Introduction

Meet the Reed's, a retired couple who have recently been experiencing financial stress due to the uncertainties in the financial markets. Both having retired from federal careers, 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 worry about outliving their money and wonder whether it will be enough for them. This is especially concerning as neither of them have long-term care protections. This case study follows the DOS Analysis approach, systematically evaluating Dangers, Opportunities, and Solutions to address their financial challenges.

Background

The Reed's, both aged 67, 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.

Dangers

1. Market Uncertainly: The Reed'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 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 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 Unrestricted: The Reed'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 this asset will be there for them as they had planned. 
4. Long Term Care Concerns: Dr. Smith wants to enjoy a financially stress free retirement but would also like to leave her children a substantial inheritance. The danger lies in inefficient wealth transfer that could result in hefty income and estate taxes.

Solutions

1. Diversified Defined Outcome Portfolio Management: To address market uncertainty, we recommended a portfolio adjustment that aligns with the Reed'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 Reed'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 Reed'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: Upon retirement, Dr. Smith will receive a lump sum payout of $450,000. The taxable nature of this payment creates some unique challenges but with proper tax planning, these challenges can be minimized and this asset can be harnessed to further her goals. This payout can be carefully integrated into her retirement strategy, contributing to her financial security and serving as a buffer against potential dangers in the early years of retirement.
By thoughtfully harnessing these available resources, Dr. Smith can effectively overcome the identified dangers and secure her retirement with confidence. These opportunities provide her with the means to create a tailored plan that aligns with her goals and objectives, ensuring a successful retirement journey.

Outcome

By systematically addressing Dangers, leveraging Opportunities, and implementing Solutions, Dr. Smith now enjoys a retirement that is financially secure and free from stress. Her children are poised to inherit a substantial legacy that minimizes tax burdens and ensures their financial well-being. Dr. Smith's retirement journey serves as a testament to the effectiveness of the DOS Analysis approach in achieving retirement dreams.

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.