Week 7 Case Study

We've learned a few new things about the Smith's this week since we've begun working on the implementation part of their plan.

• John is able to do in-service transfers of 25% of his 401(k) balance in any one year to another custodian, such as his IRA custodian. He keeps his IRAs at Fidelity and has full access to mutual funds, a brokerage including a large list of ETFs that trade without commissions, and a bond/CD desk. 
• John and Susan's taxable account is invested in a "moderately aggressive" portfolio managed by a robo-advisor that charges 0.45% annually for management fees, based on the online profile they filled out a few years ago when the market was surging. They were intrigued by the possible gains from tax loss harvesting.
• Susan's 403(b) offers a wide selection of low-cost TIAA-CREF and Vanguard mutual funds, many indexed.
• Claire's 529 plan is invested in an aggressive growth fund.
• John will receive a special one-time bonus early next year of $25,000 for the long hours he put in starting up a successful new outlet. The company now plans to open a new outlet every year for the foreseeable future. There may be 5-7% raises for him beginning next year as the chain grows.

The Smith's have become quite receptive to your explanations of building a secure Floor for retirement, and now appreciate the difference between the risk tolerance method used by the robo-advisor and the risk capacity you have shown them on their household balance sheet. 

-- 1) Filling in any facts that you feel are necessary to make your case, update the Smith's income/expense cash flows, funded-ness, balance sheet, and retirement policy allocation. Show the relevant math.

-- 2) Construct an implementation for the policy allocation, showing the specific products and weights for U/F/L/R for the current year balance sheet. You should discuss any planned future product allocations, but only show those to be implemented within the next year or so.

-- 3) Overlay the implementation of the retirement policy allocation as efficiently as possibly on their account structure, with any recommended changes to the accounts that make sense. You can use a chart or table to illustrate this in a way the Smith's would understand--and approve.

Next week, you will pull together the various parts of the plan together into a final plan presentation. For this week, you should focus on the implementation details above.