Client: Jack and Jill, age 42 and 36
Job: Physician & Real Estate Agent
Net Worth: $500,000
Children: Two children and another on the way
Situation: Jack is a pediatrician and a partner in a thriving community medical practice. Jill dabbles in real estate part-time but is currently on maternity leave. Recognizing that another child and job changes bring new financial decisions, Jack and Jill wanted some objective advice in formulating financial and investment strategies for their future. On the horizon were building their dream home, having another child, funding their children’s college education, and investing smart for their own retirement.
Jack and Jill are bright, energetic people who are serious about being financially successful. They have done a great job at accumulating money, but there is no coordination or strategy in place for them to protect or maximize their assets.
Consequently, we suggested they begin by focusing on building a solid financial foundation. Toward this end, we suggested they set aside 3-6 months worth of living expenses in a tax-free money market fund to act as their Emergency Fund. We also suggested Jack apply for and procure disability insurance coverage. A disability income policy will replace a portion of his income, generally up to 60% of his gross earnings, subject to certain limits. Since Jack’s earning potential is his biggest asset, being without this coverage could wreak financial havoc on the family if he couldn’t work.
We advised Jack to increase his life insurance coverage and advised Jill to procure life insurance coverage on her life as well. Although Jill isn’t earning any money now, she expects to in the future and provides tremendous value by taking care of the kids, running the house, and managing the family finances.
We projected the cost of a college education for the three children in 12-18 years. We suggested that Jack and Jill establish and fund a separate college account for each child. We suggested they make monthly contributions via direct deposit into a diversified portfolio of stock and bond funds. The plan we suggested would automatically decrease the proportion of stock to bonds and cash as the kids approached college age, thereby reducing risk and providing greater liquidity.
At our urging, Jack and Jill met with an estate planning attorney to have wills drawn up to provide for their children and appoint guardians. Additionally, they have had powers of attorney, living wills, and health care proxies drafted. Jack and Jill agreed to let us be present in these meetings to gain a broader understanding of their wishes and desires.
We suggested they put a 20% down payment on their dream home on the hill to avoid PMI. We also suggested Jack and his partners consider establishing a retirement plan for the medical practice and max out their annual contributions to lower their tax liability.
Jack and Jill are on their way to achieving financial independence. It is our pleasure assisting them.
*Names and some details have been changed to protect client confidentiality.