Case Study: Life Planning
Balancing Family Time While Working Towards Financial Independence
Client Profile: The Smiths
- Married Couple
- Middle Age
- 1 Child
- Mr. Smith is an Engineer
- Mrs. Smith is a Physical Therapist nurse
While the Smiths came to Lynch Financial Advisors with a seven-figure net worth, they wanted to ensure their financial independence while creating more family time and making transitions in their careers. Their assets were all over the board and included concentrated stock passed down through generations, family businesses, real estate, and stocks and bonds.
The Smith’s challenge was the same as many clients’ – finding a balance between reaching financial independence and having adequate family time. They loved the outdoors, and spending quality time with their daughter.
The first step we took with the Smiths was to assess their current work situation. Mrs. Smith was dissatisfied with her current job and longed to open her own physical therapy practice. Mr. Smith had been staying at home, but was willing to go back to work for a couple years to help them “get over the hump” and reach financial independence sooner. We worked through Mr. Smith’s new employment contract in regards to compensation and benefits, and then he went to work. It was a big lifestyle change for the family for a little over a year, but it put them past the mark they needed to be at.
During this time, we started to work on their portfolio. The biggest issue was the amount of risk posed by the one concentrated stock that had been in the family for generations. We discussed a number of options ranging from selling off the stock completely to the downside of keeping it all. It was agreed that we would work to gradually reduce the position to less than 10% of the clients’ overall portfolio. We purposely did this in baby steps because this stock investment was like a family heirloom, and it had been non-volatile over the past 30 years. We settled on a three year plan of moving out of the positions and used “collars” to reduce their exposure. The clients liked the idea of the collars, because it protected them from a big protraction in the stock price and gave them additional upside potential. We included some real estate deals in the portfolio picture as they were all long-time investments that were generating increasing returns. Mr. Smith, now having gone back to work, continued to save diligently and continued on with their financial independence plan. During the first year of work, though, he worked so many hours that his family time was diminished, and they had not taken one good family vacation.
Having reduced their exposure to the concentrated stock and increased their overall portfolio through additional retirement savings, the client returned and asked if we thought that they were prepared to retire from the workforce. The Smiths had demonstrated a great ability to save, and they were still young enough to re-enter the workforce if necessary. Because of this, we devised a plan to have a “test year.” They set up a separate account into which they drafted the years’ expenses. Not wanting them to sit in their house and not enjoy life, we gave them some homework. The next time we met, we wanted to hear about a great family vacation they had taken.
When they returned, Mr. Smith said that they had completed their homework. They had taken a great family vacation and had more planned.
Mr. Smith was in the middle of a small consulting project that gave him a lot of flexibility with his work time and days off and Mrs. Smith was in the middle of starting her own practice. After assessing their new portfolio and taxes we started to talk about the wife’s practice and how we could help her build her client-base and increase revenue. Even in retirement (or “stage 2” of life!) many of us still want to work and be challenged.
This case study describes actual client success stories and does not infer specific or guaranteed returns/results.
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