paul’s company 401(k) plan and, in doing do, was able to increase their retirement contributions to over $54,000 per year by adding a profit-sharing feature and including Mary as an employee for the clerical work she performs. Also created an investment strategy consistent with their financial plan and implemented it across all their accounts.
Insurance: Modified their entire portfolio to properly fund a succession plan and care for their son with special needs, which involved establishing a realistic price for their desired standard of care for him.
Estate Planning: Introduced an attorney that specializes in estate planning for families with children who have special needs. Created an Irrevocable Trust to care for Paul and Mary’s son. We valued their company and shifted non-voting stock to a Trust for the benefit of Mary and their children. In doing so, they avoided any potential Federal Estate Tax issues. An ideal succession plan for the business was also established and implemented.
Taxes: Saved thousands per year in income taxes by increasing their pre-tax retirement savings. Completed a contribution of low cost basis stock from their joint account to a Donor-Advised fund. This provided them with an immediate tax benefit of an upfront deduction and also helped to fund future gifts that they planned to make to various charitable organizations over the years.
The above is a hypothetical case study and not based on actual individual client results.The results achieved in our simulations do not guarantee future investment results. It is possible that the markets will perform better or worse than shown in the case study; that the actual results of an investor who invests in the manner these case studies suggest will be better or worse than the projections; and that an investor may lose money by investing in the manner the case studies suggest. The case studies assume the reinvestment of dividends and do not include transaction costs for purchases and sales of equities and bonds or mutual funds and ETFs. We assume no deduction for advisory fees, and that assets are allocated in the manner the projections suggest until the hypothetical client reaches age 95. The final results also address such factors such as annual spending, annual savings, timing and cost of goals. Although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. While the case study results reflect rigorous application of the investment strategy selected, hypothetical results have certain limitations and should not be considered indicative of future results or results for any individual investor. In particular, they do not reflect actual trading in an account, so there is no guarantee that an actual account would have achieved these results shown. The 99% (before) and 90% (after) illustrated probabilities of success were derived from licensed forecasting software. The forecasting results are based on a Monte Carlo simulation. In addition to the facts listed in the case study: Investment assumptions in the “before” scenario include a 7.85% hypothetical average rate of return with a 13.62% standard deviation, while the investment assumptions in the “after” scenario include a 7.72% hypothetical average rate of return with a 12.13% standard deviation. Annual goal inflation assumptions include 2.35% for Retirement - Basic Living Expense, 5.15% for Health Care, 2.35% for Care for Matthew, 6.15% for Education Funding, 2.35% for Travel, 2.35% for Vacation Home, 2.35% for Vacation Home Expenses, and no inflation for Gifts, Donations, or Bequests. Marginal tax rate assumptions include 35% for federal and 3.07% for state. Long-term capital gains are taxed at 20%. A federal standard deduction of $24,800 was assumed. 85% of Social Security income was included as taxable income. Social Security income was estimated to be applied for at 67 years of age for both hypothetical clients. $38,288 per year of Social Security income