At Timonier Family Office, we focus on helping our clients achieve a higher level of happiness. We believe that true wealth management encompasses all aspects of your life, and I want to illustrate that philosophy with some recent examples of our work.

Last year a physician with a private practice group in the Triad region of Winston-Salem, Greensboro and High Point decided she’d like to retire soon as her 60th birthday approached. She took a large sum out of her investment portfolio, resulting in $50,000 in capital gains income. With no other income, that would trigger zero federal income taxes, but she had $3 million in taxable assets and $3.5 million in IRA assets.

Knowing that she will face a required minimum withdrawal (RMD) from her IRA assets at age 70½, we decided on a course of action designed to minimize her future tax liabilities.

Given this doctor’s asset base, taking her RMD will kick her into a higher tax bracket. But at the age of 59½ she could start withdrawing IRA funds with no penalty. So we began withdrawing IRA assets at a rate designed to keep her at a low federal and state effective tax rate of 19%. We’ll do that for the next 10 years, drawing down her IRA account to reduce her future RMD and bring down her marginal rates after age 70½ as well.

In addition, we placed the withdrawn money into a Roth IRA so that it won’t be subject to RMD rules, either for her or for her heirs.

The bottom line? He will pay some taxes today to minimize her taxes over the long term, yielding her a higher level of assets during her retirement years.

We could not have conceived this strategy without having a CPA working on our staff. We look at clients’ accounts together on a regular basis, and our CPA generates estimates of cash flow and tax liabilities that uncover these kinds of opportunities. It also illustrates the importance of one family office handling all of a clients’ assets. Had her accounts been split up among different financial advisors, we may not have seen this long-term opportunity.

Another example involves a couple in their mid-50s who both work as business consultants. Together they earn nearly $1 million a year. When they came to Timonier Family Office they had more than a dozen different accounts with several major financial firms, from bank accounts serving different purposes to retirement accounts and multiple insurance policies. They kept a large chunk of their assets in cash ($1,400,000 in cash $200,000 in stocks in their after-tax investment accounts) because they had difficulty agreeing on which investments to make.

Our first step was (through the development of a MasterPlan) to show them that their assets and savings efforts were not in alignment with their goals.  There were several areas where they were paying fees unnecessarily for duplicate services, they were over-insured, and where they could trim their somewhat lavish spending habits.  With their current circumstances and investment portfolio allocations they had a zero percent chance of achieving their goals.

The next step was to ease them into a sensible investment portfolio, with a diversified mix of stocks, bonds, real estate investments and alternative investments. We began closing some accounts and combining assets into a more cost-effective and integrated financial picture, including an up-to-date estate plan (we terminated an irrevocable trust!) and appropriate insurance coverage.

It was critical that we were able to get them to come off of the cash only positions mentality.  Through our financial planning modeling which incorporates Monte Carlo simulations using various investment allocations, we were able to set a target asset allocation weighting that would have a high confidence score to achieve their goals.  As I’ve stated, they were anxious to the thought of moving funds from cash to equities.  They had watched the stock markets climb over 100% for the past 4 years and they feared that they were coming back in the markets at the top.  They had been listening to media reports to confirm their position.  But at some level they knew there was never going to be the right time.  We established and Investment Policy Statement to set our agreed upon strategy in clear terms.  To ease them off of the ledge, we set an allocation of 80% real estate and stocks and 20% in bonds and cash for their taxable accounts but set the full implementation date for year end.  We began with a 60%/40% allocation.  And to teach them the correct way to respond (and not react) to market volatility, we indicated that we would go to full equity allocations if the S&P 500 declined more than 10%!  If it doesn’t, then at year’s end, we will move to the target weighting then. We did the same thing with the tax-deferred assets.

These steps are all focused on easing the stress this couple feels over their financial situation and their retirement plans. We are realigning their financial resources with their life goals.

Each of these examples shows the way we believe wealth management and retirement planning should be carried out: Financial decisions must always be guided by a deep knowledge of the client’s overall financial situation combined with a continuing focus on the client’s long-term happiness.

Tim L. Baker, CIMA, GFS

President and CEO

Timonier, Wealth Beyond Financial™