Example 1) –

Mr. Engineer and Mrs. Teacher come in for a first visit. After we all get some coffee and make small talk for a few minutes, we start asking questions. How long have you been married? Any kids? Are you supporting those kids? What about parents? Are you on the hook for any of their care?

Mr. Engineer says, we’ve been married 38 years. We have 3 kids. All are out of the house. I say good job. What about parents? Mrs. Teacher says her mother is still alive but is self-sufficient on her savings and deceased husband’s (Mrs. Teacher’s dad) military pension.


Tell me about your house. What’s it worth? Do you plan to stay there? Do you own any other property?

Our house is paid for. It’s worth about $300,000. We don’t own any other property. We don’t know if we’ll stay. I’d like to live somewhere less crowded, says Mr. Engineer. Mrs. Teacher says, she likes being close to at least one of their kids. Two are here. The other one is in Iowa, and she doesn’t want to live in Iowa.

Next, I ask about work. What do you currently do and how much do they pay you to do it? Mr. Engineer says, he’s been at Exxon Mobil for 35 years and suspects he’ll be done soon as his department is slowly getting shifted to India. He’s currently making $245,000. Mrs. Teacher says she just retired so she could help with their youngest daughter’s first child. She hasn’t decided what to do with her pension yet. She was making $55,000 and taught 5 grade for 20 years. If I haven’t been able to figure it out, I’ll ask for their ages at this point. Mr. Engineer is 63 and Mrs. Teacher is 62.

Do you know what social security is going to pay you? Mr. Engineer has a printout. Social security says they’ll pay him 2,900 at 67. Mrs. Teacher isn’t sure. She knows what her teachers’ pension will be but isn’t sure about social security as she’s heard there is an offset. We have to dig a little deeper on this one. Did you ever work a job that paid where you paid social security taxes? The majority of school districts do not. That’s why there is a government pension offset. Mrs. Teacher says she worked about 8 years after college and before they had kids. Well, I say, that’s probably not enough to get out of the offset. The offset starts to go at 20 years of what the social security administration calls substantial earnings. Can she get spousal benefits asks Mr. Engineer? She can, but the pension offset will wipe it out. The only way for you to get out of the offset is to cash out the pension before you’re eligible. Mrs. teacher already retired so it’s too late for that option. They looked annoyed. The good news is that the Teachers Retirement System (TRS) is really generous. That cheers them a little.

What about you, Mr. Engineer? What is the pension offering from Exxon? He pulls out papers. We look it over. What are you thinking? I ask. Well, a lot of people are taking the lump sum. I’m not sure what I’m gonna do. Would I have to pay taxes on it, if I take the lump sum? No – I answer. You can roll the lump sum to an IRA. Then it is taxed as you make withdrawals. You are allowed to send it all to your bank, but the whole shebang will be taxed as income to you. So, that’s $1,200,000 of income. If you’re feeling really patriotic and want to help alleviate our impending debt crisis, you might do that. Otherwise, if you take the lump sum, roll it to an IRA. Next time we meet, I’ll have a spreadsheet that solves for what rate of return you would need to get on the lump sum to pay yourself the equivalent pension. If the number is high, take the pension. If the number is low, take the lump sum.

What about investments? 401(k)s, IRAs, 403(b)s, etc? They dump a pile of papers on my desk. I look at it all. Between the two of them, they have 7 accounts. Previous employer 401ks, a few little IRAs here and there, a joint account, and Mr. Engineer’s current 401(k). All added up, it’s about 1.2 million.

Healthcare is easy is easy for you two, I say. You’ll both get employer-based health care benefits until Medicare kicks in, is that right? They nod yes. Ok. I have the value of the house, how much you’re currently making, pension options, and investments account statements. Did I miss anything? Any buried gold, collectible cars, or stamp collections? No.

Ok. What about cash? Are you sitting on cash in the bank? We’ve got about $20,000 in savings and $10,000 in checking says Mr. Engineer.

Ok. I have about everything I need. How much do you think you need in retirement? What would be a comfortable number? Mr. Engineer says $4,000 a month. I ask him what his pay is again. $245,000 he says. Ok. Net monthly what do you suppose that is? He looks confused. I say what about 25% to taxes and 10% to 401k? Does that sound about right. Yes, he says. Alright, I grab my calculator, 245,000 x .65 = $159,250. Divide that by 12 and we get $13,270. You don’t have any debt, so I don’t think you’re spending more than that, but you don’t have a bunch of extra savings, so my guess is that you are spending about that amount. Makes sense to me, Mr. Engineer says. Didn’t think we were spending that much. You were probably spending more, because we didn’t include Mrs. Teacher. She just retired. If we do the same for her income, $50,000 x .7 = 35,000. Divided by 12 = 2,916. So, I’d say you’ve been spending between $13,270 and 16,186 (13,270 + 2,916). Mr. Enginer raises his eyebrows. Now we get some family details. Well, we did pay for two big weddings in the last 5 years, and I just bought a new truck, and we’ve been giving all the grandkids money for college every Christmas, and our son took 8 years to get through college. But I’m not buying another truck, we’re not paying for any more weddings, the son is officially off the payroll, and we probably won’t get many more grandkids.

I believe you. Next time we meet, I’m going to put all this information that I gathered into some spreadsheets. I’m going to make conservative assumptions about what happens with all your income and investments streams. I’ll have a few different options. Taking the pension. Taking the lump sum. Waiting on social security v. taking sooner and we’ll go from there. How does that sound?


Example 2)

Not all our clients have pensions or worked for one of the super-major oil companies. A lot of them are just regular folks with middle class jobs. A more middle of the middle-class couple might look something like this.

Mr. Husband works in warehouse management for a big distribution center. Mrs. Wife works for a dentist’s office keeping books. He makes $55,000 a year and she make $38,000. They live in a $225,000 house in Cypress, owe $28,000, and like the idea of moving. When I ask them about moving, they say we’re thinking about moving up around Lake Livingston. They think they can sell their house and buy something doable close to the lake for the same cost. I nod my head in agreement. I meet a lot of people who want to move to downsize, but a new smaller house would cost more than their current bigger house. The only time I see it working is when people leave the Houston Metro. Prices on homes here have come up a lot over the last few decades. That’s great for homeowners, but it’s not so great when you want to buy. I talk to a lot of people who don’t want to pay the taxes on their nicely appreciated homes, but they can’t find anything that they want to live in for less than what they could sell their house for. Generally, selling and buying something smaller/cheaper only works when people leave the area. You can buy a lot of house in the East Texas, Rural Deep South, or just about anywhere in Oklahoma. I don’t meet that many people who are interested in moving to those areas unless they are form there.

Mr. Husband and Mrs. Wife are both 63. They are planning on working until 66 and 10 months. I ask why that specific age. They answer that is when they reach full retirement age for social security. I meet a lot of people who think this. They figure they’ll work until their full retirement age because that’s when they can get social security. I always point out that they can take social security anytime between age 62 and 70. Every month that you wait, your benefit goes up. The longer you wait, the less time the government has to pay you, so they pay you a little more. Here are some easy rules. If you are working and make much money, you should probably wait to take your benefits. If you’re dying or already 70, take your benefits. For this couple 66 and 10 months might be a good time, but it’s just an age that congress assigned to them as their full retirement age. They can wait or take sooner. What matters more is what makes sense for them.

For this couple, there they are too young for some of the fancy filing strategies that are available for people born before January 2, 1954. So, it’s simple for them. The longer they wait, the more they will get paid. If they have a long-life expectancy, waiting might make sense. Mr. Husband benefit will 2,250 at 66 and 10 months and Mrs. Wife’s benefit will be 1,800 at 66 and 10 months. Generally, a decent strategy is for whoever has the higher benefit to wait until 70. In this case, Mr. Husband. If he waits to 70, it will bump up his benefit to 2,834. If he or Mrs. Wife lives past 84ish, they will get more money over their lifetime.

We discuss their options for social security, and they don’t have an opinion either way. Mr. Husband says, he doesn’t think they can wait on social security until 70 and have enough to retire. Any interest in working until 70? I ask. NOPE! He says. I’m on my feet all day. I don’t think I can do it 7 more years. Ok.

Tell me about your investments. They pull out paperwork. Mr. Husband has 4 401(k)s from various employers over the years. All together, they total about $180,000. Mrs. Wife doesn’t have an employer plan but has an IRA with about $50,000.

What about other properties or other assets? I ask. Mrs. Wife says she has a 1/8th interest in some land in Louisiana. Interestingly, just about everyone I meet from Louisiana, has some interest in some family land. What do you suppose it’s worth? Mr. husband says nothing. They won’t ever sell it, but it does kick off about $1,000 a year in royalties.

What about debts? Anything other than the mortgage? They have a small car note and a few thousand in credit card debt. Other than that, nothing too serious. I ask if there was anything I missed. They say nothing comes to mind. I tell them I will see them in a few weeks with some cashflow models. I’ll conservative assumptions about what happens with their money and show them what I think is reasonable. I tell them, it’s not helpful to you for me to make some model that spits out the number you are looking for. I can make a spreadsheet that spits out $10,000 a month in income for them, but those numbers won’t be realistic. I’ll present what I think it doable, and they can decide if they can retire on that or need to do something else.


Example 3)

A few times a year, someone comes in who doesn’t have any investments that we can help them with, but they have a lot of financial decisions. We always try to give the best advice we can. These meetings can be tough as it often involves telling people things they don’t want to hear. One of these meetings, might go something like this.

Mrs. Flustered comes in with a grocery bag of papers. She collapses into one of the chairs in my office and plops her bag of papers onto my desk. I need some help - She says.


I might not be able to help, but I can at least get you pointed in the right direction.

What’s going on? Mrs. Frustrated sighs. What isn’t going on? I lost my job she says. I’ve been working as a truck dispatcher for about 10 years. Something happened. I lost my job. OK – I say. Can you get another job? She says I would but my husband is sick. He got sick a year before I lost my job. I took all the time off I could. I couldn’t afford to miss much more work. Then I got fired. Now he is real sick and I can’t afford to pay someone to take care of him while I work.

Is he on social security disability I ask. No, she says. He wasn’t working then he got cancer. Did he ever work I ask? Oh yea, she says. He worked until he was about 58. He was a metal worker. He got laid off. Now he’s sick. OK, I say, he can get social security disability. So, we need to get him signed up for that.

Where are y’all getting your insurance? It was through my work. Now, I don’t know what to do. Did you get offered cobra? I ask. Yes, I have the papers here, but I can’t afford the 1,800 a month without a job.

Did you apply for unemployment? No. Why not? Because I was fired. Ok. Were you fired for “cause or misconduct?” No. They didn’t say that. Then you can probably get unemployment. So, I want you to apply for unemployment and social security disability for your husband. He can probably get some amount of back pay too if he was diagnosed with cancer a year ago.

Do you have any savings? Yes – about $8,000. Ok. What about your house? Our house is paid for. What do you suppose it’s worth? $85,000. Do you have any investments or pensions? My husband has a small pension that pays $400 a month starting at 65, but I don’t think he’ll make it to 65. Ok. Any insurance policies? Yes. We have this. She shows me a statement. It’s a universal life policy on the husband with about $3,000 of cash value. The death benefit is $100,000. We stopped paying the premiums when he lost his job. I explain that the cash value of this policy is coming down. The cost of the insurance is greater than the dividend. It looks like you have about 2 years left in this thing before it zeroes out.

I explain that you can usually make excess premium payments and buy more death benefit. It’s usually something like an extra $10,000 will get you an extra $20,000 -$40,000 in benefit. So, in your case, it doesn’t sound like your husband is going to make it. Is that right? She gets teary eyed and doesn’t say anything. Ok. I say. You need your savings to live on, right?

Do you have any other assets? Other land savings, CDs, bonds, gold, antiques? She thinks for a minute. I inherited a lot in Cleveland, Texas from my great aunt and my husband has a new F-350 that’s paid for. He cashed out his 401K when get got laid off and bought it. Ok. Can you sell that lot? I guess she says. I don’t think I’d get more than 10,000 for it. The people who live next to it wanted to buy it, but I never followed up with them. Ok. If you get 10k and put in the life insurance policy, it will get you 20,000-40,000 back. There isn’t an investment that I can put you in that would do that. What about the truck? Does he drive it? No. He can’t drive. He bought it 2 years ago and barely put any miles on it. Do you need it? No, she says, it’s too big for me. I know this one is harder, but you should sell that truck and put the proceeds into his life insurance. If you get $50,000 for the truck and put it in the universal life policy, you’ll get 100,000-$400,000 back. That is if your husband doesn’t beat the cancer.


At this point, Mrs. Frustrated seems to be even more overwhelmed. I tell her, she has a lot to. I can’t do these things for you, because that’s not what I do, but I can make you a list of what to do.

  1. File for unemployment for yourself.
  2. File for social security disability for your husband.
  3. As far as I can tell, you qualify for Medicaid. Sign up.
  4. Sell the lot and the truck. Put that money into your husband’s life insurance policy.


Mrs. Frustrated says she doesn’t know how to do all this stuff. So, I look up phone numbers for each organization that she needs to call. I give her that list. You are just going to have to call all these people and accept that you will be on the phone for a long time. It might take a full day or two of being on the phone with each organization. If you hit bumps or have problems, you can call me to ask me questions. I don’t file unemployment claims, social security claims, Medicaid claims, nor am I a realtor. But I can answer questions about this stuff and get you pointed in the right direction.

Mrs. Frustrated doesn’t seem to be in any higher spirits leaving as when she came. That’s the way it goes sometimes. Having hard conversations and telling people what you would do in that person’s shoes doesn’t always make people happy, but it’s the right thing to do.