THE “WHAT IF”?
What if an executive of a prominent company came to us to plan for his anticipated retirement in three years and had accumulated significant assets in a 401(k) plan, company stock and deferred compensation? What if he held a large concentration of company stock and a 401(k) plan and did not want to be subjected to a high tax bill? What if he wanted to make sure he could maintain his accustomed lifestyle through retirement? What if he also wanted to leave a legacy for his family and favorite charities?
We would develop a cash-flow analysis and weigh several compensation payout scenarios. We would also consider tax-efficient strategies and draw down the income he would need to maintain his lifestyle once retired.
We would also address the issues associated with the extensive company stock options he had accumulated. Our advanced planning would include valuating his options while adhering to mandatory holdings policies, looking at hedging opportunities, and exploring ways to reduce or eliminate the alternative minimum tax.
We would determine the appropriate mix of assets necessary to help him achieve his goals and meet his retirement income needs. We would perform portfolio stress-testing to illustrate the impact that certain events may have and help him determine his appetite for risk.
With his knowledge and approval, we would assume the discretionary management of his core assets in order to effectively manage them, implementing strategies such as tactical hedging opportunities based on market conditions and laddering a tax-free municipal bond portfolio designed to provide income and liquidity.
With the goal of mitigating the erosive effect of market downturns, we would implement a strict risk management discipline with a sell philosophy designed to prevent wealth destruction.
To meet his goal of leaving a legacy for his family and favorite charities, we would work with his estate attorney, while also helping to ensure proper titling of his accounts, assets and beneficiary designations, and mitigating the effects of estate and transfer taxes.
We would aggregate his accounts into one convenient access point online, create a secure area for storage of important documents, and maintain continuous upkeep of records and financial data.
This hypothetical example is for illustrative purposes and is not representative of any actual experience. Individual results will vary. There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of capital. This is not a recommendation and you should consult with your financial advisor for advice based on your personal situation, financial goals and objectives. Diversification does not guarantee a profit nor protect against loss. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, or state or local taxes. Profits and losses on federally tax-exempt bonds may be subject to capital gains tax treatment. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Raymond James does not offer tax or legal advice. Please consult the appropriate professional before making any decision that may affect your tax or legal situation.