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The Priceless Gift of Time – Part 2

By Eve Kaplan, CFP®

Two months ago I introduced “Janet,” (all identifying information changed) — an 81 year old self-employed woman who wasn’t convinced she could afford to retire…until we worked together on a comprehensive financial plan that convinced her otherwise!

To recap, Janet had about $800,000 of investment assets and owned her own home. After working together, she had an orderly plan to sell her business and relocate to another state to be closer to her grandchildren.
The relatively easy part of this process was realigning her portfolio overall to be more consistent with her risk tolerance. It also was relatively easy to restructure her investments to optimize tax efficiency by concentrating assets that generate ordinary income tax gains in her tax-deferred account, and conversely concentrating assets that generate long-term capital gains in her non-IRA account.

The more challenging aspects of Janet’s plan involved work on these key areas:

1. Squeezing more income from her portfolio.

2. Addressing her somewhat inadequate long term care insurance.

3. Sheltering some of her assets so they could flow to her children and grandchildren.

By working together with attorneys and other specialists, we tackled these concerns:

1. To generate more income, we included more high-dividend yielding stocks and short-term bonds in her portfolio. Janet faces a large tax hit from the sale of her business; part of her bond portfolio went into shorter-term municipal bonds she plans to hold to maturity.

2. We purchased a fixed annuity with a portion of her business sale proceeds. Although interest rates are low, this annuity generates reasonable monthly income for Janet to supplement Social Security. The annuity contains a rider promising return of principal if Janet passes away within the first 5 years after securing it.

3. Janet had an old Keogh plan. These assets were rolled over to an IRA. Janet now taps her IRA and finds the RMD (required minimum distribution) payments are a helpful additional income supplement.

4. Janet created an orderly exit strategy for her small business. She sold her business for 300K, taking 150K up front. She plans to receive the 150K balance over a 5 year period (30K/year).

5. These 4 strategies effectively plugged the cash flow gap Janet experienced once she stopped work.

6. Janet was charitably inclined, so she gifted highly appreciated stock to her charity of choice. If she had chosen to sell this outright, Janet would have paid significant long-term capital gains. Instead, she was able to make a charitable deduction (thus lowering her taxes) and avoid capital gains taxes altogether.

7. Since Janet is 81, we determined it was too expensive to acquire additional long-term care insurance to plug gaps in her existing coverage. Ultimately, moving out of state to a less expensive part of the country meant her existing insurance could go further since assisted living and long-term care facilities in her new state are significantly lower than comparable rates in NJ.

8. To mitigate against the risk of draining her assets for long-term care, an estate attorney – working together with Eve and Janet – created a trust to shelter some of her assets. Once Janet clears the 5 year “look back,” she qualifies for medicaid benefits without having to drain virtually all of her assets first.

These are just some of the things a qualified financial planner can do for a client. An advisor who has a transparent fee structure (and doesn’t sell products) can effectively quarter-back client concerns by working with other specialists to pull together a comprehensive financial plan.

Janet now lives near her grandchildren and is pursuing the hobby she loves: photography. Janet recently had a small showing of her photographs at a gallery.

Do you know someone – possibly yourself – who can benefit from “the priceless gift of planning”?

Copyright © 2010 by Eve Kaplan

Eve Kaplan is a Fee-Only (no products sold) Certified Financial Planner® in Berkeley Heights. Kaplan Financial Advisors is a Registered Investment Advisor in NJ and NY. Eve’s firm works with high net-worth individuals and small businesses (401k planning). Eve can be reached at 908-898-0549 or