The Challenge:

A married couple in their 40s thought they were doing everything right financially but, at the end of the day, always had some lingering doubts. They were living below their means, she was working as a part-time marketing consultant /homemaker, and he working full-time as a corporate executive at a large company. When we met the client, they were trying to confront college funding for three children that would begin within two years. He was also recently promoted to a senior operations role, with the promotion presenting opportunities to participate in executive benefits and stock plans. The promotion was the impetus to reach out and get a second opinion from a financial advisor. 

The client had grown their assets to about $1.0 million investable net worth, with a significant concentrated position in employer’s stock that was growing rapidly. The client’s primary goal was to help them understand if they were on track, if there was anything they could be doing to increase their odds of success. 

The Analysis:

The client’s cash flow was reviewed to try to achieve a number of competing demands. They wanted to fund lifestyle, save for college expenses, take advantage of lucrative employee benefits, and be mortgage-free when college expenses started to peak in two years. The employee benefits could produce both short- and long-term financial benefits, but despite an increase in compensation, taking advantage of these benefits would reduce take-home pay over the near term. We reviewed their mortgage to see if that could provide any short-term cash flow relief. We also reviewed the client's tax returns, as they were troubled by a few years of having surprise tax bills arise when they filed.

The Recommendation:

We provided the client with a plan to take advantage of the employee benefits and meet all other cash flow needs. Some savings were tapped to fund lifestyle for the first six months; then planned liquidations of stock acquired through the Employee Stock Purchase Plan would replenish that account every six months. The client was very happy to have a financial plan that incorporated the near-term goals (college) and long-term goals (retirement) while not diminishing their current standard of living. 

The plan also created free cash flow by replacing an existing 6% mortgage with a home equity line of credit at 3%. A creative college savings plan was also implemented while involving the children in the college planning process to help them understand the financial implications. The client, through the plan, was also able to reduce exposure to company stock from 40% to 10% of net worth over two years. The client no longer had tax bill surprises, as we assisted the client in fine tuning their withholding. The client gained control and confidence, and know that “they are going to be OK.”