Case Study I: Successful Business Owner Ready to Retire

Bill and Laura have owned a successful small business for over 25 years. During that time, they had grown accustomed to the affluent lifestyle that their business afforded them. Upon reaching their 60's, they worried about not being able to enjoy the rewards of their many years of hard work. They were ready to sell the business, but were afraid of the loss of income and security that would come with the sale.

Solution:

Bill and Laura needed to find a way to turn the business sale proceeds into an income stream similar to what they had when they were working. They turned to us, The Alder Financial Group, to help make this transition. We began by developing a comprehensive financial plan that identified all of their short and long term needs. From there we were able to design a portfolio aimed at meeting their specific cash flow requirements as opposed to using the typical asset allocation approach which is largely dependent on long term stock market trends for investment success.

For Bill and Laura's situation, we split the investment portfolio into two portions: one to produce a reliable stream of retirement income and the other portion to provide capital appreciation and inflation protection. Given the size of their available investments, only 65% of their portfolio was required to fund their monthly income needs. To generate a consistent cash flow, we invested this portion into a combination of investment grade and high yield bonds, preferred stocks and leveraged closed-end funds.

The remaining portion of their portfolio (35%) was reserved for long term growth and invested mainly in a broad range of domestic and international stock indices. Through periodic rebalancing, we will be able to maintain purchasing power over the years by shifting principal over to the income portion of the portfolio.

To make this transition even more seamless, we set up monthly distributions from Bill and Laura's portfolio to their checking account, creating an income stream similar to when they were working. With this strategy in place, Bill and Laura are now able to focus on enjoying their retirement and not worrying about the financial markets.

Case Study II: Corporate Executive Ready to Retire

Paul recently retired from a large corporation where he had worked as a senior executive for 17 years. While he was experienced in his field of business, nothing had prepared him for managing the complex financial issues surrounding retirement. As a senior manager, he had accumulated a wide array of retirement benefits. In addition to his pension, he had a substantial 401k balance, restricted stock and stock options. One of Paul's concerns was the long term solvency of his company pension plan. He was also unsure of how all these pieces would fit together to fund his retirement.

Solution:

When Paul came to us, The Alder Financial Group, the first thing we did was create a comprehensive financial plan that identified his financial needs in retirement and his future income. Through the planning process, we uncovered several areas of concern. Between the restricted stock, options and the pension, the majority of his wealth and retirement income were dependent on one source - his employer.

To address Paul's reservations over the sustainability of his company pension plan, we recommended that he roll over a potion of his lump sum pension amount into an immediate annuity and the remainder into an IRA. The immediate annuity would serve as a guaranteed source of lifetime income, partially replacing the pension. We also recommended he roll over his 401k into the same IRA. Between the immediate annuity and the size of the IRA, he would be able to replace the income that he had when he was working. To generate a steady cash flow, we invested this portion of the IRA into a combination of investment grade and high yield bonds, preferred stocks and leveraged closed-end funds.

We reached the conclusion that Paul needed to divest himself of his concentrated stock exposure. He was fully vested, but to make these changes in one year would have created a significant tax liability. Instead we planned to stagger the stock sales over four years. To protect against a decline in value during the four-year time period, we designed an options strategy to establish a floor value for the outstanding shares before they could be sold. The proceeds from these sales were invested mainly in a diversified mix of domestic and international stock indices. Through periodic rebalancing, we will be able to maintain purchasing power over the years by shifting principal over to the income portion of the portfolio.

We have put together a couple of sample case studies that demonstrate how we can help investors prepare for and enjoy their retirement.