A CERTIFIED financial planner has advised that a prospective retiree make at least three considerations before they stop working.
The expert noted that their client, Jeremy, was trying to figure out if he could retire at his current age of 59 or sometime soon, given his considerable savings and investments.
Jeremy told Ari Taublieb (@earlyretirementari), Vice President of Root Financial, that he had over $3 million in assets, per a recent clip on YouTube.
Ari ran through Jeremy’s portfolio with viewers so they could get a better idea of how to optimize their money in retirement if they were in a similar situation.
Ideally, the 59-year-old told the certified financial planner (CFP) that he was looking to retire in a year at age 60.
The pair calculated monthly expenses of around $5,200, annual healthcare costs of about $6,145, and long-term care of $54,000.
Jeremy’s priority in retirement was to travel a lot as well, so he wanted to budget at least $40,00 per year for that lifestyle from 60 to 72 and then decrease it to $20,000 until 80.
His current financial assets came from several different areas.
Still working at 59, Jeremy’s annual salary was noted by Ari to be $245,000.
He had about $35,000 liquid cash in checking and savings accounts as well, but most of the other funds came from investments.
A 401(k) with his current employer held an amount of $820,000, a Rollover IRA from a previous job had $153,000, and a Roth IRA Jeremy had set up held $77,000.
The over $3 million came from specific shares in Microsoft stock at a total of $3,941,740.
CAN HE RETIRE?
Considering average market returns and Jeremy’s budget, Ari explained that the 59-year-old could retire immediately if he wanted.
The funds would carry him throughout the rest of his life, and by the time he reached 95, there could be over $19 million in his portfolio.
Even in a worst case scenario projection, Jeremy would still never run out of money before he dies.
While Jeremy is definitely on the right track, Ari explained that there could be ways to optimize the portfolio so the 59-year-old would never have to be concerned about the Microsoft stock.
Ari noted that the problem with having a considerable amount of funds in one stock is that significant downturns in the market could impact Jeremy’s retirement plan and cause unnecessary added stress.
Additionally, Jeremy does not have a spouse or kids, so he wants to make the most out of the money and not have to worry about Microsoft’s stock performance.
To that end, Ari noted three moves Jeremy should make.
1. CHECK TAXES AND PERFORMANCE
The first would be to double check tax implications with taking out significant portions of the stock for either diversification or liquid cash.
Taxes are imposed on the investment withdrawals, with the expection of a Roth IRA, and Ari advised the 59-year-old look at how much it would cost for the Microsoft stock in the S&P 500.
Jeremy should also consider the likely long-term performance of Microsoft’s stock.
With unexpected events like the economic crash in 2008 and the Coronavirus pandemic occurring every few decades, it’s likely that the stock will take a serious downturn at some point before coming back up again.
Following the patterns let Jeremy and Ari know when to sell and how much to sell.
2. CONSIDER RISK AND DIVERSIFY
Jeremy would also have to figure out how much risk he wants to take with the Microsoft stock, according to Ari.
“Being really strategic here is crucial,” the CFP said in the clip.
“I don’t want you to have to sell at a loss.”
Ari’s projections showed that Jeremy would still be alright in his retirement plan if Microsoft’s stock suddenly took a 50% downturn, but they’d prefer to mitigate that risk.
Instead, the pair figured that Jeremy would sell certain lots of the stock now, and keep a portion of his investment in Microsoft in the future for potential gain, just not all of it like before.
He paid about $50,000 to $70,000 in taxes to diversify the stock, a fair cost for a bit more security and peace of mind.
Jeremy told Ari that he wouldn’t want to be traveling and constantly checking Microsoft stock.
3. MINIMIZING FUTURE TAX BILLS
To continue optimizing the situation, Ari said that he and Jeremy dug into the future tax implications of his cash.
“He can implement strategic Roth conversions that can yield $1.2 million more dollars over the course of his lifetime,” Ari noted of Jeremy’s portfolio.
The CFP explained that by dynamically adjusting where the money was placed, Jeremy could save on taxes and lower his required minimum distributions (RMDs).
RMDs are required by U.S. tax law, meaning a retiree must take a certain amount out of traditional IRAs every year.
Ari said that Jeremy would want to make sure the RMDs stay low later in life, as he wouldn’t want to be in a situation where he’d be required to take out, say, $200,000 when he didn’t need it.
Overall, the CFP stressed that the 59-year-old was in a very good spot for immediate retirement, and a few considerations could make it great for the long haul.
For more related content, check out The U.S. Sun’s coverage of Ari’s advice on the best plan for a couple nearing age 60 with $1.3 million saved.
The U.S. Sun also has the story on a 66-year-old with $335,000 set aside who could save more by being in a key state.