What exactly is it that we offer? We provide solutions that will yield enormous practical benefits to the client, and are often life-changing in a positive way. This is why would like to share some real life stories.
Except for the story Fully Covered, usually a client comes to us with one or two problems that they wish to have addressed. These issues are not ends in themselves, but pieces to a bigger puzzle. For now, however, consider these standalone modules as a good way to learn about how financial planning and investment management can assist a client. Click on the sub-tabs below to get started.
Jack and Terry were spending their lives on a treadmill. Terry was a successful doctor, while Jack had his own equally successful landscaping firm. They worked long hours leaving little time for each other, let alone for other important tasks. Trying to keep up with the treadmill took all their energy, leaving no time to consider where they were heading in life.
Jack and Terry knew that they needed to look at some of the bigger issues, but didn’t wish to turn this into a third job. They worked with Contour Financial to address the long neglected areas of insurance, estate, budgeting, education planning, retirement planning and investment management. Investments were of special importance since they had always been a subject of great interest with Jack in years past. Jack told Terry after they married that he would take care of the investments. Over the years he was able to give less and less time to investments, finally becoming a task he neglected. When they came to Contour Financial, Jack and Terry had twenty accounts spread among different brokers. There was no strategy, and the investments hadn’t been looked at in years.
What proved to be a boon for Jack and Terry was that Contour Financial was able to address their concerns. This was not a “one shot” project. Ongoing support was provided. As markets, conditions and laws change, so does their planning. They can sleep well knowing that nothing is going to fall through the cracks.
Contour Financial provided a total solution. Jack and Terry’s investments were consolidated at Charles Schwab, and managed by our firm. With a comprehensive investment strategy in place, the days of investments not being looked at for years were long gone. Outsourcing the work, however, did not cause Jack and Terry to cede any control. They are still involved in all major decisions, and their accounts are setup so that any changes must be approved by them beforehand. With a coherent investment strategy presented in writing, Jack is overseeing his investments again.
John came in to the office saying that he was going to retire. After all, he was going to turn 62 soon. Did anything else matter? We explained that retirement does not depend solely on one's age. While age is a factor, other issues such as living expenses, projected medical expenses in retirement, investment income, part-time employment income, portfolio value, portfolio projected return and projected mortality are equally important.
John felt that the above points didn't matter. He said that the “rule of thumb” was that his retirement paycheck should equal his employment paycheck. The retirement paycheck consisted of Social Security, pensions and investment income. He thought that if they equaled each other, then he was all set. In reality the situation is not so simple. Consider:
- One spouse dies right away at age 62, but the other spouse lives until 90. How will pensions, social security, insurance, cash flow and estate change for the survivor?
- The investment portfolio is invested more conservatively in retirement.
- A bear market hits the portfolio hard during the first few years of retirement.
- Inflation exceeds expectations.
- Medical expenses in retirement historically rise at a rate higher than inflation.
- Living expenses change in retirement.
Compare retirement planning to baseball trivia. Who is the best player of all time? Baseball fans use different quantitative measures to answer this question. The same is true for retirement. Different tools can likewise lead to different retirement answers. What are the best tools available to assess retirement readiness? What happens if the results are negative? How is that rectified? If a baseball fan is faulty in his best player analysis, he may lose a little face with his friends. If faulty, however, in his retirement analysis he might find himself out of the game.
Fortunately for John, after a detailed analysis, it was determined he could indeed retire at 62, if he diligently watched his expenses. Sometimes the answer is not what the client wants to hear though. If a potential client in the form of a couple comes into our office with sizable living expenses, no pension, minimal Social Security, and two thousand dollars each in their Individual Retirement Accounts (IRA), there are no potential strategies available to provide them with a positive outcome.
Most people we see yield retirement results closer to John than the couple with no money. Some clients will have an easier retirement and be able to travel more. Others may have to work a few years longer, work part-time in retirement, or cut their living expenses. Although changes will have to be made, planning has allowed them to have a successful retirement.
Only a careful analysis using various analytical tools can shed light on this question. Contour Financial specializes in retirement planning and provides various scenarios that are tested. The person who simply gives notice at 62 or any other age with no other thought is courting disaster. Once that person leaves his full-time job, very rarely does he ever get another chance to earn the same amount again. The employment door will be closed, and likewise the chances of a happy retirement.
Bill and Megan were closing in on forty. They were a professional couple with three children. Both were contributing to their 401(k) plans at work, but had very little accumulated outside of these plans. They had estimated their living expenses at $50,000. According to Bill and Megan's tax returns, they were taking home $110,000 annually after federal taxes, state taxes, FICA taxes and 401(k) contributions. Their incomes and expenses had been increasing by three to four percent annually for the past several years.
With good take-home pay, what was the problem? If income was $110,000 and living expenses $50,000, Bill and Megan should have been saving $60,000 per year. Assuming no appreciation, this would amount to $300,000 in total over the last five years alone. Where was all the money? A formula we commonly use is Income - Expenses = Savings. As they had no savings outside of their 401(k), their income equaled their expenses. In other words their living expenses were not $50,000, but $110,000 annually. This explained why they were not getting anywhere, hence the name of the story “Stuck in the Mud.”
The big challenge facing the couple was they were planning on moving into a larger house. After reviewing cash flow with them, projecting the increase in living expenses and the impact that would have not only in the short-term but also on their long-term retirement plans, they decided not to move. Interesting how one choice could have such a large impact on their future, but yet many times people make life-altering decisions with no second opinion.
At least they are back to their original flat cash flow for the time being. We leave this story as Bill and Megan try to work through their budget with guidance and tools we have provided them. At least now they are looking toward the future.
Addressing the budget, building an emergency fund and planning for the future does not sound as much fun as moving into a new house. Although it was a disappointment, the house was financially out of their reach. With this new guidance, Bill and Megan now have a shot at retirement, whereas moving into a big house would have put them one day into the financial dog house.
Isn't it nice to bounce ideas off of others? Whether restaurants, clothes, cars, etc., it's always advantageous to hear what someone else has to say. Friends and relatives may not have the exact same tastes, but their opinions are valuable nonetheless. Such feedback can save time, money and aggravation.
It gets a little more difficult, however, getting help from friends and relatives with financial subjects for several reasons:
- Knowledge — Is this their area of expertise? It is a full-time job researching tax changes, new investment strategies and the fluctuating markets. Most friends and family don’t have enough hours available in the day to keep current.
- Privacy — Privacy is always important. Asking the retired uncle who is living on Social Security whether you can afford a $400,000 house with a $100,000 income may not be the best idea. He will probably be envious and throw you out of his house instead.
- Persistency — You can wear out your welcome by asking too many questions all the time.
What happens is that people still get advice from their friends on what washer to buy and what movie to see, but the questions stop there. The big questions don’t get asked, as there is no one available as a sounding board. That is a shame; one or two key decisions can materially impact someone’s financial well-being down the road. Financial topics need to be addressed. Below are a few of the topics people have had knowledgeable, bias-free, and private discussions about with us:
- Housing — How large of a house can I afford and what impact will that have on my retirement?
- Moving — What is the financial impact if I move to a different state?
- Education — Can I pay for some, all or none of my children’s college education? How would different scenarios affect future retirement plans?
- Insurance — My agent says that I need long-term care insurance. Is that correct, or do I need to address other insurance needs first?
- Retiring — When can this happen? Can I still travel as hoped if I retire at 63 instead of 65?
- Business — What would be the impact if I started a business or purchased an apartment building?
- Cohesion — Is everything in the plan fitting together, or is something missing?
- Children — What support can I give them now? How are they protected if I die tomorrow?
At Contour Financial such services are generally covered in the ongoing fee. The clock is not running. Wouldn’t it be nice to have a trusted source to talk with who is knowledgeable and will hold all what you say confidential in a stress-free environment?
Mary and Jason had been good customers of Contour Financial for many years. Their accounts were held in custody at Charles Schwab, and managed by Contour Financial on their behalf. Like many clients that come through our doors, Mary and Jason were initially very concerned with their investment strategies. Questions that they had were almost 100 percent investment related, and we were glad to provide them the solutions they needed. Contour Financial prides itself on its investment services, which have helped navigate clients' portfolios through rocky times over the years.
One day Mary and Jason came to us with a few problems that they had been putting off for awhile, because they didn't know what to do:
- Their daughter was going through a nasty divorce and was not happy with her attorney.
- Their accountant was retiring, and they needed help in finding a new one.
- They were considering refinancing their home loan. In the past they had just gone to their bank. Was that the right way?
As Private Wealth Managers, we deal with a wide variety of such subjects every week. That is not to say that we are lawyers or mortgage brokers, but we have many reputable contacts. We pride ourselves in getting our clients the assistance they require.
Catherine was in her late twenties, and had all of her investments in her 401(k) plan at work. She had several questions:
- Was putting every last available dollar in her account the right thing to do?
- How should she invest her funds now, and would anything change when she gets married?
- How often should she reallocate her portfolio?
- If she started to save outside her 401(k), would that affect the way her 401(k) was invested?
- Would her strategies change if her company offered a generous match, versus none at all?
- Would her strategies change if her company offered good fund choices, versus mediocre ones?
- What are the trade-offs between investing in a 401(k), traditional IRA, Roth IRA or taxable account?
- If cash was needed, was a loan against her 401(k) the right thing to do?
- If Catherine quits her job, should she keep her investments in the 401(k) or rollover to some type of IRA? What would be the tax consequences with any of these choices?
- Catherine has a lawsuit against her for an auto accident. Does the 401(k) plan offer more or less protection compared to rolling over to a traditional IRA, Roth IRA or making an outright withdrawal?
The problem Catherine had was that she had good questions but no answers. She didn't know where to turn. The firm that Catherine's employer hired to run the 401(k) plan offered very general advice, avoiding any specific recommendations. Catherine also discovered that like the IRS, different 401(k) plan sponsor representatives gave different answers. Her employer’s human resources department was also little help, telling her to direct all questions to the plan sponsor.
Catherine next looked to an outside financial advisor for help, but that didn’t work either. Catherine was told by some advisors that the size of her account was too small for the fee they would have to charge. Others said they could not help as her investments would have to be withdrawn and invested with them.
When Catherine came to the firm, investment options, emergency reserves and cash requirements were reviewed to help her make the right decision. Although she could not move the assets to Charles Schwab, Contour Financial was able to provide her with ongoing advice on her 401(k) in addition to her plans for the future.
Deb liked investing with Vanguard. Who could blame her? She realized many years ago that low-cost funds were one of the major determinants in whether an investment program is a success, or falls short of what it needs to be. In fact, she used Vanguard to help build her portfolio by herself to $600,000.
At that time, Deb was to the point that she felt the need for some investment advice. She thought the world had become more complicated in recent years, and she was right. Target funds, exchange traded funds and commodities were only a partial list of what was available. Although still happy with Vanguard, she worried that any advice obtained from them would be heavily slanted towards the purchase of Vanguard funds. Her other concern was that she wanted something more than a generic plan for her retirement. It was important that she had constant contact with someone who understood her plans.
Her biggest concern was that if she sought advice, her advisor would require that her assets be moved on his investment platform. What if he was pushing her to buy other funds? She may now get decent financial advice, but lose the low-cost Vanguard solution. It would appear that she was caught between the proverbial rock and a hard place, with no good alternative.
Fortunately there are a few firms that separate the advice and custody. At a firm such as ours, she can get the customized financial planning and independent investment advice she requires, and still remain on the Vanguard platform. Although Vanguard is mentioned in this story, the same applies for other custodians such as Fidelity or T. Rowe Price. Sometimes people cannot move. This is the case with people in 401(k) or 403(b) plans, where little planning or advice is available. Whatever the reason, there is a solution to this problem. No one should be forced into this situation, and Contour Financial provides clients with options.