Navigating High-Income Financial Planning: A Real-Life Case Study

March 21, 2024

In this episode by EWA, Matt Blocki and Jamison Smith take a deep dive into a real-life financial planning case study, focusing on a high-income family in their early to mid-40s. With a combined household income of $700,000, split between W-2 and 1099 income, this episode explores the unique financial planning opportunities and challenges faced by medical professionals and those with mixed income sources.
Matt and Jamison unpack the family’s financial situation, including savings, investments, and the lack of a 529 plan or insurance, setting the stage for a comprehensive financial strategy discussion. They dive into psychological aspects, lifestyle considerations, and the importance of aligning financial decisions with personal goals, emphasizing the significance of financial planning in achieving long-term security and peace of mind.
This episode provides valuable insights on budgeting, investment strategies, tax planning, estate planning, risk management, and much more. Whether you’re a high-income earner seeking guidance on optimizing your financial plan or just interested in understanding the nuances of financial planning, this episode offers practical advice and real-world examples to help you make informed decisions for your financial future. Listen in to learn more about how to navigate the complexities of financial planning, ensuring you’re on the right path to achieving your financial goals and living your life by design.

Episode Transcript

Welcome to EWA’s Finlit podcast. EWA is a fee only RAA based out of Pittsburgh, Pennsylvania. We hope all listeners of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you. And we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your family and also save time in. Welcome, everyone, to this week’s Finlit by EWA podcast, joined here by Jameson Smith. And we thought it’d be really helpful just to go through, like, a real live case analysis. Just high income earner in their 40s, what concerns are typically brought up to the table, and then what does a financial plan actually look like? What’s the responsibilities on us? What’s the responsibilities of the client? What’s the roadmap of the implementation, et cetera?

 

So James and I have prepared just a sample case analysis based upon real life, you know, no specific names or anything will be shared, but we thought it’d be really helpful to walk through. So let’s first set the stage. So, Jameson, in this sample case analysis, give us a high level background. What are incomes, what are the circumstances, et cetera.

 

Yeah, so we’ll just say early 40s, early mid 40s. Husband, wife, one kid. Kids say two years old, year old, doesn’t matter. Income. They have some w two income, some 1099 income, say 700,000 of household income.

 

How much is w two and how much is 1099?

 

This example, say 600 w 200,000, which.

 

Is really common with medical professionals. If you’re like a doctor, typically your w two will be your main, and then maybe you do some legal work, some medical malpractice, witness expertise stuff. Or if you’re in sales, sometimes you have a w two and you have some consulting gigs, et cetera. So that’s very key because that puts the opportunities, from a financial planning standpoint, like ten x, which I know you’ll get into, but I just want to break that down.

 

So a little bit of 1099 income, and we’ll say they’ve done some savings. So we’ll just break. Set the scene here. So it’s 350 in an old IRA from an old employer, 200,000 in 1401k that they’re funding, 150 in another 401k they’re funding, say, 200,000 in just a taxable investment account they’ve been saving into. No 529 plans for the kids, no insurance, no estate planning. They’ve basically just started to save some money as they’ve worked at multiple jobs. Now they’re really starting to make a lot of money. And a lot of times in these situations, the concerns, obviously there’s a lot of financial stuff and nerdy stuff we’ll get into. But a lot of it’s more of like psychological, soft, like the softer things. It’s not a tangible, like, black or white financial decision.

 

So a lot of these people, they’ve again started to make money. And they kind of in a weird area if you’re in your forty s. I don’t know. I’m not my 40s. But this is just based on the context of people I’ve talked to. You kind of look back and you’re like, well, I don’t really know if I’ve saved enough money. Like, I probably have some financial regrets. Maybe I’ve taken on some debt when I was younger. I’ve spent more than I should have. I’ve saved some money. I have no clue if I’m on track or off track, but people at that age range, they kind of see retirement. They’re much closer to retirement than someone their twenty s and thirty s.

 

So you’re kind of like, well, I can kind of see the finish line and I have zero clue if I’m on track, off track. If I’ve saved, I’ve oversaved, undersaved. So that’s where a lot of the conversation is had. Again, we can do a bunch of nerdy financial stuff, but it’s more of like, hey, how do we calibrate this to lifestyle and make sure that it’s set up with your goals to make sure that we’re right. Sizing all this, but, yeah. General overview, anything to add?

 

Yeah, no, that’s great. So both spouses are working in this example. Let’s just set the stage even further. So what are the incomes of the husband and wife?

 

So let’s say wife is about 200,000 w two, husband is. What’s the difference there? 400 w, 200,509.

 

Okay, so the wife is 100% w two. And then the husband has a split, 400 w two and 100. And this is a real life case analysis. Obviously it could be vice versa. Okay, so first meeting, what are the goals? What gets uncovered?

 

So again, obviously the balance sheet, but.

 

Then basically stresses goals, et cetera.

 

So we’re going to go through all goals short term, next five years midterm. In their case, they’re in their 40s midterms, probably next 1015 years long term is going to be any type of financial independence goal. So beyond 60, 65 whatever that looks like. So just looking short term, a lot of times this is maybe they want to get into their forever home, or they’re in their forever home. They’ve just gotten into their forever home. So they have their mortgage. They want to know, should I pay down debt quicker? Do I save? I don’t want to carry a 30 year mortgage till I’m 70. What do we do? Maybe there’s house renovations on the table. Most of the time, I would say a lot of the bigger purchases are complete.

 

There’s still maybe one or two hanging out there, whether it’s a vacation home or, again, that house they want to get into. But then short term, it’s basically just get on track for everything, get everything in place for long term savings. In this specific example, college was a big thing, but do they want to.

 

Fund, say, one kid, do they want to fund, like, 100% of undergrad, postgrad, or. How did that conversation go?

 

Yeah. So what I like to do is ask how the client paid for college, because usually that uncovers a lot of the beliefs and philosophies they have. So in this example, took on loans, and then the husband paid off both for the wife’s loans and his loans. And so his philosophy was he wants to have half of the expected college cost ready to go, but he wants the kid to have skin in the game, so wants to be able to pay for it if he decides to, but wants no brainer half there. And then make sure the kid has some skin in the game for undergrad.

 

Nice. Okay. So have the flexibility to pay if they want, but skin in the game is key. Okay. Any other short term goals other than the forever home?

 

They’re in their forever home. So the renovations were done? No, that was literally.

 

Do you find that they had any stress with money temperature? They were unsure of what they were doing. Were they spending too much, saving too much, et cetera?

 

He thought that they were spending too much with. Basically they were maxing out. They’re already maxing out both 401 plus saving like $5,000 a month. So if you think about just break down, 30 is coming in after taxes.

 

So 700 gross after 401 ks. After taxes, they’re left with 30 a month.

 

Yeah, roughly. So they’re already saving 46 into the four one ks plus five a month going into tax account. So they’re actually doing pretty good job of saving.

 

Okay. So they’re saving about 100. So that’s about a 15% of their gross. And we like them to be at 25. So another 70 a year if possible. But I’m guessing some of that 1099 probably comes in at sprattic moments. So maybe some of that’s getting captured as well.

 

Yeah.

 

Okay. But go back to his biggest stress. His biggest stress was like, I feel like they’re overextending themselves and they’re spending too much saving too little. Yeah, basically, which I would agree with them. I think they’re doing better than the average, but they should be saving more.

 

Yeah.

 

Not for even financial planning, but just for the sake of, if you’re used to that money temperature of essentially spending 25 a month, even if your house is paid off when you retire, you’re going to be needing a lot of that money still to live off of, if not a little bit more because all the free time, depending on their travel goals, et cetera. So one of the best financial planning metrics is just to control that money temperature. That’s the greatest, that discipline aspect is the greatest aspect of success in the future. I think his gut was pretty right on of like, we need to calibrate that a little bit. That’s great. What else did you hear from the wife and the husband? Are there any disagreements about money or did you just meet with the one?

 

The first meeting was just the husband.

 

Next meeting will be both. Okay. Interesting. Okay. And so you mentioned no estate plan, no insurances. Was that a stress for them or did he think that was even a concern?

 

No, he brought it up to me. He’s like, I know I should be doing this. I just don’t even have a clue what’s appropriate, where to start.

 

Okay. What were some of his other concerns? Is he concerned about how his investments, was he invested correctly?

 

No, actually didn’t even bring that up. But he has an advisor at a big wirehouse. He says, I feel like they’re good, but not like they’re just like doing investment management. They’re not providing any good service. Big concern for him. So he’s in very competitive sales role. And so he said when it’s like, eat what you kill, it can be very stressful because at any moment could not come through, it couldn’t hit. And then also is transitioning to potentially starting taking the role he has with the sales company or that company, the sales role and turning it all to 1099 like his own business and then hiring people under him. So that’s been a stressor. It’s just like how does he navigate and wants to know, if I flip to 1099, what income do I need to.

 

Obviously now taxes aren’t taken out like a w two. But he was like, I know I can do some tax savings from retirement accounts, just writing things off. So what’s like, the break even point of income?

 

So he’s looking for a decision affirmation on a big career move, essentially. Like putting all the chips on himself.

 

Could have higher upside, but obviously much more risk.

 

Yeah, that’s, I think one of the biggest values that financial advice can provide is walking through. Maybe clients have five or six huge decisions, like s curve moments, we like to call them during their life. So it sounds like he’s right in the middle of one. And even helping through that will be a game changer.

 

Yeah.

 

Okay. Well, before we get into dissecting, what could he be doing? What are the recommendations, et cetera? Anything else come in the conversation?

 

No, they basically just bought the forever home, did some house renovations. They’re through that, and then just had the kid. So it’s like, basically a couple of big transitions. So things have been just, like, variable and then just wanting stability as they’re now through kind of the two big transitions.

 

Yeah. What about fees? Did you guys talk about fees and what our fee would be? So walk through. He could hire, like, an hourly advisor. He could hire someone to just develop a plan, which obviously, I have a strong opinion on. People live, breathe, and think about finances. So having a one time plan that probably doesn’t get followed through on is for someone like this with very little time and high stress, high income is probably not the way to go. But talk to us about how did that conversation go from a fee perspective? Why do you think he’s a good candidate specifically for our model?

 

So he’s looking for holistic advice, tax advice, estate planning, risk management. And like you said, decision affirmation, not just like investment management, like the advisory is now, is just literally managing an investment account. That is it. So he wants full service, like CFO type service, which is what we provide. And so I just explained, hey, you could go to an hourly fee with an advisor. They’re not going to help you implement it. You’re going to leave the meeting with a list of, like, 20 things to do. And his big thing was, he’s like, I know I could learn this. I’m sure I could do the research and learn it. I don’t have time and I don’t want to, nor could I know I wouldn’t know if I’m making the right decision.

 

And he was like, I just want to be able to delegate this and have somebody that I trust and knows that they know what they’re doing. And so I said our fee structures assets under management based, explained what it would be his case about around a million bucks would be approximately 1%. And I said that encompasses all of our services. So obviously we’re doing the investment management. But this will give advice on estate planning, insurance, taxes, retirement, college savings, budget, cash flow, all of these financial decisions. We never give you an invoice, you never pay us for our hourly, for our time. It’s just wrapped into that aum fee.

 

We can meet as little or as much as you are comfortable with, but we’re going to do as much work behind the scenes to take that off of your plate, but obviously report to you and let you know what’s going on at all times.

 

Awesome. And how did he receive that?

 

He said it’s exactly what he’s looking for.

 

Okay, perfect. And if you look at the, if he were to replicate that through hourly fees and then paying a CPA and quarterbacking and all that stuff, he’d probably pay five x what the 1% is. So that’s our business model is quarterbacking and making the complex simple for really busy individuals with low time and lowering stress, increasing decision affirmation, lowering decision fatigue, and letting people live their best lives, and making sure the money has one job description supporting their life by design. That’s it. So, yeah, that’s alignment there, which is, . I think one of the conflicts that Aum advisor has, though, is the incentive. Like, we want as much under management. Obviously, we have a tiered down fee, so the more you have, the lower the percentages. But still, it’s like the conflict of the more you have.

 

So one of the things we try to be really intentional is making sure that you’re securing the future, but you’re also living presently. And the stress test on that is you can always look back on your life without regret. And I think that’s a really important thing to disclose to clients, is we want to make sure you’re living your best life now while securing your goals, not focus one or the other. Because that balancing act is what I call the artwork of financial planning.

 

I think we do a really good job of, like you said, I mean, any advisor model, there’s one conflict one way or the other. I think we have the least.

 

Anything in life has some conflicts.

 

Yeah, I think we have the least amount possible, but I think we do a really good job of, like, we’re making decisions in the best interest of the client, even if it means there’s less money for us to manage, and we use that as the decision making framework at all times, which in the short term, you may get an opportunity where you could have more under management. But like long term, if you’re just doing what’s in the best interest of the client, having an impact, they’re going to know that and they’re going to refer you to their friends and talk very highly of you. So, yeah, I think we do a good job of just always doing what’s best for them without worrying about the Aum conflict.

 

No question. Okay, so meetings over, you go back to the office, work with the team. Now it’s time to dissect, start coming up with a plan, recommendations, et cetera. So what are we looking at here?

 

So for him, the first thing would be like reverse budgeting.

 

Let’s break this. Short term, midterm, long term risk management, estate planning. So basically go through those five categories to start. Okay, short term, you mentioned reverse budgeting. Completely agree.

 

Estate risk management. Okay, so short this. Basically you have to get that. That’s like the fundamentals we have to get in place and kind of set the barriers and then that’s going to set the rest of this up for success. So reverse budgeting. If he has 30 a month coming in, I think fixed expenses are like twelve, five is getting saved already. That’s 17. We’ll probably want to increase. We’ll definitely want to increase that minimum to eight.

 

So 20 needs to go in that fixed account.

 

So that’s 20, and then that leaves ten that can just be spent on whatever.

 

And so once we separate account that pays off the credit card, essentially, yeah.

 

Once we get that 20 set up and calibrated, then all you have to watch is that 10,000 a month.

 

So just as a real quick, we have tons of resources. We’ve created reverse budgeting. But if you’re a new listener here, there’s one way to budget, which is tracking every expense. If you’re a high income earner, that’s the wrong way to spend your time. The other way is just to set the system up front and make it a system and accountability system. That’s impossible. So here we’re talking about direct depositing your account into two accounts. One is a fixed account. You never adjust it, you never touch it. The job description goes in there and the money is getting allocated to fixed expenses that you can’t change, such as a mortgage, utilities, car payments. And then also that’s where, in this example, your fidelity drafts are going to fund like 529 taxable accounts, et cetera.

 

And then where most people get tripped up is they leave it all in one account and then they start swiping, swiping with no clue it’s where it’s going. But if you set that temperature by setting a separate account for those swipes in this account, in this case, it’d be 10,000. Job description. But anytime you swipe, including basically as a credit card. So gas stations, Amazon purchases, to dining out, to traveling, et cetera. And then once the money runs out, you run out. But it’s also meant to be spent. So psychologically, you can give yourself permission to spend and know that your plan is on track.

 

So it’s the most highly effective system that’s proven because we’ve clients of implant have completely gone from being in credit card debt behind to now having top 1% net worth in the matter of like five years.

 

Totally. I just literally thought of this right now. It’s almost like if you were to draw a pyramid, and I’m going to use an example of nutrition, fitness, health, like the bottom of the pyramid, which is like, the fundamentals would be like your diet, your sleep, and then the top exercise. The top would be like calibrating the type of exercise and the type of workout. But if you’re not doing the bottom part, you’d have the best workout plan in the world.

 

But if you eat like a slob.

 

And you don’t sleep, you don’t hydrate, you drink all the time, it’s actually.

 

Going to hurt yourself.

 

Yeah, you’re going to matter. Same thing with finances. If we have all of these crazy tax and estate strategies. But the fundamentals of the basic budgeting and spending and that stuff’s not set up, which would be like the bottom of the pyramid, then that will never work. So there’s like the first thing we want to always do.

 

No question. No question. Okay, so that’s short term, and sounds like they’re already in their forever house. So any other cleanup, short term, credit cards, banking, anything like that?

 

No.

 

Pretty solid.

 

He has a little bit of too much in cash because he was holding it to these house projects. That’s all done. So basically settle on what amount stays in a savings account.

 

How much should they keep in cash?

 

How much should they. Yeah, three to six months expenses is what we say. But it’s also some sort of like comfort level. So if he told me he was comfortable with 50 grand, probably should have a little bit more.

 

Okay.

 

He has like 250 right now.

 

Okay, so we’ll say 50 to 100. We want to keep in safe cash reserves three to six months of expenses. And typically, so that’ll be like half the savings account immediately accessible and half we would allocate to a one or two year treasury note or a high yield money market. Now you can get 5%. And basically that three to six months, typically it ends up being like half of that ends up getting spent because unexpected. Oh, no, we want new furniture. Unexpected. Oh, no, we need this. Another half is just like literally emergencies. So anything short term meant that we’re going to spend or that we aren’t planning on should be in cash. So we’ll say that’s 100. Okay. I think that covers well, the short term. So midterm, they’ve got a kid. So that’s college. What are we going to recommend for college?

 

So we’re basically going to do analysis. We talked through like, a public school, 30,000 a year, state school, private school, like 100. We’re going to meet in the middle 50,000 a year in today’s dollars. I’ve done this so many times, but if you were to project out inflation, everything, probably need half a million bucks.

 

Just for undergrad, total.

 

For undergrad, yeah. He wants 250 minimum set aside, that’s going to be probably 500, $600 a month, I’m guessing.

 

Okay.

 

Right. It’s probably, yeah. To save, to get to that in 18 years.

 

So half that in the 529 typically, and half of that in the brokerage account. Right. So we could still get the half a million. But if half of it’s in the brokerage account, then it’s flexible. It doesn’t have to be used for college. The market’s down. During college, you can take a loan out and wait for it to come back and then pay it off. So basically marrying tax efficiency with flexibility.

 

Yeah. So that’s midterm, and then from here on out it’s just retirement tax, estate, risk management.

 

So let’s tie it long term real quick. So how does he define retirement? Assuming he transitions to his self employed job, is he in the mindset, like, as soon as I can retire and retire? No, I just want to be in the position to be financially secure. I’m going to work, but it’s because I want to, not because I have to. What’s his mindset?

 

Yeah. So I always love to hear people’s just like, story of how they got to where they are. And a lot of people that have these beliefs didn’t come from much like they’ve built this on their own. They didn’t come from a family with money. And that’s kind of his. He’s just accustomed to the last ten years of just hustling and grinding and working from 05:00 a.m. To 09:00 p.m. And so people like that, they have this, I have it personally, like, this underlying sense of insecurity of this could come crumbling down at any point. And so it’s like they’re so hardwired into that now that they’re probably never going to stop working. This is what he told me, never going to please stop working. So, yeah, at 60, I’d like to maybe get to the point where I wouldn’t have to.

 

He’s like, but reality is, I love working. I’m going to work on some capacity. I actually asked him the time exercise we do, and I said, if you’re financially independent, you had $20 million in your bank account and you couldn’t work doing what you’re doing now, what would you do? And he literally looked at me and he’s like, I have no idea. He’s like, do people know the answer to this? I was like, nobody knows the answer to this.

 

That’s such a good reframe, though, because most people are like, I want to retire in ten years. But then what? And they’ve never thought about then what’s. When you’re retiring away from something, you’re going to go from miserable to more miserable. But if you can calibrate and figure out the why behind it, and then to live a balanced life, because then there’s regret on both sides. There’s regret of, like, I’m stressed now, there’s regret later because I haven’t planned. But that’s such a powerful reframing, is to have the why and then the discipline, the motivation to actually follow through will be there. If the why is there.

 

Yeah. So basically for him, it’s like, let’s get all the tax efficient long term savings vehicles maxed out. Let’s set the track for 60 to show you what that would look like, and then we can calibrate from there.

 

Okay, so if we try to get financial independence at 60, he’s what, 40 right now? Okay, so he’s got 18 years of max savings. What do you think? Let’s just do a quick math. So if he’s spending ten a month on a credit card with a kid, some people say 80% of your take home minus expenses. So if his mortgage and tax are paid off, we could probably make the case. If he’s bringing home 30 a month, his mortgage and his savings shuts off, he could probably make the case of like, oh, we could be okay with like twelve a month. Because if I’m saving eight of the 30, that’s 22. If my mortgage is another six, like eight, then that’s 14 a month and the kid’s gone. Right. So I’d be cool with like ten a month. It’s just not the reality. Right.

 

Your mortgage goes away, taxes, insurance days, your savings goes away, but other lifestyle. So for this guy, we’d recommend between 15 to 20 a month. And by the time he gets to retirement. So let’s just pick a number. Let’s just say it’s 20 a month. By the time he gets to retirement, he’s going to really need closer with inflation to half a million dollars a year. So by that time, Social Security will provide about 100 of that, adjusted for inflation. So he’ll need 400 a year. So how big of a portfolio do we need for him to be kind of set? 10 million for life?

 

Yeah. 10 million?

 

Yeah, I would say anywhere between. I would say eight. Unless he has huge legacy goals than ten. So what’s his net worth right now?

 

Million.

 

Okay.

 

I mean, investable. Million? Yeah.

 

So investable is a million. Just right off the bat, I’ve got this compound calculator doing some math in my head right now. So he’s got 216 months before 60. If we just assume it’s conservative 7%. So between, if we’re telling him to save eight, he’s maxing out 401 ks between him and his wife. That’s with matches and stuff, that’s another four. So let’s just say it’s just baseline, it’s twelve a month. That’s going to get him to 8.7 million. Perfect. But if he becomes self employed, then we’ll have the more tax efficient way to do that through, like mega back to a Roth and cash balance plan. So now give us the secret sauce of the long term plan. What accounts are you recommending and why?

 

So first thing we’re going to do, switch 401 ks to Roth. Tax free accumulation, tax free distribution. As long as the tax code, we have a ton of resource on this, we’re not going to get super deep. But as long as the tax code allows it, fund it, basically, bottom line. So do that. Still saving the same amount. Obviously paychecks would decrease a little bit because you’re paying the taxes, roth four hundred and one k. Second thing, obviously, we already talked about 529. 2nd thing would be his old IRA from the old employer, since he does have the 1099 income. Now, what we’ll do, we’ll open a solo 401k. We’ll roll that Ira into the solo 401k. That clears his aggregation to now do.

 

Such a huge aspect advantage in a financial plan.

 

Now I’ll be able to do backdoor Roths, which is 14,000 a year this year. But what he can also do, he has 100 grand of 1099 income. He can also fund the full 69,000 a year into the Roth. Four hundred and one k. And then if that grows, so if his 1099 income now is 700 a year in the future versus 100, we can do that 69,000. Plus we could do what’s a cash balance pension plan, which would be like.

 

Another, his age, another 150, right? Yeah.

 

So those are all on the table to make everything. Basically, those are the long term savings to be super tax efficient.

 

And that diversifies the pretax, the cash balance. He’s getting a direct, at this point, 37% write off of his federal taxes. And then the Roth is setting him up in retirement to navigate tax brackets, Medicare surcharges. So he’s got the balance of saving taxes now, but also being tax efficient later. Okay. And then he’s going to have. So basically, they’re going to have backdoor Roth Irace. He’s going to have a solo 401k through a mega backdoor Roth strategy, 69 a year. His wife’s going to have a 401k through her employer, Roth, plus a match, which will be pretax already said the cash balance plan. They’re going to have a 529 plan for their kid. They’re both going to have backdoor Roths. And then they’re going to have a brokerage account, essentially.

 

And all of this will be under one roof of custodian like Fidelity or Charles Schwa, where they can have all visibility of one, be able to track it stress free. Everything will be labeled correctly. And then, obviously, monitoring, calibration, et cetera, and all that time management. Obviously, if they hire us, all the coordination quarterbacking with estate planning and cpas will get in a second, will all be taken off his plate. So we can get this thing, like, fully automated. The TPA third party that he’ll need for the pension plan, the 401K will take that off his Plate, et cetera. So he’ll be able to essentially go make the money, spend the money, and then what we’re talking about will be automated behind the scenes. Awesome. Okay, anything to add to that before we get into like an estate planning?

 

No, basically just Max as much of that out as we can.

 

Okay, so estate planning, what kind of trust should we be looking at here?

 

First, they would need a revocable trust. That’s just going to be standard. Just to make sure if something happens.

 

Let’s just go back and forth reasons why you want a revocable trust in Pennsylvania. So what’s reason number one?

 

Woods probate.

 

Huge advantage. Second is it’s private. So instead of everything being a public document, if it passes to their son, is it a son or daughter? Son. It’s all private. So, creditors, predators. If it goes into a trust, divorce it. All that stuff, it’s protected. It’s safe. Money that’s going to stay in the bloodline.

 

Yeah.

 

What’s the next one?

 

And then they can determine what if they die? When the kid’s ten years old, they can determine what the money is used.

 

For revocable trusts, and then can go into irrevocable trust for the kid. And then they can establish a trustee. Typically we’d recommend, okay, choose a corporate trustee, a low cost like fidelity 30 basis points or whatever it is, and then have a family member, like an uncle or a trusted parent be the trust protectors. That way that person’s not in charge of filing tax returns and keeping up with trust laws, et cetera. But they can high level make the decisions for the hem standard, health, education, maintenance, support for the kid. Okay. And then I think they’re good. So obviously they want durable power of attorneys, financial power of healthcare, power of know guardian for their kid. If something happens to them, they have got the establishment of who’s making decisions on their behalf. They’re incapacitated.

 

And I think they’re good candidates for slat spousal life access trusts just because they keep access to the money. But then they also can start thinking about long term. If they have an estate tax problem, asset protection, et cetera, they can start slowly funding those under the annual exclusion limits as well. But that’s probably something we’d introduce in year two. All this at once would be maybe a little bit too much.

 

Yeah, maybe not. And if his income jumps with the business stuff, then no brainer. Probably a year or two and it was going to be income dependent.

 

Yeah, right on the edge. If we’re telling him, hey, you need eight to 9 million to reach your goals, there’s probably some estate planning considerations. If he reaches those goals and say, guys, I still want to work for another ten years because I love what I’ve created then, yeah. Eight or 9 million retirement. If he’s spending a healthy amount, probably not necessary, but no real disadvantage to set up the slats if he remains married or if they have a. It’s clearly read out in a prenup, postnup, et cetera. But if you have two slats, obviously look out for the reciprocal trust doctrine. They can’t be exact. And you’re doing kind of 50 funding, then you’re going to be in the same spot you would be without a prenup anyways. Okay, so risk management.

 

So life insurance, I mean, he needs back the napkin. Probably 5 million term coverage.

 

What do we want that to cover?

 

Education.

 

Half a million just like that mortgage, which is what, a million? 600, I think 600. Okay, so now we’re at 1.1 and.

 

Then income replacement for the wife, which.

 

Is huge because if he’s making 600k after taxes, he’s probably bringing 20 of the 30 in of the two or 22 of the 30 in. And so if he’s gone, that’s gone. And so you would need about 4 million, as you said, to replicate that kind of income for the wife at least until the kids through school and then to make sure her retirement is still good. Yeah, and so generally you’re talking ten x minimum your income. If he’s making 600, that’d be 6 million. I agree. If he’s a good saver, 5 million would be adequate. Not to set the wife like I’d never have to work again, but just to put them in a similar position as before. Now one of the considerations, what if she gets remarried?

 

So you could have a trust own that life insurance so the wife has full access based upon her support. But then obviously there’s some provisions for the child to have some principal, for example, in place as well. So many considerations that can be put into place, especially if it’s a second marriage, et cetera. Those are all kind of things that spouses will worry about under those circumstances. Okay, and then what about any other risk management planning we should do?

 

Yeah, I mean, he should have disability insurance for sure. His job is very, he’s running around.

 

Sales, so if he can’t work right now, he probably has like 60% of his salary covered through the work. But his 1099 is not covered. It’s probably capped at like 10,000 a month and taxable. So he would go literally from making 22 a month to down to six a month after tax.

 

Important, though, with salespeople, a lot of times only on base salary.

 

Oh, right.

 

So if there’s a lot of. It’s all like commissions.

 

Yeah. So there’s probably literally a gap of like, right now he’s bringing him 22. If he’s disabled tomorrow he’s bringing in six. And that’s not inflation protected. Typically, it’s not specific to his occupation. So essentially we want to give him an own occupation policy that protects his ability to do his high level skill set. And you think, oh, sales. No, he’s the top one percenter. Almost as a family they are almost. It’s like 770 right now of income. So he obviously has a high skill set to do what he does. So you want to protect that skill set and you can do that for relatively cheap. A couple of month will most likely protect that. Okay, perfect. And then I think long term, they’re probably candidates for like a hybrid life insurance policy.

 

Convert some of that term to a policy that builds cash value quickly, maybe in a ten year snippet, and then also have that long term care protection from a healthcare perspective to protect taxes and sequence of return risk from long term and retirement. That’s probably something that would be brought up a couple of years into the relationship. Okay, awesome. It sounds like an awesome opportunity. Kind of bread and butter. High income, low time, high income, high stress. Yeah, lots of stuff to accomplish. It could high stakes, because life happens so quickly, and if you don’t set this stuff up right, before you know it, you have half of what you thought you were accumulating. Now you’re basically a slave to your money where it’s like, I’m working because I have to.

 

And that’s the worst position to be in, especially when your disability runs out. It’s like, what if my health declines? I’m in a really bad spot. So it sounds like excellent framework of discussions. I think this will be a no brainer relationship for both EWA to take on and for them to hopefully be happy in their goals being on track. Awesome. Any closing thoughts before we.

 

No, I would say this is a similar, very common situation. We see high income earners in their 40s. Like I said, they see retirement, so it’s more front of mind, but they also don’t know if what they’ve been doing is keeping them on track or off track. So very common situation.

 

One of the biggest pieces after doing this for almost 15 years now since interning as an advisor, having a plan like this in place, just, I think ten x’s today. Because then like a cloud of a great black cloud in your mind gets just lifted. While I’m on track, stress gets lowered and then creativity and just enjoyment of life really goes on. So it’s not just about like hey, look at all these future goals. This lifts a huge weight so they can just enjoy life today and focus more time on family and what matters and figuring out what the next stages of our what do I like to do with my time? Because this is a big commitment. I mean, maybe 2 hours a week every week.

 

That’s getting left off your plate of actual worry follow through actions of handling all these financial affairs. Speaking of hobbies, do they like to travel? Obviously they have a young kid, so that’s on a little bit of pause right now. But what do they enjoy outside of work?

 

Travel, golf, going to dinner with, hanging out with friends, family? Just standard social stuff.

 

Those can be really central conversations as well. Once it’s all on track is make designing should I be a country club for convenience? How do I maximize my time as a busy professional? Should we have a nanny instead of daycare? Should we have cars we really feel safe in? Should we have all of these little internal competitions in your financial plan can start being easily lifted once we establish the guardrails and the boundaries in place and to really make sure that they are living their best life today. So we talked a lot about future, but that really lifts the heavy weight and then we can really just start like what is life by design? Are you living it? What’s the next steps as your income? How do we protect lifestyle creep but also not over accumulate money?

 

So we look back with regret like wow, we could have driven nicer cars and belonged to a country club or taken nicer vacations or flown first class. All of those things that need to be figured out are easy to do once you have those guardrails in place and the boundaries in place. Absolutely perfect. Well Jameson, thanks for joining everybody. Look forward to catching you next week. Thanks for tuning in to our podcast. Hopefully you found this helpful. Really hope this is as beneficial and impactful to as many people across the nation as possible. So hit the follow button, make sure to rate the podcast and please share with any friends or family members that would also find this beneficial. Thank you very much.

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