Remember when you were a kid and grownups asked you what you wanted to be when you grew up? That was then, and this is now. You are a grownup. You’ve finished school, gone to work, and started a family or a business.
Now you’re settled, but you still have dreams. Maybe you want to retire on a secluded stretch of beach or open a haven for stray dogs or send your grandkids to private school. Getting to that future can seem more mysterious than becoming a fireman or a ballet dancer did when you were small. How can you transform your daydreams into reality?
Your Sensible Financial advisor can help you flesh out your dreams and develop a plan to realize them from your current financial situation. If you’re curious about what that sort of advice looks like, we’ve put together a few illustrative examples.
Periodically, we’ll post more stories to illustrate the Sensible approach.
Mike and Bethany Sanders live in the Boston area. He’s an executive with a tech firm and she stays at home, caring for their three kids. The couple works hard. Mike, during his long hours in the office, and Bethany, running the home and keeping ahead of the schedules of a family of five. While they’re happy and enjoy their active lives, the two dream of an early retirement for Mike and a less hectic life.
Their biggest questions are whether Mike should stay in his current job and their current house or take a promising position in another state. They want to know whether those decisions will affect their retirement plans and if so, how much.
They live in a pricey area and own a $850K home. Mike’s job pays well, but their mortgage and property taxes are high. They have $1.2M in savings and investments. Mike’s present and future earnings represent a significant portion of their lifetime resources.
Because of the apples vs oranges nature of comparing the two compensation plans, Mike and Bethany asked their Sensible Financial advisor to analyze the two prospects to determine their best move.
Mike and Bethany’s current position/living situation:
- Healthy company pension
- Small portion of earnings paid through equity compensation
- High housing costs/property taxes
Mike’s new job offer:
- Large sign-on bonus
- Higher 401K match
- Larger portion of earnings paid through equity compensation
- Lower housing cost
Comparing Mike’s current job to the new offer was more complex than a simple “back-of-the-envelope” calculation. The Sanders’ financial advisor considered more than salary. She looked at both companies’ 401K plans and his current company’s pension plan, along with salary and how much of that salary depended on company stock performance. She also considered how income, property tax, and housing costs varied between the two states. The Sanders wondered how much money each offer would afford them for extras like vacations, nights out, and other luxuries, while keeping them on track for retirement.
Both positions were in Mike’s chosen field and both companies were healthy and offered Mike a promising corporate future. Mike reported the offer to his current company, who counteroffered.
The Sanders’ Sensible Financial advisor analyzed the two offers and found:
- Moving to a new state and job would increase their disposable income, if Mike’s income followed its projected path.
- Mike’s earnings at the new company would be largely equity-based and tied to company stock performance. If the new company did well, the Sanders would too, but if not, Mike might not be able to retire early.
- Staying in their present home and job would allow Mike to retire early but would not leave much for discretionary spending. They’d have a little extra money though, and the family would not have to move to accomplish their financial and retirement goals.
Mike’s current employer’s new compensation offer made his present job look even more attractive. The additional earnings, when measured against the cost of moving, uprooting the family, and the added risk of the new employer’s compensation structure, convinced the couple that Mike should remain in his present job. After Mike and Bethany decided to stay in Massachusetts, their advisor identified how much additional long-term disability insurance Mike would need to cover his increased income. Creating a lifetime balance sheet enabled her to show the Sanders the importance of protecting Mike’s future earnings.
Staying in their home and using Mike’s increased salary enabled the family to convert their deck to a three-season porch, improving the function of their home and increasing its value. The Sanders family had questions they needed help to answer. Their advisor analyzed the variables and gave them the facts they needed to choose the best method to achieve their financial goals.
Photo by Christoph von Gellhorn on Unsplash