This week we completed an analysis for a husband and wife who were referred to us by one of our best clients. After checking with our references, they hired us to help them manage their retirement portfolio, but more importantly to help them determine if the husband could afford to retire. The wife was retired and wanted her husband to retire from the University of Michigan where he had worked for almost thirty years. They wanted to spend more time each year traveling and living outside the U.S. The bulk of their retirement assets were in the University of Michigan Fidelity and TIAA-CREF retirement plans. They were very diligent about saving for retirement and budgeting, however, they did not have confidence that they could achieve their income and travel goals if he retired, or at least not for very long. This is a very common client concern we see over and over again. Luckily, our analysis opened their eyes to several factors they did not consider in theirs, such as the effect of inflation and perhaps easing into retirement over the next several years. We were able to help them tweak their budget and make them more comfortable with their retirement income number and the probability of achieving their goals. It is critical that future inflation is taken into consideration when we are doing retirement income projections. In addition, many clients are tied to this idea of not spending any principal. In reality, most clients will spend some principal in certain years while in retirement. The current rule of thumb in financial planning is that a client with a well-balanced stock and bond portfolio can safely spend approximately 4.50% of the portfolio each year without depleting principal over time. Again, this is just a rule of thumb; however, we have personally witnessed this work for clients. When you are using an annual percentage spending goal as opposed to a fixed amount, you are leaving more principal to work and compound during the good years and taking less in bad years.
We recently were engaged by the Guardian Ad Litem (GAL) in the case of an 11 year old boy who was struck by a care while riding his bike. The father of the boy settled the case directly with the liability auto insurance carrier pre-suit and the GAL contacted us to ensure that the boy's settlement funds were handled appropriately. The case settled for a total of $65,000 and $59,000 was being allocated to the structured settlement annuity for the boy as follows: $5,000 paid immediately upon settlement $10,000 at age 18 $20,000 at age 21 $25,000 at age 25 $35,718 at age 30 this is total benefits of $95,718! The annuity was placed with a large life insurance company rated A+ by the A.M. Best rating agency and provided the family and GAL with the peace of mind that the young man would not receive the entire amount at age 18. In addition, due to the use of the structured settlement annuity, all of the interest gained during the payout period ($31,718 to be exact) is INCOME TAX FREE! T