Lifetime Wealth Planning and Perpetual Advice
Benjamin Franklin famously stated, ”Failing to Plan is Planning to Fail.” A thoughtful, written plan revisited regularly is considered the best path to future financial success. Your plan requires real-time data, ongoing analysis and for making adjustments when life surprises or simply evolves which it inevitably always does. We utilize our experience to help you design, implement and manage your financial plan with focus on three life phases: Mid to Late Career — Retirement — Wealth Transfer.
Mid to Late Career > Wealth Accumulation
In your highest earning years with children soon to be through college and off the payroll, the last 5-15 years of working can often be the most pivitol in impacting your retirement nest egg, especially for corporate executives (see Executive Compensation and Benefits Utilization below). Your expenses are generally lower, your mortgage is usually getting smaller, your parents are aging, you may think about a second home and your free cash flow is typically increasing. How can you best utilize these new dollars to achieve your personal near term and long term goals? At the same time, you may have more freedom to explore hobbies and passions which was not available in climbing the corporate ladder while raising a family. You want to LIVE for today while also preparing for many tomorrows. Our goal is to help you tax efficiently build your wealth during this important phase using all the tools available in your personal circumstances and doing so within a risk range which suits you personally.
Common questions to be considered mid to late in one’s career
- — Should I be debt free when I get to retirement?
- — How and when should my portfolio be changing as I near closer to retirement?
- — Should I be saving into a Roth account in my employer 401(k)?
- — Should I utilize my company’s non-qualified deferred compensation option?
- — If yes, how much should I contribute and how should those dollars be invested?
- — How does my company pension impact my savings and investment strategy?
- — Should I keep working to maintain my health insurance even if I am financially secure?
- — Should I continue to carry my life insurance?
- — What if I need to continue supporting my children? How best to do so?
- — How should I be planning for my parent’s potential long-term assisted living and nursing home needs?
- — Is my mix of pre-tax and after-tax retirement assets optimal?
- — Should we be planning for our long-term care expense needs now or do so later? What are the risks in waiting?
- — What is the best way to invest in my grandchildren’s future college education?
Executive Compensation and Benefits Utilization
Mid to senior level corporate management and C-suite executives have more complex compensation and benefits structures including multiple forms and types of compensation which carry varied timing, risks and tax treatments. Base salaries are their only reliable form of compensation while additional bonus and incentive pay opportunities are at risk from paying zero to upwards of multiple times their base salary. The compensation may also be delivered through different vehicles including cash, restricted stock with vesting requirements, non-qualified and incentive stock options, phantom stock and performance units. Concentrated stock positioning risk builds when paid in company shares, however many high-level executives have no choice but to try and manage this risk as they are required by their employers to own a specified level of shares to show alignment with company shareholders. Ultimately there are methods and techniques to address the concentrated stock position, but this is challenging while still employed for those executives with an ownership requirement.
Executives will commonly participate in their employer traditional 401(k) savings plans to the maximum level possible. It is not uncommon to hold employer stock within the corporate 401(k) or to have contributed after-tax savings dollars to the plan as well. Both of these can present unique planning opportunities. Under the net unrealized appreciation rules, low basis common stock held in an employer qualified plan can be distributed outside the plan to receive potential lower capital gains tax treatment. After-tax savings dollars within a qualified plan can typically be rolled out of the plan and into a tax-free Roth IRA account.
Larger corporations provide their executives the opportunity to do additional at-risk tax deferred savings through an employer non-qualified deferred compensation program which allows them to take their compensation later after retirement when they may be in a much lower tax bracket. These plans can be tremendous tax savings and wealth building tools but they must be used thoughtfully and carefully as part of an overall customized cash flow and wealth management plan. Some key considerations include: 1) the dollars deferred are an asset on the company’s books which is susceptible to creditors should the company go bankrupt; 2) each year’s deferral must include a designation for how and when the dollars will be paid out in the future; and 3) should you leave the employer before retirement, the dollars will commonly need to be disbursed within six months and will be fully taxable at that time.
Retirement > Wealth Distribution
You have worked hard, saved and accumulated wealth and now need a risk-managed, tax efficient investment and distribution plan allowing you to live the life you want to live. Essentially, you must develop a plan for your new income or "paycheck." You may also have a secondary goal beyond your lifestyle needs of leaving a legacy to family or charity which impacts the approach to your portfolio management.
The most significant error made entering retirement is lacking a detailed understanding of the anticipated cost to live the life you want to live. Beginning retirement without a solid projection of spending needs may likely lead to big surprises and not the ones you want. We work diligently with our clients to encourage this deep analysis so that we can help construct a cash flow and investment plan that is well coordinated. Understanding your anticipated spending is critically important to beginning and maintaining a comfortable and confident retirement.
In difference to a single paycheck received while working, your retirement income will be created from multiple sources. We help in identifying and studying how to optimize tax-efficient cash inflows from predictable, reliable and sustainable sources such as company pensions, deferred compensation plan payouts, annuities, social security, rental income, royalties, part-time consulting, etc. These sources may only meet part of your needs and they will come from your investment portfolio distributions (See VITAL Investment Approach for discussion of distribution portfolio management).
There are many questions to be answered when planning for retirement and the answers to these questions are circumstantial and may be different for different people depending on their personal situation. Examples include:
- — When should my spouse and I begin taking social security?
- — How does Medicare work? Do I need a Medicare Supplement Plan?
- — How should I be investing? More conservatively?
- — From which of my taxable, tax-deferred and tax-free investments accounts do I draw from and when?
- — How do I minimize income taxes?
- — Should I pay off my mortgage?
- — I can defer my pension a few more years, but should I do so?
- — Should I take the company pension or roll the lump sum offer to an IRA?
- — How do I plan for infrequent or uncommon costs?
- — Should I be purchasing long-term care insurance?
- — How should I consider anticipated inheritance in my retirement plan?
Estate Strategies > Wealth Transfer
The process of transferring wealth is full of potential danger zones and opportunities which require attention to detail to help ensure your wealth transfer desires are fulfilled. Ultimately your wealth can pass to only three places…your heirs, the community/charity or the government in the form of estate taxes.
Many believe having a will or revocable trust which details how their wealth will be transferred at death to heirs and/or charity is a complete estate plan. However, in some cases, this may actually not control the disposition of a large part of their estate. Wills only control and provide direction to the transfer of probate assets which do not include contractual assets such as Individual Retirement Accounts (IRAs), annuities, life insurance, qualified plans (i.e 401k), company pensions or bank accounts titled as JTWROS or which include POD or TOD instructions. Pass through of contractual assets is controlled by the specific beneficiary designations or instructions on those accounts or assets. Revocable trusts allow the opportunity to avoid the probate process, but also cannot legally control the distribution of contractual accounts.
Trusts may be incorporated into your wealth transfer plan for a number reasons. A few examples:
- — To preserve a lifetime credit estate exemption and remove future appreciation of assets from a survivor’s estate (tax planning)
- — To provide control over the disposition of assets post-mortem
- — To bypass the probate process
- — To hold intra-life family gifts (tax planning)
- — To own life insurance outside of an estate (tax planning)
- — To fund a charitable remainder or lifetime trust (tax planning)
- — To protect assets from creditors
- — To protect assets from surviving spouse’s remarriage or children’s spouses
We can help YOU plan for the legacy you wish to leave by developing an estate planning strategy including:
- — Beneficiary designations
- — Asset titling
- — Intervivos family gift planning
- — Estate tax minimization and funding strategies
- — Charitable Planning and use of Donor Advised Funds
- — Trust planning
- — Coordination with CPAs, attorneys and other professionals
VITAL Investment Approach
In the Merriam-Webster dictionary two definitions are provided for the word VITAL: "extremely important" and "needed by your body to keep living." At Fitzgerald Wealth Management we are passionate about the extreme importance of our client’s financial security and we work to ensure our clients live their desired lifestyle.
Our VITAL investment approach addresses the key investment risk factors:
Volatility, Inflation, Taxes and Longevity.
Your portfolio is developed using an independent, open architecture approach including a variety of assets such as actively managed mutual funds, individual security separately managed accounts, passive exchange traded index funds, fixed and variable annuities and real estate investment trusts. Each client portfolio is constructed to align with your financial circumstances.
As part of your financial planning process, we develop a customized wealth investment strategy that considers your accumulation, distribution and transference goals. This approach also reflects your individual risk tolerance, investment time horizon, cash flow needs, taxes and other circumstances that might impact your current or future financial position.
Our VITAL investment method includes implementing as many as four different strategies
The cornerstone of our investment process is a scientifically derived asset allocation model invested in investment vehicles such as stocks, bonds, real estate, cash and alternative investments. Using a risk-based core/satellite approach, we construct a long-term strategic portfolio coupled with opportunistic, value-oriented satellite positions after considering a client's risk appetite.
We aim to achieve greater diversification by including alternative investments which tend to being less correlated with traditional asset classes.
Investment tools which provide some level of downside protection can potentially aid portfolio returns in a period of market negativity.
Insurance based products can aid in mitigating market volatility risk by insuring certain returns and can protect against longevity risk of ever outliving one's money.
Additional steps to our approach include:
- — Targeted placement of investments in your various accounts in an effort to potentially maximize tax efficiency and optimize after-tax returns
- — Re-balancing the portfolio to target asset allocation can potentially help produce additional return without additional risk
- — In-depth active manager selection process includes understanding of investment philosophy, historical performance, manager tenure and experience, portfolio turnover, individual position concentration and fund operation fees
- — Active and passive investments are both employed in effort to produce highest potential after-tax portfolio returns
Asset Allocation, which is a method of diversification that positions assets among major investment categories, does not guarantee a profit or protection against a loss.
Tax Efficient Strategies
The less you pay in income and estate taxes, the more money you have to enjoy life today, to invest for the future, to compound dollars over time and to accumulate and transfer wealth to future generations. Seeking tax minimization strategies is an ongoing part of the dynamic nature of financial planning and requires knowledge of current tax law and constant attention to changes and updates to the Internal Revenue Service tax code created through changes in federal and state legislation. There are also different rules for businesses versus individuals. Our position is not to be the expert in applying those tax laws to your actual tax return…that is for tax preparing professional. Rather, our role is to be knowledgeable of tax law, in particular as it applies to investing, retirement and estate planning, so that we can understand how to develop tax deferral, tax minimization and even tax-free strategies allowing for more money to stay with you.
Here are just a few examples of potential tax minimization strategies:
- — Tax loss harvesting
- — Purposeful recognition of capital gains taxed at 0% in low income years
- — Marginal tax bracket management when distributing funds in retirement
- — Using appreciated securities for charitable giving
- — Deferred compensation utilization planning for early retirement years
- — Roth IRA conversions in low income years
- — Section 529 college savings accounts for tax-free growth of education funds
- — Gifting during lifetime versus waiting
- — Utilization of low-turnover investments and municipal bonds
- — Minority interest and transferability discounts to entity owned assets
Managing risk as part of a comprehensive lifetime wealth plan comes in a number of forms, many of which are addressed through planning techniques such as having an emergency reserve, a diversified portfolio, using an LLC for business structuring, etc. Your lifetime wealth plan and financial analysis includes a review your current life, disability and long term care insurance coverage based on your risk management goals and additional financial objectives. We review the propriety of your current insurance coverage to determine if you need additional protection as well as the right type of insurance to best fit your situation.
Your personal insurance needs generally fall into the following three areas
Protecting Your Family
If something were to happen to you, would your loved ones be protected? Would your spouse be able to make the mortgage payments, pay for the children's education and afford the expenses of daily living?
Supplementing Other Plans
Should the need for the death benefit decrease, cash value build up in a life insurance policy can be a source for emergency fund needs or supplementing retirement funds. Death benefits could also be accessed before death to meet long-term care expense needs.
Enhancing Your Legacy
Life insurance generally passes free from income tax to your beneficiaries, when properly structured it can help you efficiently transfer wealth to the next generations and/or charities.
As a business owner, life insurance can help meet the following needs:
Preserving Business Value
Insuring yourself, your partners and key employees can be a highly effective tool to help protect the value of the business you have built.
A buy-sell agreement for your business properly funded with life insurance can help insure your family would receive the fair-market value for your share of the business.
Enhancing Executive Benefits
Life insurance can be integrated into executive benefits or a retirement program for you and your employees, further enhancing your attractiveness as a corporate employer.