The Client
A couple in their mid-50s both worked at biotechnology companies in the Greater Boston Area. The husband and wife duo did exactly what their parents told them to do when they entered the workforce: save, save, save. And, that is exactly what they did.
Combined the couple was making $675,000 per year, and both husband and wife were blindly maxing out their 401(k) plans, while also saving as much as possible into their savings account. The couple had a daughter in high school looking to attend college in a few years, which the couple planned to pay for.
The Dilemma
The couple, thinking about retirement and paying for college, wasn’t sure if they were on the path to do both successfully. A few questions they had for LRVS advisors were:
- Is the 401(k) in the right spot for a successful retirement?
- What should they do with all their savings?
- What are the tax implications in retirement?
- Where should they pull the money from to pay for college?
When the clients hired LRVS they had $2.5 million combined in their 401(k)s, as well as $600,000 in savings in the bank.
The Approach
By having the client map out their financial goals through the planning process with LRVS Advisory Group, the advisor utilized a three-prong approach. First, after looking at the 401(k) portfolio and realizing the lack of diversification, the advisor took advantage of the ‘personal choice retirement account’ (PCRA), which allows individuals to invest in a wider range of investments than the more restrictive traditional 401k alternative. The SDBA/PCRA is designed to help investors in three ways: increased diversification, additional flexibility, and the option of professional guidance in managing their retirement savings.1
Secondly, due to the client’s income they were looking for ways to save tax efficiently. The clients made too much income to add to a Roth IRA, so the advisor looked at back door Roth strategies, and identified a need for additional tax free savings. The couple purchased a $1.0 million cash value life insurance policy in order to create a potentially tax-free bucket
of savings.*
Finally, the advisor created a plan for the couple’s savings by placing their $600,000 into a brokerage account, allowing the cash to work harder for the couple. Rather than investing in a 529 education plan for their daughter who was attending college relatively soon, the benefits of the brokerage account outweighed those of the 529 plan.
The Outcome
When the clients started working with an LRVS Advisor their 401(k)s were invested in a target date fund, not well suited for their situation. Since the clients were great savers, they were unknowingly taking on too much risk for their specific situation. By allocating into the PCRA, they received a customized allocation which reduced the risk of their portfolio from a 9.4 standard deviation to a 6.3, all while maintaining a similar target portfolio return. The changes made to the couple’s 401(K) plans gave them new confidence in their retirement savings goals and plans. The advisor will continue to reevaluate their 401(K) plans to ensure the clients are unleashing their potential and maximizing growth. By readjusting the couple’s 401(k) allocations into the PCRA/SDBA they were able to reduce their overall risk, while aligning their projected returns to meet their retirement goals.
LRVS was able to help the clients invest their idle cash through a dollar cost averaging program, by placing the savings into a brokerage account, which is set to outpace inflation rather than simply losing money every year in their checking account. The couple’s $600,000 at .04% in checking account with inflation between 2.1-2.4% is a loss of 2% per year or a $12,000 purchasing power (the value of the sum of money). By reinvesting those dollars in a moderate allocation the client can expect a better opportunity at a higher growth rate. Overall, LRVS reduced the couple’s overall exposure to cash and allowed them to clarify how they would be paying for college.
In purchasing, a cash value life insurance policy the couple created a potential tax-free savings vehicle for retirement either for an unforeseen expense or for planned retirement income. This strategy is designed primarily to create a potentially tax free retirement income, resulting in a total expected distribution of $863,000 throughout their retirement.* Once the couple purchased the cash value life insurance strategy, the family was protected the 10 years before retirement, throughout retirement, and played a role in the client’s estate planning.
The combination of these strategies provided these clients with new piece of mind and confidence, knowing that they were on a better path towards successfully sending their daughter to college and ultimately retiring they way they intended.
Talking to an LRVS Advisor about your financial goals is the first step towards a path of custom direction to achieve those goals. Visit our website at www.lrvsadvisory.com to schedule a complimentary meeting today to learn more about what the team can do for you.
Juggling Your Financial Goals Case Study
Juggling Your Financial Goals Case Study
*Past performance does not guarantee future results and your results will vary.
**Hypothetical performance results have been provided for general comparison purposes only. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable or equal to the corresponding indicated performance level(s).
***This article is provided by McAdam LLC dba LRVS Advisory Group for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.
†McAdam LLC dba LRVS Advisory Group is an SEC registered investment adviser that maintains a principal place of business in the State of Pennsylvania. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about McAdam LLC dba LRVS Advisory Group registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.
††This hypothetical case study is provided for illustrative purposes only and does not represent nor is it intended to represent actual client experiences but is rather an amalgam of several clients. An individual’s experience may vary based on his or her individual circumstances. There can be no assurance that McAdam, LLC (“McAdam”) will be able to achieve similar results in comparable situations. No portion of these writings is to be interpreted as a testimonial or endorsement of McAdam’s investment advisory services and it is not known whether the hypothetical clients referenced approve of McAdam or its services, nor are these writings intended to imply the Firm’s strategies will be successful. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. For additional information about McAdam, including fees and services, send our disclosure statement as set forth on Form ADV from McAdam using the contact information herein. Please read the disclosure statement carefully before you invest or send money.
