Our Financial Plans - Aaron Brask Capital

We believe our financial planning differentiates us from our competitors (see our Value Proposition page). Whether you are interested in our ongoing Personal CFO services or a one-off financial plan, this page will help you understand what details are included in our financial plans.

Retirement Planning: Maps, Windshields, and GPS

The Big Picture

Building a financial plan for retirement can be analogous to mapping out a course for a road trip. At a high level, our goal for the road trip is to travel safely and efficiently. In the context of retirement, we desire a prudent strategy that does not compromise our financial security and minimizes unnecessary costs and taxes along the way.

Whether it is a road trip or retirement, the journey should begin with big-picture planning. For the road trip, this could be a map; for retirement planning, this would be a financial plan.

The Little Picture

Looking out the windshield and seeing a "Road Closed" sign

As we start and progress through our trip, we should look through the windshield to check local road conditions: Traffic, stop lights/signs, detours, pedestrians, deer crossings, speed limits, etc. In the context of retirement, local conditions could translate into constructing a pro forma tax return for the current year.

For example, we identify the capacity remaining within tax brackets or IRMAA thresholds, accounting for items that will affect that year’s tax return (dividends, interest, capital gains, Social Security, etc.). This allows us to be more surgical with tax-planning maneuvers such as Roth conversions, tax-gain harvesting, and tax-loss harvesting.

Making Adjustments

At the same time, we must be prepared to make adjustments or pivot our strategies as larger variables change and affect our plan. During the road trip, our GPS might reroute us around an accident or other issues. In the context of retirement, this could translate into adjusting portfolios and tax strategies according to:

Market conditions: Proactive and reactive rebalancing, as well revisiting calculations involving interest rates (e.g., pension and annuity decisions)
Tax legislation: TCJA, Secure Act, OBBBA, etc.
Life events: Job changes, births, deaths, marriages, divorces, etc.

THREE LAYERS OF FINANCIAL PLANNING

Economics of Income

When it comes to retirement planning, our first step is to ensure that retirement is feasible, even under conservative assumptions. While feasibility is binary in nature (you either have enough or you don’t), we consider multiple dimensions.

For example, we take one’s anticipated spending patterns and run simulations based on different asset allocations (e.g., 25/75, 50/50, and 75/25). With the spending levels fixed, these results can help us assess what levels of portfolio risk are compatible with one’s spending goals. Moreover, they can shed light on what type of inheritance or charitable bequests they might leave behind.

We also investigate spending levels that would target wealth depletion at the end of one’s (or a couple’s) actuarial life expectancy. This requires iteratively increasing spending until the median legacy wealth (terminal portfolio value) is close to zero. We find this helps provide context that can loosely translate into upper bounds for spending limits.

In addition to these portfolio analyses, we also analyze decisions around Social Security (SS), pensions, or annuities. Our goal is to maximize the benefits one can receive from each source of cash flow. SS is particularly important to optimize, as these benefits embed an inflation-adjustment that can be very valuable.

Note: Given the dynamics around spousal and survivor benefits, it is especially important for couples to consider their SS decisions together, rather than making each spouse’s decision in a vacuum.

It is also important to maximize the cash flows from pensions and annuities. Each pension and annuity product can offer multiple payout options (e.g., start dates, joint vs. single-life payouts, and survivor benefits). We dive into actuarial tables and interest rate curves to help our clients determine which options are likely to benefit them the most.

To be sure, there are many options around portfolios and sources of income. Moreover, many of the details are tedious and more complex than they appear. While we want to make sure our clients do not run out of money in retirement, we also want to optimize all options at their disposal to maximize the net results.

Tax Efficiency

Below is an abbreviated list of the strategies we use to reduce taxes. Given the importance of taxes in retirement (they are typically one’s largest expense), their complexity, and the broad spectrum of strategies we use to reduce them, we devoted an entire page (including three videos) dedicated to this topic. Here is a link to that page: Tax Strategies

Basic tax strategies

Avoid frequent trading
Avoid using mutual funds in taxable accounts
Use exchange-traded funds (ETFs)
Avoid high-yielding investments
Prudent use of municipal bonds
Qualified dividends
Tax lot optimization
Avoiding short-term capital gains
Tax loss harvesting
Tax gain harvesting
Timing capital gains

Core tax strategies

Asset location
Roth conversions
Withdrawal strategies

Advanced tax strategies

Strategic decisions around cash flows decisions (Social Security, pensions, annuities, settlements, etc.).
Planning opportunities to turbocharge tax deferral with retirement plans for business owners
Strategic beneficiary designations
Disclaiming strategies
Intervivos gifting and giving (e.g., donating appreciated assets, donor-advised funds, and QCDs)
Testamentary legacy goals related to families or charities
Irrevocable trusts
Step-up in cost basis
Borrowing against versus selling highly appreciated assets

Robust (Not Delicate) Plans

Another factor we need to consider for retirement planning is robustness. While we optimize strategies around various assumptions, we do not know whether these assumptions will hold. Accordingly, we do not want to optimize for those precise assumptions (in mathematical terms, this might be called overfitting). Instead, we want to optimize around a broader group of scenarios that represent reasonable deviations from our core assumptions. Here are some examples:

Markets could perform better or worse than we assumed
We could end up spending more or less
Inflation could come in higher or lower
We could have longer or shorter lifespans
Taxes could end up higher or lower than we anticipated

The bottom line is that we want to ensure our plans are not delicate. We want to avoid the risk of our plan collapsing if one or more of our assumptions is off by a reasonable degree. We believe this robustness and stress testing is critical. Indeed, we can often alter our plans to avoid this risk without significantly sacrificing the expected performance based on our core assumptions.

The Bottom Line:

Financial planning is an ongoing process that requires monitoring both the big picture and tactical perspectives. While we do our best to map out a course for generating income and reducing taxes in retirement, we know that the assumptions we use will not be perfectly accurate.

The reality we experience can lead to changes that may alter our strategies. These changes may relate to life events (marriage, divorce, death, birth, etc.), or external variables (markets, inflation, tax legislation, etc.).

Knowing this in advance, we built a financial planning process that systematically tests reasonable ranges of alternative assumptions. In particular, we use simulations and optimizations to make our plans to makes our strategies more robust.