John and Jill Fitzgerald

John is 61 and retired, while his wife Jill is a 58-year-old writer and editor.

Balance Sheet

Cash-Flows

Goals

• Youngest Son’s College Tuition: $35,000/year, assumed for 2022-2026
• Move to Florida in 2026 to lower tax bill

*Other plan assumptions: no social security, Jill retires this year, no deposit or withdrawal from savings for relocation to Florida, both live to 95.

Estimated Plan Outcomes

• Probability of Success: 37%
• 63% chance that they run out of money
• Would need to cut spending by $4,400/month to increase success rate to 80%

John Fitzgerald’s love for coaching baseball demonstrates one of the most important lessons about financial planning—our values are most important. Coaching consumes most of his time, it is almost a full-time job for him. So, John has already answered one of the most difficult questions I have to ask many clients; how do they want to allocate their time?

However, John will soon give this up when he moves to Florida in an attempt to lower his tax bill. Then where will he find purpose? Hopefully, he funds this same fulfillment in a new state, but why not get the best of both worlds? Rather than moving, John could work with financial planner to do forward-looking tax planning. This would help him find ways to lower his tax bill while maintaining his residence in Maryland, allowing him to continue doing what he loves, coaching the baseball team.

James Compton

James is recently retired at 84 and had been on the board of various organizations until his retirement.

Balance Sheet

Cash-Flows

Goals

• Donate $8,000-$15,000/year to charities
• Keep up social life with networking and lunches

* Plan assumptions: Social security based on salary provided of $150,000, lives to 95.

Estimated Plan Outcomes

• Probability of success: 98%
• 2% chance of running out of money

James Compton’s plan looks unstoppable but the biggest threat to his plan is his investment strategy. A 70% stock/30% bond portfolio is aggressive for his age. Based solely on his age I would expect to see something like the inverse, a 30% stock/70% bond or 20% stock/80% bond portfolio.

At this point James has funded his retirement so the way I would look at his investment allocation is by splitting it into at least 2 buckets. The first is the total amount James needs to maintain his retirement. The second bucket he could allocate towards high risk, high reward investing—it’s clear that James get enjoyment from this kind of trading, but it’s important that he understands what funds can take that level of risk. The stock market has been volatile this year, more so in the time that’s passed since the Wall Street Journal published their article. So, the 70% equities James has in his portfolio have declined even further compared to when he was interviewed. What impact does that have on his plan? A 20% market downturn drops his plan’s success rate by 5% and a 30% dip decreases it by 10%. This wouldn’t completely unravel his financial plan, but it could cause James to make more lifestyle adjustments in the future. In contrast, if James had a 30%stock/70%bond portfolio the plan’s probability of success is 100%, even with a 30% market decline.

My question for James is: what is he investing for? James now needs to start thinking about is his estate plan or legacy. Many investors have the financial goal of retirement figured out but once they achieve that goal, they avoid what comes next. James has started doing this by making annual charitable donations, so it’s clear that charitable giving is important to him. However, there may be more ways to name specific legacy goals and strategically position his assets to achieve those objectives.

Each of these plans teaches a lesson that goes beyond just the numbers.

John Fitzgerald and James Compton have developed their retirement lifestyles around a newfound life purpose. While the money is important, their values are even more important. At Camelotta we take the time to learn about our clients and their ideals so we can strategize how their life savings can best support their life values because that should be the focus.

Judy Hall

Judy retired at 58, she is now 75 and spends her time volunteering and traveling between her two houses in Florida and New Jersey.  

Balance Sheet

Cash-Flows

Goals

• Donate $30,000/year to charities
• Downsize and travel more

* Plan assumptions: Live to 95

Estimated Plan Outcomes

• Probability of success: 67%
• 33% chance of running out of money

Just like Mr. Fitzgerald, Ms. Hall has also been able to find purpose in her life through volunteering and traveling. She has done a great job living off her investments and adjusting her expenses to keep up with her portfolio returns. However, her intuition about downsizing is correct. With a 33% chance of running out of money, it may be worth it for her to sell one home—putting the proceeds towards her retirement savings—to help her achieve her goals of traveling more. This also aligns with her goals downsize her space and could give her room in her budget to spend more on travel. Ms. Hall is on her way to success and with a few small updates—that she’s already looking forward to—and she’ll be able to continue achieving her goals and minimize the chances of running out of money.

Bob and Jolanda Bradley

Bob is 74 and retired but still consulting a few hours per year and his wife Jolanda is 65.

Balance Sheet

Cash-Flows

Goals

• Managing their investments and teaching others about investing
• Helping clients or consulting and helping those around him
• Move to Florida in 2026 to lower tax bill

*Other plan assumptions: Bob continues consulting in retirement, Jolanda has no income and retires this year, both live to 95.

Estimated Plan Outcomes

• Probability of Success: 78%
• 22% chance that they run out of money

While the Wall Street Journal calls this a $2 million retirement, it’s barely a $1 million retirement because the other $800,000 is tied up in the Bradley’s house value. Generally, I don’t include the value of a client’s home in their retirement savings because it means the home is up for grabs if needed, which could be a possibility for Mr. Bradley.

First, let’s talk about stress testing, this allows us to look at the impact of “what if” scenarios on a financial plan. What if taxes go up? What if your healthcare costs rise? There are all common questions retirees have and Mr. and Mrs. Bradley voiced one important factor for their plan; what if inflation keeps rising? They have already had to adjust their spending once due to the impacts of inflation on their budget so, if that continues inflation threatens their financial freedom. I estimate a 1% rise in their personal inflation could cause the probability that they run out of money to increase to about 40%—almost double what the current rate is. However, their personal inflation rate may not look the same as the consumer price index (CPI). The top 3 expenses that impact personal inflation are housing, energy, and food. The Bradley family has a mortgage on their home, so their housing cost is likely fixed, but they have already seen a rise in their utility prices (energy) and grocery bill.

The other factor that could double their likelihood of running out of money is a market dip of 20%—which isn’t unheard of in today’s volatility and has likely happened since the Wall Steet Journal published this article.

If either of these factors occurs, Mr. and Mrs. Bradley may need to sell their home, downsize, and invest the proceeds towards their retirement to maintain their current standard of living.

Speaking of investing, the other risk with this plan is Mr. Bradley managing his own portfolio. There have been studies done that show individual investors consistently underperformed the market even using an index fund because of their natural tendencies to buy high and sell low, a get poor quick scheme. Most investors struggle to make objective investment decisions in a downturn—it’s hard to not be emotional when you’re watching your life savings dwindle away in a market dip. Additionally, just like Mr. Compton, Mr. Bradley appears to be overexposed to risky assets. This means a decline in the stock market would impact their portfolio significantly and they don’t have the time horizon to recover from those losses because they rely on that portfolio for income.

While there are some risk factors to consider with this plan, Mr. Bradley is a great example of what we’ve seen a lot of retirees do with their working life during retirement—they don’t stop. He enjoys spending his time working as a consultant, so he has found a way to build that into his retirement lifestyle and the income helps his financial plan especially if one of the events above occurs. We see many clients continue working after they have retired because that’s what they want to spend their time doing. The definition of retirement may not look the same for everyone, which is why we’ve started calling it financial freedom—when someone no longer works because they have to, they do it because they want to.

Both plans outline the flexibility we all need to have around our financial plans.

Financial plans are designed to be a compass, not a blueprint, guiding investors towards their goals. Naturally, every retiree will have to adjust their lifestyle to keep up with the everchanging factors. These stories teach us that regardless of the roadblocks that may come up, the most important thing is to keep sight of the things that give meaning and purpose to life.

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