Pre-Retirees
Pre-retiree was an executive in senior management at a publicly traded company. She had been at this company for quite some time and had amassed significant wealth in stock options. She could only exercise and sell these options during certain, limited open trading windows, which could unexpectedly be “closed” for her if the company became involved in an acquisition. Many of these options were also nearing their expiration dates over the next several years, and not having a plan in place meant the options could potentially expire with a significant loss of wealth. To further complicate her situation, she also had restricted stock units vesting every year (generating additional taxable income) and the ability to defer a portion of her salary and bonus into a non-qualified deferred compensation plan administered by the company.
In developing her wealth plan, we first suggested that she “cash out” her restricted stock units as they vested and use the proceeds to build a diversified portfolio (i.e., her nest egg). Next, we helped develop the strategic timing of distributions from her deferred compensation plan to provide a source of income during her lower income years (i.e., after retirement, but before her Social Security benefits and required minimum distributions began). Finally, we developed a multi-year stock option exercise strategy navigating the various exercise restrictions. We successfully helped her meet her goal of developing a plan that fit all these pieces together in a way that minimized her taxes and maximized her wealth over time.
Retirees
With the backdrop of an environment recovering from COVID-19, spiking inflation and a potential recession, a recently retired couple came to us worried about several retirement goals they felt were in jeopardy. Could they stay retired as planned, or would one (or both) of them need to go back to work? How would they draw funds from their portfolio to fund retirement? Should they begin Social Security now or wait? But what they really wanted to understand was could they move closer to family and take their year-long dream vacation to travel the world.
The first decision was to show them the benefits of delaying Social Security to age 70. This maximized their valuable Social Security benefits – especially due to their long-life expectancies. Pushing their benefits to age 70 also allowed us some room in their tax brackets to perform partial Roth IRA conversions. This created some tax diversification by having a pool of tax-free money available in retirement. Next, we illustrated the sale of their existing home and using that equity to purchase a new home closer to their children. The goal with the new home was to pay cash and avoid having a mortgage during retirement. This meant drawing down additional funds from their portfolio to purchase the new home. We solved for the maximum house they could purchase while factoring in a substantial expense for their dream vacation. Finally, we worked with their portfolio manager to come up with a strategy to raise the funds directly from their taxable investment portfolio in a tax-efficient manner (until Social Security and required minimum distributions began). We showed them how they could accomplish all of this, not have to go back to work and most of all take their dream vacation!
Faced with a Big Decision
A client owned a building with an expiring lease where the current long-term tenant was not renewing. The property was owned in a Trust and the Trustee was contemplating the sale of the property. The beneficiary was worried that the Trustee wanted to sell so that they could manage the liquid proceeds in their portfolio versus the real estate. Was selling the real estate the best economic decision? We prepared an analysis comparing the sale of the property and reinvesting the proceeds in a liquid portfolio, keeping the property and re-leasing it at new market rates, and utilizing a 1031 tax-free exchange for a new property.
Not only did we present the quantitative information (i.e., number crunching, cash flows, taxes, etc.), but we also presented the qualitative information relating to the pros/cons of each decision. Based upon our analysis, a clear decision emerged that was in the best interest of the beneficiaries - to keep the property and re-lease at the current market rates. Both the beneficiary and the Trustee felt that the analysis we prepared helped them make an informed decision.