Getting back on track
Through comprehensive financial planning and ongoing assistance, Lucas Capital helped this couple get back on track for a successful retirement after an unexpected job loss.
Challenge: Planning for the future when there are obstacles in the way
Our clients, a couple in their mid-50s, both held executive-level positions at different companies. They were long-time clients with a good financial plan and on track for retirement when they both were 60. The husband’s company, a large US manufacturer, was unexpectedly sold to a foreign buyer who planned on closing all U.S. operations. Even though he had worked at the same company for 20 years, he was being terminated with 6 months’ notice. This was a major emotional and financial setback.
They called Lucas Capital shortly after they learned the news, concerned that losing one salary 5 years before they expected to retire would derail their plans.
These clients were previously on a clear path to their dream retirement. Unfortunately, the situation changed and now they were worried. In addition to the job loss, they were nervous about the economic and market outlook moving forward. They had successfully been able to weather investment losses in 2008, where their patience paid off with large gains in the subsequent bull market. Now with only one job and close to retirement, they did not have the same risk tolerance. Also, economic signals were starting to point lower. Would a recession drive both their real estate holdings and investment portfolio lower right at the time they needed to fund their retirement? Needless to say, they were very concerned.
Once we understood the situation, we got to work. Our first goal was to review the termination and severance package that was being offered. Since he was an executive and long-term employee, we thought there would be some flexibility on the terms of the package. Once we had all of the data, we updated their financial plan. We developed three alternatives for them to consider: finding another executive job and maintain the plan to both retire at 60, part-time consulting for 5 years with lower income, and a third alternative where both would retire early.
We also analyzed all of their investments including company stock options, incentive compensation, and deferred compensation as well as both of their 401(k) plans. Because of the termination, we had to rebalance their portfolio to address the concentration created by accelerated vesting of a large portion of company stock. We also prioritized tax planning because the termination caused deferred compensation, stock vesting, and severance to hit in the same calendar year.
In addition we:
- Worked with them through the negotiation of an improved severance package.
- Developed a strategy to exercise company stock options over a two-year period, considering expiration timing, market risk, and tax efficiency.
- Helped them understand the financial implication of each of the three scenarios and how it would impact them over the long run.
- Set a Social Security strategy for each of them.
- Examined all parts of their financial life to ensure that we were taking everything into account in our financial plan.
- Updated their estate plan and coordinated with their attorney for implementation.
Our work together was very intense for many months but helped to stabilize their financial situation. The unexpected step-up in the value of the stock options provided more wealth than they initially anticipated. Ultimately they decided to keep their retirement age at 60 with the spouse who lost their job doing some part-time consulting for the next few years.
Our work together helped them realize that they had several good choices for retirement. We continue to meet frequently and work on different areas that need help. Recently we helped them refinance a mortgage and assisted their adult son in a strategy to lower the interest rates on his outstanding student loans.
The couple is on track to retire when they originally wanted, however, their life is a little different than they originally planned. Because they had started saving for retirement early in their careers and a had good financial plan, the late-in-life curveball was not devastating. We continue to make adjustments to both their financial plan and investments as their life changes. Lucas Capital acts as their family CFO and frequently helps them and their children stay on track and avoid financial mistakes.