CASE STUDY 02 : AGE 60
Retirement Financial Stress Relief
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Meet the Zhāng's, a retired couple who have recently been experiencing financial stress due to the uncertainties in the financial markets. They have accumulated a diverse mix of assets over the years and are seeking solutions to alleviate their concerns and secure a stable financial future in retirement. They also worry about social security and wonder whether it will be there for them. This is especially concerning as neither of them have a pension. This case study follows the DOS Analysis approach, systematically evaluating Dangers, Opportunities, and Solutions to address their financial challenges.
The Zhāng's, both aged 60, retired comfortably initially but are now feeling the impact of market volatility on their retirement savings. They have three children who are financially independent but still need assistance occasionally and they would like to help when they are able.
1. Market Uncertainty: The Zhāng's are worried about their retirement savings being eroded by unpredictable market swings, which could potentially disrupt their retirement plans. They have always felt comfortable with stocks but have recently become concerned as they rely on their portfolio for income and this can be challenging when markets are down.
2. Stress and Anxiety: The financial stress caused by market uncertainties is impacting their peace of mind and overall well-being in retirement. They have no desire to have to go back to work and worry that they may outlive their income. With their parents in their late 80’s and early 90’s they are fortunate to have longevity in their genetics but know they need to make smart decisions to protect their future.
3. Social Security Unrest: The Zhāng's have been watching the news which is indicating that social security will not be able to meet its obligations beginning around 2033. They wonder if their only pension like asset will be there for them as they had planned.
4. Long Term Care Concerns: Alzheimer's runs in their family history so they are particularly sensitive to the need to plan for Long Term Care but currently have no protections.
1. Asset Mix: The Zhāng's have a diversified mix of assets, including a 401(k) with $1.2 million, a non-qualified investment portfolio of $600,000, a mortgage-free primary residence, and a vacation home.
2. Retirement Income Sources: They receive Social Security benefits and are receiving deferred compensation payments that will provide sufficient income for them until age 65 when it runs out.
1. Diversified Defined Outcome Portfolio Management: To address market uncertainty, we recommended a portfolio adjustment that aligns with the Zhāng's' risk tolerance and long-term goals. This includes a diversified mix of stocks, bonds, fixed income and alternative investments to reduce risk while maintaining growth potential. For their equity investments we recommended that 1/3rd of it had limited upside of 16%-18% per year but in return all but 5% of the first 35% of losses that could occur in a down market were eliminated. An additional 1/3rd of the stock allocation utilized a defined outcome strategy that limited upside each year to 80% of the applicable indexes return but then typically would break even in a crashing stock market. These strategies significantly reduced the risk in their equity investments and are expected to increase their long-term returns significantly.
2. Stress Reduction through Financial Planning: We conducted a comprehensive financial planning review to ensure that their retirement income streams and expenses are well-matched. This not only provides stability but also peace of mind, reducing financial stress. Volatility Buffers and a private pension strategy was implemented to give the Zhāng's a solid foundation of income that they could not outlive…even if they make it to 100. A fixed income strategy was also implemented to simultaneously provided protection and additional income should social security be reduced, should a long term care situation arise, or should they outlive their life expectancy per statistical norms. Further, it double profits for their heirs should they not need any of the aforementioned protections. This gave them tremendous piece of mind.
3. Utilizing Home Equity: The Zhāng's new plan will allow them to comfortably enjoy their retirement while continuing to enjoy their home and vacation property. However, their plan also contained a safety net of sorts as they can consider using the equity in their mortgage-free primary residence and vacation home as a financial resource. Options such as downsizing or utilizing a reverse mortgage can provide additional liquidity and mitigate market risks.
4. Income Maximization: To further secure their financial future, we explored strategies to maximize their Social Security benefits by employing both a custom longevity study and then optimizing their social security based on their unique life expectancies.
By systematically addressing Dangers, leveraging Opportunities, and implementing Solutions, the Zhāng's now enjoy a more secure lower stress retirement. Their diversified portfolio utilizing private pension and defined outcome strategies minimizes the impact of market volatility. The comprehensive financial planning and forecasting has reduced financial stress as they are confident their new portfolio can withstand the recessions that they know will eventually occur over and over throughout their retirement years. The Zhāng's retirement journey showcases the positive impact of the DOS Analysis approach in alleviating financial concerns and ensuring a stable and stress-free retirement.
NOTE: The preceding case study is hypothetical in nature and does not pertain to any real WE Alliance Wealth Advisors’ client. None of the information presented should be interpreted by a client or potential client as a guarantee that they will achieve similar results or satisfaction levels if they engage WE Alliance’s investment advisory services.
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