Client Case Study #5

Contemplating Retirement – Richard and Diane, seeking the confidence to retire

Richard and Diane requested an appointment with Rockwood after reading one of our personal finance columns in the regional newspaper. They are the model "millionaire next door" family, and can best be described as hard-working, humble and honest individuals. They have built their nest egg with a diligent approach to saving. We immediately warmed to Richard and Diane, as it was clear they knew the value of the dollar and were committed to the future of their family.

They struggled with striking the right balance between providing for their college age children and allocating resources to fully fund their retirement. Their portfolio was a self-managed and seemingly random collection of retail mutual funds held at nine different custodians. Additionally, they maintained a separate IRA with a broker referred to them by their neighbor.

There existed no coherent strategy for their investable assets and the result was a portfolio highly concentrated in U.S. large-company stock mutual funds and long-term corporate bond funds. Richard and Diane were admittedly unaware that nine different large U.S. stock funds did not constitute diversification, and that they were taking on more risks and higher expenses than were warranted to accomplish their objectives.

Their corporate bond funds had experienced stock-like volatility and they were upset that their previous broker had assured them that fixed income investments were "very safe." However, he failed to properly educate them on the risk involved with lower quality bond portfolios.

After sitting down with Richard and Diane and listening to their concerns and income needs in retirement, we demonstrated how to improve expected portfolio survivability during a period of extended withdrawals for retirement. We showed them how a properly engineered portfolio can provide retirement income more cost effectively and with less volatility then they had experienced in the past. They are now confidently saving in a structured plan to ensure dignity and independence during retirement while setting up their children for a great start in adulthood.

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