Going it Alone

May 13, 2013  | By austinwealth

Shelly (46) recently divorced her husband after 12 years of marriage. She has spent the last 8 years raising their two children, Lucy (8) and Jason (6), and hasn’t worked since having the kids. Her ex-husband was a successful businessman who left her with a fairly substantial amount of assets and no debt. Shelly wants to make sure she has enough money to sustain a reasonable lifestyle that her children and she have become accustomed to. She also wants to make sure that there is enough money set aside to provide for Lucy and Jason’s education.

We sat down with Shelly and discussed the following areas of concern:

  • She is worried that she is spending too much money and will deplete her assets quicker than anticipated.
  • She is considering going back to work bring in additional income, but isn’t sure how much she can make since she has been out of the workforce for 8 years.
  • She doesn’t know a lot about investing and isn’t sure if her investment portfolio is being managed appropriately.
  • Shelly was left with a pretty large house and is wondering if she should sell and downsize.
    She has heard that college is getting very expensive and doesn’t know how much money she should set aside for the kids’ education.
  • If she does go back to work, Shelly wants to make sure she has enough money to retire at age 65.
  • Even though she wasn’t working, she felt like she was paying a lot in taxes every year and was wondering if there was something she could do to reduce her tax burden.

After looking at Shelly’s spending habits, we identified that she would deplete her assets by age 75 if she didn’t either cut back her monthly expenses or go back to work. We discussed all her options and determined that the best course of action would be to work on three main areas over the next 12 months. The first area was to sell her house that was worth approximately $500,000 and buy another home that was only $300,000. This would help her by freeing up additional assets to invest and reduce her overall monthly costs (utility bills, property taxes, homeowner’s insurance, etc.). The next area was to work on her budget and cut back her monthly discretionary expenses to the tune of $1,000 per month. Finally, she would begin interviewing and find a job that she could be happy with earning at least $40,000 per year till she retired at age 65. The combination of these three strategies would help to make sure that her assets would last her well into her 90s.

“”Shelly now has a financial plan in place and a financial firm that is looking after her best interests, which is a huge weight off her shoulders.
By employing the strategies listed above, we were also able to earmark $80,000 for each child’s education from her existing portfolio and make sure her children could have a 4 year public education in Texas without having to take any student loans. We decided to invest half of the money in a 529 plan to allow those dollars to grow tax-deferred and to be used tax-free for the kids’ college educations. After reviewing the mix of assets in her portfolio, we agreed that since she was going to need to draw off of the assets every year, we should reduce the amount of volatility by decreasing the amount of stock market exposure. We also determined that we could reduce her tax burden by using assets that were more tax-efficient. Shelly now has a financial plan in place and a financial firm that is looking after her best interests, which is a huge weight off her shoulders.

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