• Financial objective Plan for full retirement at age 65; buy a second home; establish trust fund and/or investments for their grown children/grandchildren.
Monthly Financial Statement
•Mortgage, life insurance, bills, etc.: $10,000
Leaving a net savings pool of $9,300 monthly.
Strategies and Assumptions
This individual has built a successful business but has not made individual financial plans. The couple has done preliminary planning for their children's college education and established a small pool of savings. They must now prepare for their retirement and estate planning.
•Business retirement plan Evaluate what type of business retirement plan can be implemented in the company. Investing as much pre-tax money as possible is the most powerful savings vehicle. Insurance coverage for principals and employees should also be examined.
•401(k) Allocation of $14,000 annually recommended. A profit-sharing or defined-benefit plan also should be explored. Assuming 17 years until retirement, $14,000 invested at a 7- percent rate of return would generate $431,763 for retirement. This would bring the taxable income down to $386,000, with take-home pay of approximately $231,600.
•Family financial statement A financial statement should be completed to determine what this household takes home after retirement allocations and taxes. Questions include: How much is needed on a monthly basis? Is there a mortgage payment? What is needed for food, clothing, expenses, etc.? What are the monthly or annual payments for life insurance?
•Set-asides for savings Determine a monthly amount to allocate to a savings pool, which will determine what is allocated to growing the investment account, saving for a second home, and/or possibly increasing insurance coverage.
•Estate planning A balance sheet listing all assets and liabilities of the individuals is the first step. The goal is to determine what the total estate is worth today, including real estate, investments, and the business. Among questions to answer: What goals will need to be accomplished financially? What will this estate be worth at retirement? What can be done today to minimize the estate tax bite? For this individual, a life insurance trust and/or an irrevocable trust, a tax-efficient investment account, and a will are recommended.
Allocations into these accounts should be determined based on investments that accomplish both short- and long-term goals and fit the couple's moderate risk tolerance.
•Business strategy For a complicated scenario such as this, specialized analysis by a strategic business and banking team would be advisable. The team would assist with both short- and long-term business planning, and analyze the business industry for trends, competition, and opportunities to grow the business through the use of organic or borrowed funds. Any possible mergers or acquisitions also may be considered.
•Investment account $100,000 presently in account ($90,000 plus additional $10,000 available to invest). With a moderate risk tolerance, asset allocation recommendation would be 50 percent equity and 50 percent fixed income with a combination of equity mutual funds and tax-free municipal bonds.