Case Study – Retiring

• Mike’s compensation package includes stock grants, vesting over the following 4-5 years. While these have primarily been in the form of RSUs, Mike still has a fair amount of equity in unexercised stock options that he vested in years ago.
• They own a rental property.
• They’ve worked a number of advisors over the years, as different needs came up (e.g. insurance, rollovers, college funding, etc.), but never did any comprehensive planning. They generally turned to their accountant, or the company that manages Mike’s 401(k) and stock plans, anytime they had questions.

THEIR STORY:

Mike was planning to retire a couple of years ago, after finally coping with the fact that he was going to be forfeiting a fair amount of unvested stock awards by doing so. After informing his boss of his plans, Mike was asked to stick around for another few years which, in addition to the continued vesting of his current stock awards, also included a sizable retention award in return. With as busy as Sasha was with her volunteer work at the time, Mike agreed to stay around for another few years.
Now, at 60, Mike and Sasha are ready to make up for lost time and enjoy their retirement together. They also want to be able to spend more time with their two grandchildren.
They want to relocate to the mountains when Mike retires. and buy a house large enough to accommodate both kids’ families.

CHALLENGES AND OPPORTUNITIES:

• What will happen with Mike’s unexercised stock options and any unvested RSUs at retirement?

THE TRAVERSE PLAN:

With an 18-month runway, we were able to help Mike and Sasha take advantage of a number of tax reduction and planning opportunities, without it being too overwhelming for them. Part of the planning process involved collaboration with their accountant to ensure nothing was overlooked.

Mike’s Income and Stock Awards

• Having Mike use his Deferred Comp plan for almost all of his final year’s salary, allowed Mike to sell a significant amount of his previously vested stock. This created a tax arbitrage and more than offset the reduction in Mike’s take-home pay.
• By recommending that he move his retirement date just by one month, we were able to reduce the taxes paid on the exercise of a portion of his vested options.

Real Estate

• We worked with them to discuss the different options they had available to them with respect to handle their current investment property and purchase the mountain house how best. We then analyzed and recommended the most tax efficient way for them to achieve what they wanted.
• We also adjusted some of the cash flow so allow for them to increase their retirement savings.

Social Security and Health Insurance

• We built into their budget and financial plan the increase to their spending that would be caused by Mike retiring before they qualified for Medicare after finding the most cost-effective way for them to remain insured.
• We helped Mike and Sasha understand the benefit of delaying social security and showed them the break even to help them make the decision that maximized the amount of money they’d receive from social security.

Charitable Planning

• Given Mike and Sasha’s desire to continue supporting their church in retirement, we reduced their tax bill by having them fund multiple years of charitable giving into a Donor Advised Fund and using highly appreciated stocks.
• Depending on proposed tax law changes, they may decide to add to the DAF when cashing out Mike’s stock options

THE RESULTS:

While Mike and Sasha knew that there were some opportunities, they hadn’t been fully taking advantage of, they had no idea as to the extent of the tax savings that could be achieved by strategically coordinating multiple strategies in a fully integrated manner. In fact, the increase in what Mike and Sasha could now afford to safely spend in retirement was so significant, they are starting to think about increasing their charitable giving and helping fund college for their grandkids.
Today, with Mike’s retirement date only a few months away, he and Sasha couldn’t be more excited. Not only are they going to be able to live the retirement they always dreamed of, but they’re going to be doing so with a much higher degree of confidence, knowing that they have their team at Traverse guiding them along the way.