The Profile

Katie and Ben have been married for 5 years. They are both in their early 30’s and katie has just recently given birth to their 2nd child.

The situation

Steven works as a project manager at a well established tech company. He has worked here since graduation and has worked his way up through the corporation. Ben loves working for this company and has developed many friendships with his collegues, he see’s himself working here his entire career. 6 years ago Katie founded her own event planning business. Katie has built up an impressive client list and has enjoyed the flexibility of operating her own business. She has downshifted her work flow as she has spent more time with her children.

Up to this point Katie and Steven have manged their finances on their own. They are unsure if their situation is complex enough to warrant professional planning. After the birth of their second child they have decided it is time to pursue a professional relationship. after speaking with their parents and friends they have come up with the following questions,

  • Are they currently on the right track with retirement savings?

  • What type and what amount of insurance coverage should they have with 2 young children?

  • Ben has been receiving company stock as compensation, he is unsure if he needs to be doing anything with them.

  • Katie’s parents have setup 529 plans for both of their children. She knows they regularly contribute to them but is unsure of what track those accounts are on.

  • Ever since dating Ben and Katie have had a dream of purchasing a lake house in Wisconsin for their family to enjoy. They are unsure of how to begin accumulating assets / the viability of this goal.

The Process

As with all client cases, the Clearwater team utilized the C3 Process.

  • Clarity - Data / Discovery

    • First the team had to help Ben & Katie achieve clarity around what their goals were. They both acknowledged that is probably was too early to articulate a retirement vision but wanted to have a plan for it in accordance with their near term goals.

    • The Clearwater Capital team gathered statements / illustrations on Ben’s employer sponsored life insurance.

    • Clearwater obtained statements on the children’s 529 assets. Ben and Katie also were able to articulate that they would like to fund 50% of their children’s tuition costs to an in state college.

    • After much discussion regarding their lake house, they came to the decision that they would like to purchase a $500,000 lake house in approximately 12 -15 years from today.

    • Data was gathered from Ben about what type of stock options he had received from his employer and what restrictions he may have had.

    • Throughout this process a complete balance sheet was constructed for Katie and Ben.

  • Conviction - Information / Analysis

    • Retirement goal - After extensive discussion with Ben and Katie we reached the conclusion that it was too early to articulate a clear retirement vision, especially given the more immediate goals. However Clearwater Capital prepared multiple accumulation scenarios for them. 1st showing them what track they are on with their current savings / retirement contributions. Another scenario was prepared that showed increased contributions as well as a non employer sponsored retirement accumulation account.

    • Life Insurance - Upon analysis of Ben’s employer sponsored life insurance policy we determined that it was lacking in various aspects. Primarily, Ben articulated that as the primary earner for the family he wished for his family to be able to continue lifestyle if something were to happen to him. Analysis determined that the current life insurance coverage was severely underfunded to reach this goal. Multiple scenarios were prepared showing them various levels of coverage at various terms.

    • College planning - After reviewing the current 529 assets available for their children, Clearwater Capital determined that those accounts were on track to fund about 25% of projected college expenses. Scenarios were prepared to show Ben and Katie what additional contributions would be available to them to “close the gap” and reach their 50% goal. During this phase Katie expressed her desire for their children to have flexibility with the funds in these accounts. After discussion they decided that additional funding take place in a UTMA account so that the funds did not have to be used exclusively for college planning.

    • Lake House - During the data gathering phase Clearwater Capital built a balance sheet for Ben and Katie to get organized. During this phase Ben pointed out a large brokerage account that they had used to put savings into for their lake house. Analysis showed that the account was invested primarily in treasury bills because Ben’s uncle had told them that it was the safest investment. Ben and Katie determined that they would like to purchase the house in atleast 10 years with a 50% down payment as a personal preference for a 2nd home. Clearwater Capital determined that the current asset allcoation was not optimized for their goal and their time horizon. Scenarios were prepared for them showing the potential growth a balanced protfolio could expect historically over the next 10 years for their goal.

    • Ben has continued to recieve employer stock as components of his compensation and his bonus. Ben anticipates continued promotions in the organization, increase in value in company shares, and continued increases in his earnings. He is unsure of the tax treatment. He had heard from his brother there was something he could do to in regards to taxes on this stock but was unsure exactly of the method. Clearwater Capital was able to educate ben on the 83b tax election he could make for his contributions.

  • Commitment - Knowledge / Execution

    • Retirement - Kate and Steven spent some time reviewing the various accumulation scenarios. While they did not yet articulate their retirement vision, they agree’d that they did not like the current track their current savings were on. They agree’d to increase their contribution rates to reflect one of the more accelerated accumulation plans.

    • Life Insurance - After reviewing Clearwater Capital’s findings regarding his employer life insurance policy, Ben agree’d to purchase a new term life insurance policy. The term and amount of this policy matched the family needs and minimized cost.

    • College Planning - Katie and Ben established UTMA accounts for their children with Clearwater Capital. They contribute monthly to these accounts the amount to “close the gap” and fund 50% of their children’s college expenses.

    • Lake House - Katie and Ben established a new investment account with Clearwater Capital and trasferred their brokerage account. They agree’d with the investment philosophy Clearwater Capital proposed and agree’d to rebalance the account to reflect a more growth oriented investment mix of ETFs. They are comfortable with the increased risk given their time horizon and goal of 50% down payment for their lake house.

    • Additional findings

      • After reviewing Ben’s employer sponsored 401k account, it was determined that this account was also invested primarily in Treasury Bills (again, given his uncle’s investment advice.) Clearwater Capital was able to help Ben rebalance his 401k into a growth oriented portfolio for him and will work with him as he gets closer to retirement to decrease the risk profile.

The result

  • Don & Peggy engaged Clearwater Capital with many questions.