Success Story | Corporate Executive Preparing for Retirement

Preparing for Life During Retirement

Client Profile

Tony, the president of a global telecommunications corporation, and his wife, Linda, were prospective clients of Mosaic Family Wealth. Tony hoped to retire in two years, when he reached age 65, and the couple was seeking advice on how best to prepare. With a net worth totaling $7 million, Tony and Linda had two primary goals. During retirement, Tony wanted his investments to generate a net income stream of $250,000 annually. The couple also hoped to fulfill a longtime dream of purchasing a second home in Naples, Florida, where they wished to enjoy an active retirement lifestyle. However, their existing estate planning documents included only an outdated will, and lacked revocable trusts, which can protect estates from probate upon one spouse’s death and offer significant tax advantages, among other important benefits.

Known Issues

Concentrated Stock Position — A substantial percentage (45%) of Tony and Linda’s net worth was tied up in his company restricted stock and various stock options, exposing them to a significant level of risk. Because they were in the highest tax bracket, selling investments would require planning to avoid onerous tax implications.

Insufficient Estate and Tax Planning — The couple had historically donated to numerous charitable organizations, but without considering ways to optimize these gifts for tax planning purposes.

Insurance Gap — Once Tony retires, Linda, then 63, would no longer be covered by his health insurance plan. After their 18 months of COBRA coverage, she would face a six-month gap in insurance coverage before she was eligible for Medicare.

The Path to Realizing Goals

Our advisors reviewed Tony and Linda’s current assets, carefully considering their needs and wishes for the future. We performed a comprehensive wealth analysis, which included: a net worth statement; Monte Carlo simulation; asset allocation analysis; as well as tax planning, estate planning and risk management assessments. The couple was thrilled to learn that by making only a few minor changes now, they would be able to meet their goals during retirement.

Retirement Income — In order to achieve the couple’s retirement income goal, our team, together with the couple’s tax advisor, developed a three-year plan to reduce their concentrated equity position significantly. Because Tony is considered an “insider” at his company and has access to material non-public information, he is restricted from selling stock at certain points throughout the year. In order to allow the couple to liquidate their shares in preparation for retirement — and to protect Tony from insider trading laws — we developed and filed a 10b-5-1 plan for the planned sale of stock, enabling the couple to sell a predetermined number of shares at predetermined times over the next few years.

Cash Flow — We were able to take the proceeds from the stock sale and stock option to fulfill our proposed retirement income segmentation plan. This plan was designed to provide Tony and Linda with a predictable plan for their next 10 years of cash flow, rebalanced annually to account for market performance and actual withdrawals for fixed and variable expenses. To further improve cash flows, we suggested they pay off their small mortgage on their existing home.

Second Home — After confirming the couple’s income goals were achievable, we turned our focus to the couple’s second goal: the purchase of a Florida vacation home. Our examination of different scenarios and price points revealed that the couple could, indeed, purchase their dream home within a recommended range of $800,000 to $1 million.

Results and Implementation

After discussing our analysis and recommendations with the couple, Tony and Linda hired Mosaic Family Wealth to make the proposed retirement plan a reality. Our advisors implemented the income segmentation plan and put in place a year-by-year roadmap outlining our equity liquidation and repositioning strategy in the most tax efficient approach possible. We also set up a donor-advised fund and financed it with the clients’ low basis concentrated stock — prefunding all of their charitable giving for the next 10 years. As a result, they will be able to take a major deduction during the next two years when their tax liability is at its highest.

Finally, our team worked with an estate planning attorney to establish a trust for the couple, retitled their accounts accordingly and updated their beneficiary designations, ensuring their estate was sufficiently protected and transferred according to their goals. Lastly, we connected the couple with a healthcare expert to address Linda’s health insurance needs until she is eligible for Medicare.

By following the proposed plan, all of the pieces will be in place to allow Tony to retire on schedule and the couple to enjoy peace of mind knowing their financial life is secure.

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