CASE STUDY FACT PATTERN:
A client comes to your office. You sit down for a
discussion, and your client tells you the following: “My wife and I are
in our mid-30’s and are saving for “retirement” sometime in the next 12
or so years. My target age is somewhere around 48–50. I’m wondering
where we should be investing our money now so that we can live off of it
if we want once we are financially independent. (Granted, we may
continue to work if we still are in fulfilling jobs!)
Here’s where we’re currently at:
My wife’s 403b: ≈$43,000
Traditional IRAs: ≈$63,000
Roth IRA: ≈$33,000
Brokerage (taxable) account: ≈$7,000
Between us we will be contributing about $17,000 a year to our 403b’s (like a 401k for non-profits) and $11,000 to our IRAs.
My
main question is this: Should I be putting our annual IRA money
($11,000) into Roth or Traditional IRA’s? I’m worried that once we hit
48 or 50 we won’t be able to access the money in a traditional IRA or
403b without taking a penalty. I’m wondering if I might put $5,500 in a
Roth and $5,500 in a Trad. IRA each year. That way, once we “retire,” we
could pull from the Roth tax- and penalty-free while doing a
traditional to Roth IRA conversion.
What do you all think? What
are your strategies? We have about 12 years left working and I feel like
I need a good strategy from here on out to make sure we can draw on our
money when we’re ready.
Life Situation: Married, 2 young kids
Gross Salary (combined): ≈$90,000
No rental income, etc. at this point
Current expenses are high because of childcare, but will go down over the next few years, so we might invest even more
Assets: We own a house with a mortgage (≈$129,000 owed; 3.125% interest rate)
Liabilities: Just the mortgage (≈$1,100/mo. payment)
Case Study Questions.
I’m not looking for a novel here. Answer the questions and provide enough information to explain your position.
How do you advise this client?
How would your advice change if the client announces that the
couple now wants to start second careers with no plans for full
retirement?