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"By the end of our initial planning engagement, we had helped Ryan and Kelly determine that Kelly could stay home full-time in two years. We helped them determine savings goals for their individual accounts, retirement accounts and children’s college savings accounts."

Ryan and Kelly

Ryan and Kelly - Financial Planning & Investment Management Case Study

How do all the pieces of the puzzle fit together?

Ryan, 35, has worked at GE for 10 years. His wife, Kelly, 34, has worked at Northrop Grumman for 7 years. They have two children, Aaron (6) and Brittany (4). They have been saving as much as they can, but they aren’t sure if what they are doing is putting them on the path to meet their short and long-term goals. They’ve navigated their financial decisions as best they can, but are still unsure about:

  • Can Kelly take care of their kids full-time without jeopardizing their financial well-being?
  • Are they utilizing the best vehicles for their savings?
  • Should they prioritize college or retirement savings, or both?
  • Do they have enough insurance to protect themselves from possible financial risks?

Ryan and Kelly’s Background

Kelly wants to stop working and stay home full-time. Ryan is on track to receive a promotion at GE and wants to know if his income alone is enough to support their family. They have been utilizing their employer benefits, such as 401(k)’s and group life and health insurance. They have also been saving into 529 plans for their kids’ college and putting some money into IRA’s each year. Ryan is receiving incentive compensation in the form of stock options and restricted stock. His incentive compensation will increase significantly if he is promoted and he will also have the option to utilize GE’s deferred compensation plan. 

How did Foster & Motley help?

We started by helping them prioritize their goals. We determined that our initial focus should be on providing an emergency fund, analyzing whether or not Kelly could stop working and to make sure they had adequate insurance. Through our discussions, Ryan and Kelly realized that these goals took precedence over others, like buying a bigger home or increasing their annual travel budget. Now that we had the pieces to the puzzle, we started to help fit them together into Ryan and Kelly’s plan.

  • We developed a Net Worth statement. It became clear that they had focused primarily on funding retirement accounts and did not have many assets that could be tapped for emergency purposes.
  • We put together multiple cash flow and tax projections. We started with a base plan, which reflected their current income and expenses. This helped determine what the picture would look like if they both continue to work and how much they would be able to save. The next cash flow projection gave them an idea of what their income would look like if Kelly stayed home in two years and Ryan did not receive a promotion during that time. It provided them with the knowledge that they would still be able to meet their living expenses, but they would have less to save. Finally, we looked at a cash flow where Kelly stayed home and Ryan was promoted and how much excess cash that would provide. In each cash flow, we recommended that they start diverting some cash to their savings account to build up liquidity.
  • Retirement projections were put together that mirrored the three cash flow scenarios we modeled. We were able to determine the long-term impact of Kelly staying home and Ryan’s possible promotion. The third scenario, in which we assumed Ryan was promoted, also provided insight into the value not only of his increased salary, but the impact of the increased incentive compensation on their overall plan.
  • We established the amount of savings they would need to meet their goal of funding half of their children’s college education. We were able to utilize this figure within the cash flow to determine if this level of education savings was feasible.
  • We analyzed how much life insurance they would need in the event of either of their deaths. It was determined that they needed additional insurance on both of their lives. Through working with an independent insurance agent, we found that it would be less expensive for them to get the required coverage through individual life insurance policies than by utilizing their employers’ group life option. We concluded that their employer-provided long-term disability was sufficient and that they should utilize Ryan’s employer-provided umbrella coverage as well.
  • An overall picture of their investment assets, which were held at several different custodians, was put together to determine if they were adequately diversified and if they were taking the appropriate amount of investment risk. We found that there were some areas of improvement and we provided specific trade recommendations such that the resulting portfolio was in line with their risk tolerance and goals.

By the end of our initial planning engagement, we had helped Ryan and Kelly determine that Kelly could stay home full-time in two years. We helped them determine savings goals for their individual accounts, retirement accounts and children’s college savings accounts. We put in place new life insurance policies and modified their existing assets to create a more tailored asset allocation that fit their needs. We will continue to work with them as their circumstances change and update their plan on an ongoing basis, looking into new issues like the deferred comp plan and focusing on their other goals of buying a new home and traveling more.

The Case Study is hypothetical in nature, for illustrative purposes only, and should not be considered investment advice. The information is intended to illustrate services available at Foster and Motley, Inc, and is not intended as a testimonial or endorsement of Foster & Motley, Inc. as an investment advisor. The Case Study does not necessarily represent the experiences of other clients, does not reflect actual investment results, nor is a guarantee of future results. The investment strategies discussed are not appropriate for every investor and take into consideration a client’s investment objectives and financial needs. Clients should review with their Foster & Motley, Inc. Financial Advisor the terms, conditions and risks involved with specific services and products.