Well within reach

Sarah and Richard, both successful professionals, had big dreams that we helped turn into reality. By following our advice, they purchased a vacation home and shortened their time to financial independence — all while generating over $275,000 in additional annual cash flow and $45,000 in one-time cash flow.

Situation

Sarah, a 52-year-old corporate vice president, and Richard, a 54-year-old self-employed writer, earn a combined annual salary of $850,000, and Sarah receives an additional $250,000 in annual bonus. They have a $400,000 mortgage on their $1.5 million residence, $3.5 million in retirement and investment accounts, and $515,000 in 529 plan accounts for their three children. Sarah wants to make work an option, not a requirement, by age 60; Richard wants to know he can stop writing by age 65 if he wishes. They want to make an all-cash purchase of a $1 million vacation home and pay off the mortgage on their primary residence as soon as possible.

Recommendations

  • Withdraw $800,000 of equity out of the primary residence versus paying off the mortgage
  • Buy the vacation home but obtain another mortgage for 80% of the purchase price
  • Establish a limited liability company to create a cash balance pension plan for Richard; add Sarah as a co-owner so she can participate in the plan
  • Place Sarah’s bonus in a deferred compensation plan offered by her company
  • Conduct a comprehensive review of life, disability and property-casualty insurance policies
  • Claim the home office deduction for Richard; amend and re-file personal income tax returns for the last three years

Results

Sarah and Richard generated an additional $98,000 in cash flow and saved $30,000 annually in taxes by implementing our strategies around their real estate debt. Through the cash balance pension plan, they are able to shelter $400,000 from taxation, thus saving more than $160,000 per year. The review of their insurance policies allowed them to increase their life insurance death benefit while reducing their total annual premium expense by $19,000. By claiming the home office deduction and re-filing their tax returns, they received $45,000 in tax refunds. They should achieve financial independence when Sarah turns 56 — four years ahead of target.

Disclosure

This case study has been designed to provide an example of the comprehensive wealth planning services provided by Traust Sollus Wealth Management, LLC (“Traust Sollus”). This case study should not be viewed as any indication that these clients approve or disapprove of Traust Sollus or the services it provided. Client names have been changed to protect each client’s identity.

This information is being provided for illustrative purposes only and should not be construed as the rendering of personalized investment advice or as the depiction of the historical investment and wealth planning performance of Traust Sollus. All information contained herein, including but not limited to, monetary figures, performance figures, net worth figures, asset values, account values, returns, statements of income, tax rates, insurance policies and information, estate plan examples, and general family circumstances, are for illustrative purposes only. Although we believe that the information presents an accurate depiction of the experience of certain of our clients, there is no guarantee that this information will represent any other client’s actual experience, which may be materially different than presented herein. Any difference in a client’s financial conditions, objectives or investment strategies could materially alter the results portrayed. Because each client has different financial circumstances and corresponding financial planning objectives, each client’s account will be managed in a fashion unique to and appropriate for that client.

It should not be assumed that recommendations made by Traust Sollus in the future will be profitable or will equal the performance figures or results discussed herein. Past performance is not necessarily indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy, wealth plan or wealth planning technique, or product made reference to directly or indirectly in this document, will be profitable or equal to corresponding indicated performance levels. Performance results indicated herein do not reflect the deduction of transaction and/or custodial charges or the deduction of investment management fees, the incurrence of which would have the effect of decreasing historical performance results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Traust Sollus does not use performance-based data to determine which case studies to include on its website. Additional information is available upon request.