Let’s have a quick look at this fun couple – Kit and Huck, age 55, Burlington, Vermont.
They’re 5–7 years from retirement and long-time DIY investors. They were referred to Know My Plan by a friend who has known me for a long time and Kit & Huck requested a second set of eyes.
I love when the DIYers come to us, there’s always some blind spots and immediate improvements.
Huck had a stint with the Green Bay Packers many years ago and now coaches’ football and teaches math at a local high school. Kit is a consultant for a big fancy firm. Their children are grown and financially independent.
They have diligently saved for three decades of marriage and want to know:
“Are we on track? What do we need to do differently?”
These questions or some derivative thereof are the most popular questions we get—we love it.
The Takeaways
- They needed to update their estate plan. The kids were grown. The documents are past due to evolve.
- They needed a plan for long-term care. They either needed to purchase some form of long-term care or segregate assets and identify them as the dollars that would be used if care was needed later in life.
- They needed to save outside of their retirement plan.
Kit & Huck loved saving in their employer retirement plans. They found it incredibly convenient. Too convenient, with about 95% of their net worth in pre-tax retirement plans.
They will both have pensions and Social Security benefits that guarantee their income will not drop in retirement. In fact, it’s quite possible that their tax bracket could go up in the future.
Our question to Kit & Huck: “Do you want to minimize your tax bill today or minimize your tax bill over the life of your plan?”
I could tell by the look on their face that the question was either poorly phrased or they simply didn’t understand. Naturally, they never considered increasing their taxes now, or ever.
I didn’t take my words for chance. We hit the whiteboard and worked through two different scenarios:
- Scenario 1 – Continue to max out your current pre-tax retirement plans.
- Scenario 2 – Put enough in the retirement plans to earn the match (utilize Roth contributions) and invest the rest in a brokerage account.
We pointed out through our projections, that if Kit & Huck could swallow higher taxes today, and implement Scenario 2, that they would pay less taxes over their retirement, have more net income after taxes, and have the efficient flexibility to do what they want with their money in the future.
Kit & Huck just needed was a little professional guidance and reframing.
Just because you have always DIY’d your finances (even seemingly successfully), doesn’t mean that you should continue to do so. We do this every day and see your situation—I promise.
We all have blind spots; all the greats do. All the greats also have coaches. Why not you?
Stay disciplined. Work the plan.
–Nic
Any opinions are those of Know My Plan and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
