*Client Case Study: John & Jane Smith

Background…

• Married, both in their late 50s.

• John works at Textron, Jane works as an office manager.

• John wants to retire in a few years at 62. Jane wants to retire now.

• They have two kids who recently graduated college and are now financially independent (or as we like to say “off the family payroll”).

Goals & Concerns

• Cash flow recently increased by $50,000 per year due to a promotion John received and the kids becoming financially independent.

• John is concerned that if Jane retires now, he will have to work past 62 or cut back on their lifestyle spending.

• Jane does not want to reduce their current spending.

• They are both worried about market volatility, especially with “everything going on right now.”

• John wants to know if there is anything they can do to reduce their taxes.

• Should they start Social Security as soon as they retire (hopefully at 62) or wait longer?

They are feeling optimistic about their ability for Jane to retire now and John at 62 but they really aren’t sure. They have $1.5 million in investments. They have tried some online calculators to try to figure out if this is enough, but they are not confident in the accuracy of those tools. The calculators also seem to lack a lot of detail.

They have other financial strengths including no debt, extra income, and they live comfortably but well within their means. The children being stable and financially independent is a huge blessing as well.

Enter Wichita Wealth

This was their situation when they came to us. So, we dug into the details and documents.

We looked through their investment statements, paystubs, Social Security documents, and their tax returns.

In doing so, we quickly found several opportunities…

Opportunity 1:

In looking at their paystubs, we could see they both had access to Health Savings Accounts. Their employers were making contributions. However, neither of them were maxing out the annual contributions. We shifted some savings to max out these contributions resulting in several thousand dollars in tax savings over the next several years.

Opportunity 2:

Next, in reviewing their tax returns we saw Form 8606. This is the form used for non-deductible IRA contributions. At some point each of them had made up to $15,000 in IRA contributions but their income was too high to deduct it on their tax returns. We made note of this. In the future year we will use the contributions for tax-free backdoor Roth conversions (I’ll spare you the technical details for now). This will likely result in creating generational wealth.

Opportunity 3:

Now we have started work on their portfolio. Going through their statements revealed several things. Although they swore, they were conservative investors who liked to “play it safe”, their portfolio didn’t reflect that. Half of their money was invested in small-cap emerging markets mutual funds (this is about as volatile an investment as it gets in a 401k).

Another quarter was in cash. The last quarter (half + quarter + quarter = a whole) was in Textron stock. This meant they were experiencing wild market swings with half of their money; a quarter was slowly eroding due to inflation. And a quarter highly concentrated.

The Textron stock especially was a concern as it created a double risk of exposure. Their primary income was exposed to Textron, as well as a significant amount of their retirement savings.

We used our income buckets strategy to determine how much of their cash should be invested. We created a well-diversified portfolio of high-quality mutual funds and ETFs.

Then we created guidelines for how much Textron stock to keep and when to sell some stock to rebalance.

This gave them a balanced portfolio with much less volatility, less risk and likely better returns (although returns can never be guaranteed).

This was just the initial work we did together, it doesn’t include the tough issues we worked through with estate planning, ensuring their insurance adequately protected their assets, lower their lifetime tax liability, and all the other ongoing advice and portfolio management we provided.

The impact was transformational. John said, “It was like a huge weight was lifted from his shoulders”.

He said he had more confidence at work knowing his finances and retirement plan were on track. Jane said she was “So thankful the cloud of tension between them regarding her retiring was gone.”

I talk to many clients and potential clients. A recurring hesitation I hear about working with a financial planner is they believe we will just tell them to “spend less and/or save more”. The truth is the sooner you know if that’s what you need to do, the easier and less drastic the changes are.

Financial planning is not about beating the market. It's about having a plan for your money to transform your life. Because every decision you make is impacted by your money and financial situation.

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*Disclaimer: This case study is a composite based on real-life client situations. Names and certain details have been changed to protect client privacy. The scenarios presented are intended for illustrative purposes only and do not represent specific clients or guarantees of outcomes.