Streamlined expenses and found new cash sources for a couple nearing retirement 

A married couple in their late 60s was nearing retirement, but their expensive lifestyle was outpacing their income. These clients preferred not to take on significant risk in the financial markets, so we needed to chart a path that would reduce spending and find other cash sources, rather than aim for high portfolio returns. Early in their careers, the couple had saved significantly, but now their professional healthcare practice was no longer producing income in excess of their expenses.

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THE ISSUE

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Find ways to replace income and reduce spending

The couple’s assets were tied up in life insurance cash value, real estate and retirement plans. We needed to look for opportunities to cut spending and increase cash flow.

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OUR SOLUTION

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Analyze their budget and dig for hidden savings

We reviewed the family’s annual cash budget seeking areas to reduce unnecessary spending. We also analyzed their healthcare practice’s business expenses. Here’s part of their custom-tailored plan:

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• Reduce Expenses  – Together, we discussed several potential expenses for the family to reduce. The couple decided to cut back on clothing purchases, excess gym memberships and other services they underutilized.

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• Terminate Business Retirement Plan – The couple had not contributed to their company retirement plan in years, but they were still paying an administrator over $3,000 a year in fees. We chose to terminate the plan and rollover the assets to IRA accounts, saving the couple thousands each year.

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• Pay for Investment Management with Pre-Tax Dollars – By rolling those retirement funds into IRA accounts, IRS rules now allowed the couple to pay their investment management fees using pre-tax dollars.  This saved them approximately 25% annually on investment management fees.

   

• Convert Life Policies to Paid-Up-Policies – We used some of the cash value of their life insurance policies to convert their life insurance to paid-up-policies.  This saved the couple about $20,000 in annual premiums and loan repayments, while continuing to defer any tax liability on the appreciated cash value.

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• Qualified Charitable Distributions – Since the family was no longer itemizing their tax deductions after recent tax legislation, we advised the clients to pay charitable contributions directly to the charity from their annual IRA required minimum distributions.  The IRS allows theses charitable gifts to directly reduce taxable income. Effectively, they can now deduct their charitable giving on their tax returns, even though they are not itemizing their tax deductions.