Case Study: The High Income Earning Tech Couple

I’m here to take you on a journey that may resemble your life.  If it does, follow along and empower yourself…

A tech-savvy couple in their mid-30s, John and Jane, have built impressive careers in the industry. John, employed at Facebook for the past 5 years, and Jane, with a 7-year tenure at Peloton, both hold established positions as engineers with a combined annual compensation of approximately $600,000.

They got married about 5 years ago and they have 2 young children, Josh who is 4 years old and Jessica who is 2 years old. They are doing a great job with saving in their 401(K)s, they have joint investment accounts, IRAs from their old employer that they are self-managing at Fidelity Investments in an ETF portfolio. While John is receiving Restricted Stock Units from his employer that’s vesting every year, Jane has been collecting her Incentive Stock Options and Non-Qualified Stock Options that’s been offered through Peloton.

They were looking for an impartial evaluation of their meticulously crafted financial plan, just a like a lot of my clients in similar circumstances, approached me, to make sure that they are not overlooking anything with their financial plan.  They were here for a second opinion that’s unbiased at the highest fiduciary standards, financial advice from a Certified Financial Planner™.  Many of you are possibly in this same situation so this case study may shine some light on your current plan. 

I am Raman Singh, a Certified Financial Planner™, Your Personalized CFO at Singh Private Wealth Management. My mission is to empower my community by providing guidance, coaching, and courage to help them achieve happier and healthier lives.

John & Jane’s Financial Situation

Diving into their financial landscape, John and Jane saved up around $50,000 in cash savings, bought a home in 2020 for $500,000 with a 30-year fixed mortgage at 3.8% interest, actively contributing into their 401(k)s, saving a decent amount outside of the 401(k) savings, while they continue to enjoy their life. Their disciplined approach extends to revolving credit card debt, fully paid off monthly, a joint investment account of $50,000 invested in low cost ETFs meticulously crafted by John, while John also has a little crypto portfolio with $10k of Ethereum & Dogecoin that he likes to dabble with. However, they are not sure if they are maximizing all their employer benefits.

John & Jane’s Goals

John is eager to venture into real estate by acquiring a rental property, and the couple is well-prepared to navigate the intricacies that come with property ownership. Also, they both love to travel every year, whether it’s visiting family or taking an international trip every year. Realistically, they have no idea how much they are really saving outside of their 401(k), but their primary goals include establishing a sound financial path for their children, ensuring no crucial elements are overlooked, fostering positive financial habits, and, ultimately, achieving a work slowdown by age 50 with the option to fully quit working by Age 60.

This is where the magic happens and how I work with my clients as their “Personalized CFO!” and identify all the strengths and weaknesses in John and Jane’s Plan and provide them with the unbiased fiduciary financial advice.

Attack The Cash Flow First

To start, we need to analyze their average expenditures over the past three months. This step is crucial in gaining insight into their monthly spending habits. Simultaneously, we'll identify their net paychecks post employer-deductions, and review their W9 withholdings to ensure they strike the right balance in tax payments—avoiding underpayment or overpayment. After establishing a clear picture of their income and spending patterns, we can identify the variance, ideally representing their monthly savings. It's imperative to compare this expected savings figure with the actual savings amount. Any disparity between the two becomes our primary concern, and addressing this discrepancy becomes our top priority. This process provides a roadmap, highlighting where they currently stand and the necessary steps to reach their financial goals. For instance, if the target is to save approximately $5,000 per month but they are currently saving only $2,000, we embark on crafting a strategic plan to bridge the gap and continuously assess and track progress from point A to point B.

Let’s check out their Investments

Next, we will examine their investment portfolios. While ETFs exhibit promising performance, passive investing, and low cost fees, we must also identify tax mitigation strategies within the investment accounts. Both John & Jane have Rollover IRAs, Pre-Taxed and Roth 401(k) options, and joint investment accounts, we notice a significant portion of their funds concentrated heavily in the S&P 500.

We've pinpointed several opportunities for enhancement. Specifically, there's a need for a strategic plan concerning the Rollover IRA. This plan could open avenues for clients to capitalize on controlled annualized Roth conversions or leverage the backdoor Roth IRA strategy.

Furthermore, relying heavily on the S&P 500 exposes the client to a missed opportunity, as other asset classes have consistently outperformed it over the past 22 years. According to JP Morgan's Guide to Markets, since 2001 to 2022, the US Large Cap Market (aka S&P 500) surpassed the nine other asset classes only once in 2019, with REITs, Emerging Markets Equity, and US Small Cap Equity emerging as the top performers during this period. The emphasis here is not on choosing one specific asset class over another, but rather on the crucial need for proper diversification.

Another aspect to consider is ensuring that John & Jane constantly maintain a well-balanced mix of taxable, tax-free, and tax-deferred savings which is essential for effectively mitigating and managing both their current and future tax obligations throughout their life.

Let’s Not Forget Risk Management

With their two young children, it’s very important to help them identify the catastrophic. They currently have life insurance coverage equivalent to 2 times their annual salary through their employers, but, the question arises: is this coverage sufficient? By employing a Needs Approach Analysis, we can assess the total coverage required versus their existing coverage. While employer-provided life insurance is effective in addressing liquidity needs, the structure of employer term insurance has its challenges. As John & Jane continue to get older and their health changes, the premiums for John and Jane's life insurance will escalate annually, lacking the stability of locked-in premiums. As they age, this may lead to increased insurance costs and potential insurability clauses.

In response to these concerns, we can redesign their plan that fits there needs starting now. By establishing a foundational core of their life insurance by acquiring a 25-year Term Life policy with locked-in premiums and supplement the remaining balance through their employer coverage.

But wait! There’s More…

In the next part of this case study, we will further examine their Employer Sponsored Benefits, Auto Policies, Health Insurance Plans, Homeowners Insurance, Incentive Stock Options, Restricted Stock Options, existing Estate Planning Strategies, and proactive approaches to formulate their Tax Planning strategy.

I am Raman Singh, a Certified Financial Planner™, Your Personalized CFO at Singh Private Wealth Management. My vision is to empower my community by providing guidance, coaching, and courage to help them achieve happier and healthier lives.

Raman Singh, CFP®

Your Personalized CFO!

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