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"They especially enjoy the income focus of our investment strategy and take great comfort seeing the income produced from their portfolio arrive in their checking account on a monthly basis."

Steve & Janet

Steve & Janet - Financial Planning & Investment Management Case Study

A recent Procter & Gamble retiree needing to turn savings into cash flow.

He signed his separation agreement, now what?

Steve, 58, has worked at P&G for 32 years. With the support of his wife Janet, he recently accepted a separation package to retire from P&G. The thought of retirement has raised a number of questions, including:

  • Where will cash flow come from in retirement?
  • How can he optimize after-tax cash flow from various income sources such as interest, dividends, stock options and self-employment?
  • Is the life insurance policy purchased when their children were young still needed?
  • How can he leverage the maximum after-tax benefit from the Profit Sharing Trust?
  • How much P&G stock is too much and how can this risk be reduced in a tax-efficient manner? 
  • How can he maximize the tax benefits of their charitable goals?

Steve and Janet's Background

Steve and Janet have grown children who are beginning their own careers. Janet has not worked outside the home. To date, their finances have been relatively simply. Steve’s cash flow covered their expenses, they saved for retirement in a 401(k), built a cash reserve and watched P&G’s contributions to the Profit Sharing Trust grow over time.

How did Foster & Motley Help?

We began by listening; listening to their vision for retirement, their attitude towards money and investing, and their legacy goals.

Once we understood Steve & Janet better, we got to work preparing a one-page summary of their financial life, a net worth statement, 5-year cash flow and tax projections. We also projected their financial future using our sophisticated software. The projection helped us understand the bigger picture and future risk, including:

  • What if markets produce below average returns in retirement?
  • What if inflation is higher than we projected?
  • What if they spend more in retirement?

Building this foundation opened their eyes to a number of opportunities: 

  • Their “as-is” tax projection revealed widely fluctuating tax brackets. This year’s tax rate was high because of the P&G separation package, but the following year was relatively low.
  • Their investment portfolio was heavily weighted to stocks. Combined with their concentration in P&G stock, they were taking significantly more market risk than they realized.
  • They were making charitable gifts using after-tax cash. 
  • They did not have a strategy for stock options.
  • “As-is” their retirement cash flow would come primarily from tax deferred accounts.
  • They no longer had a need for life insurance. 

After identifying areas of opportunity, we created several integrated solutions, including:

  • The year following retirement was a low income tax year. This presented a great opportunity to do a Lump Sum distribution from the P&G Profit Sharing Trust. This distribution allowed them to:
    • generate capital gain sourced cash flow
    • donate low basis stock to charity rather than after-tax cash
    • generate qualified dividend income on the P&G stock
    • diversify their investment portfolio with the funds that rolled to an IRA
  • We recommended an asset allocation to reduce the risk they were taking while meeting their cash flow needs. We modified their asset location to keep more of their income in their pocket after taxes.
  • They set limit orders on their P&G stock options to add discipline to their option strategy. They understood the tradeoffs between carrying options vs. exercising early and investing in a diversified portfolio.
  • They are now saving the money previously spent on insurance premiums in their grandchildren’s college 529 saving plans. This contribution allows them to receive a state income tax deduction, while generating tax-favored savings and growth.

Our initial flat-fee planning process provided Steve & Janet with confidence that they are being as efficient with their wealth as possible. Following our initial 6-month planning engagement, we discussed the different ways we could work together going forward. Ultimately, Steve and Janet selected our Wealth Management service. They like having a dedicated financial planner and portfolio manager to integrate all components of their financial lives. They especially enjoy the income focus of our investment strategy and take great comfort seeing the income produced from their portfolio arrive in their checking account on a monthly basis.

Having this dedicated wealth management team provides Steve and Janet the time to enjoy the retirement they envisioned.

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.