Retirement – particularly with substantial assets – involves lots moving parts financially and requires some planning to get those parts to move efficiently.
Joe Conroy, an independent certified financial planner with Harford Retirement Planners in Bel Air, Md., with more than $100 million in assets under management, has a couple who are clients and who fit that bill. The couple was referred to Conroy by their accountant who thought their lucrative financial situation could benefit from his guidance.
“Both husband and wife were 66 and close to retirement when I started working with them several years ago,” Conroy says. “They had built up a substantial mix of investments and had not started taking Social Security benefits yet.”
Conroy, the author of the book, “Decades and Decisions: Financial Planning at Any Age,” specializes in retirement planning and likes to meet with clients at least twice a year when they get close to the retirement date. He says he got to know the couple well during these sessions.
The husband had accumulated a substantial amount of company stock from a Fortune 500 company where he worked. Some of the stock had been obtained as long as 20 years ago and therefore had a low-cost basis. It would be subject to large capital gains taxes if sold under most circumstances. The wife had worked for a local media company.
“They had too much stock – about $500,000 – in that company where he had worked, so we wanted to reduce that exposure in the portfolio, as well as avoid paying taxes on the stock he needed to sell,” Conroy explains. If a couple is below a certain income level, which was about $80,000 a year when this occurred, no capital gains tax is due on stock sales.
“We delayed Social Security benefits and delayed taking money from retirement accounts,” Conroy says. “For two years, this kept their income below the threshold. They sold about $125,000 in stock each year and paid no taxes on the gains. We did that as long as we could before they were forced to take Social Security at age 70 and had to take required minimum distributions from retirement accounts at age 70 and a half.
“During the time the couple waited, their Social Security benefits grew and the IRA balances grew, so they had even more money that could be taken out later,” he adds. “They still have company stock but now in a smaller, more reasonable allocation. We coordinated this multi-year plan with the CPA who originally referred them to me, to make sure we were not missing anything.”
In addition to the cash savings, Social Security and company stock, the couple had other investments in their portfolio for a total of about $2.5 million.
“This plan was a perfect fit for this couple," Conroy says. "They were receptive to doing things a little differently. In the future, they plan to sell more of the newer shares, which do not have as much gain as the stock that has already been sold.”
He notes that the couple is very family oriented, and not inclined toward lavish spending. "They could afford to buy a Ferrari, but they won’t," Conroy says. "We are actually helping them to spend a little more of their money. They like to travel and take their children and grandchildren with them. We want to help them celebrate with their family. We can also tell them they will now have more to leave to their children and grandchildren.”