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John & Joan Smith Sample Financial Plan


We at Financial Life Advisors are excited to share a hypothetical financial plan with you to give you an idea of what working with us might look like. We’ll be using the fictional Smiths as an example, but please keep in mind that every client’s situation is unique and not all reports referenced will be created for every planning client.

It’s important to remember that the financial reports and analysis may look different for each client, and we’ll work with you to determine the right level of analysis and format of reporting before we begin the planning process.

All aspects of your personal and financial situation are considered so that you receive clarity around several key areas, including things like developing goals, managing assets and liabilities, managing cash flow, identifying and managing risks, addressing tax considerations, preparing for retirement, and more.

Please keep in mind that the hypothetical investment returns in this financial plan are based on historical market performance and may not reflect future results. More information about the investment assumptions for each specific situation will be shared in the final financial plan.


  • Choosing a Planner and the Initial Consultation
  • Background Information and Defining Goals
  • Analysis and Financial Plan Construction
  • Financial Plan Presentation
  • Implementation of the Financial Plan 

John and Joan Smith are a typical, middle-aged couple. They were contemplating their retirement and realized that there are many moving parts to their personal finances. They had investments accounts all over the place, were unsure of when they should file for Social Security benefits, thought they had adequate insurance coverage, and were unsure whether they had enough financial resources to last the rest of their lives.

After doing some internet research and talking to friends, the Smiths decide to enlist the help of a financial planner. They decided that they should hire a CERTIFIED FINANCIAL PLANNERTM professional because of the level of training required to be a CFP® professional. Additionally, they were looking for a fee-only firm, which means no products are sold and no commissions or referral fees are accepted. Financial Life Advisors meets their criteria and acts as a fiduciary in client relationships.

John and Joan filled out a pre-consultation worksheet prior to the initial consultation with FLA. The worksheet helped the Smiths to outline the basics of their situation and helped their FLA advisor figure out what additional questions needed to be asked prior to beginning the financial planning process.  After the initial one-hour, no-cost consultation, FLA provided a fixed-fee quote for the cost of the stand-alone financial plan. Allowing John and Joan to know what would be involved in the financial planning process, how much the plan would cost, and what they could expect to get from their financial plan.

After signing the Financial Planning Agreement, John and Joan were given separate emotional risk tolerance questionnaires, a budget worksheet, and outline of the documents needed at the “Goals Meeting”. At the goals meeting, John and Joan provided copies of their insurance policies, financial account statements (investments, mortgages, loans), income tax returns, Social Security statements, tax returns, current budget, and copies of their wills along with other estate planning documents. During this meeting with their CFP® professional, John and Joan then explained, in detail, what they wanted retirement to be like. With the help of their FLA advisor, they outlined each one of their retirement goals.

The following goals were outlined by level of importance ranked from 10 (highest) to 1 (lowest). All costs are collected in today’s dollars and FLA’s planning software can ensure amounts are adjusted for inflation as needed:

Importance Goal
10 Would both like to retire when John is 62, but would be okay with working until he is 65.
8 Replace vehicles every five years until age 75, then move down to one car. (New car cost $45,000) 
6 Want to be able to take a luxury vacation in retirement every year until they are 80. ($15,000-$10,000)
5 Purchase a coastal vacation home ($450,000) with annual operating expenses of $30,000.

John and Joan have the following assets: 

  • Cash (bank accounts/CDs/Money Market) $80,000
  • Brokerage account (stocks/bonds) $525,000 current value, $250,000 tax basis
  • Non-Qualified Deferred Annuity ($220,000 current value, $100,000 basis)
  • Joan’s IRA ($475,000)
  • John’s 401(k) account ($700,000), employer match is 3%
  • John is eligible for a pension, which at age 65, will pay 40% of his highest average salary ($140,000) for life without inflation adjustments and with no survivor benefit
  • Home is worth $450,000 with a $100,000 mortgage at a 4.0% interest rate
  • John’s car is 2 years old and worth $25,000. The loan balance is $10,000
  • Joan’s car is 4 years old and worth $20,000


  • John’s life insurance coverage is through work ($300,000) costs $100/month
  • Joan’s life insurance coverage is a whole life policy ($100,000 death benefit, $30,000 cash value, $25,000 tax basis).  Premiums are $85/month
  • John has a disability policy through work (paid for with after-tax dollars) which replaces 60% of his income if he becomes disabled; Joan has no disability insurance
  • John and Joan have no long-term care insurance
  • John and Joan have homeowners and auto property coverage, but no umbrella liability

Situation Details:

  • John is maxing out his 401(k) annually. Joan does not have a retirement plan and is self-employed.
  • John’s gross salary is approx. $140,000 per year; Joan makes approx. $60,000.
  • John and Joan executed wills when their kids were young. The wills have not been updated since.
  • After taking the emotional risk tolerance questionnaire, it was determined that John was an aggressive investor and Joan, a conservative investor.
  • The Smiths spend approximately $6,000 a month on basic living expenses like utilities, entertainment, food, property taxes and other expenses not included in separate goals.
  • Of all investable assets, the overall fixed income (cash/bonds) to equity (stocks) ratio is about 40% fixed income and 60% equities (40/60).
  • John’s Social Security statement shows him receiving $2,650/month at his Full Retirement Age (FRA) of age 66 & 8 months; Joan’s shows $1,800/month at her FRA of age 67. Both plan to file for Social Security benefits as soon as eligible to receive them, likely at their respective retirements.


Plan Construction

Next, the CFP® professional at FLA who worked with the Smiths reviewed all of the detailed information provided during the goals and information gathering meeting. Their FLA advisor entered all financial assets, property, income, insurance, and retirement goals into the financial planning software.  

After constructing the financial plan in our financial planning software and then testing it, each area of the Smiths’ financial life is evaluated in the context of their personal goals. Since one area of personal finance can influence another, it is important to have the big picture when making specific recommendations in each various part of a financial plan.

Investment Analysis – How has your current portfolio performed? What are you paying and to whom? What is the risk profile of your portfolio and what changes should you make to bring your investment strategy in line with your financial plan?

Income Tax Strategies – By simulating a 20-year projection of taxable income and spending, a clear picture usually emerges. Opportunities to smooth income (or expenses) over time can create a much lower overall tax burden thus adding longevity and strength to an investment portfolio.

Estate Plan Review – Reviewing an estate plan can identify conflicting titling or beneficiary designations. A practical review can identify unnecessary complexity or poor design. A robust estate plan is not just about tax minimization; much more often, it is about ensuring a solid plan exists for eventual transition through diminished capacity and death.

Insurance Report – Insurance is necessary to shift risks which could otherwise be financially devastating. This review will look at the specific coverage and risk exposures you have and make specific recommendations. You need the right coverage and should be paying a fair price for that coverage.

Each report comes with key information about the current situation, explanations on various options, and actionable recommendations.


Plan Presentation

After running various simulations and trying different scenarios, the financial plan was presented to John and Joan. The financial plan had first been calculated assuming the Smiths continue on their current course of action and pursue all of their stated goals.  This calculation showed the feasibility of their current plan.

After entering all the stated retirement goals and using their existing asset allocation, the financial plan showed a probability of success of 75% (See a copy of the financial plan). This meant that as it exists, there is some weakness to the current financial plan. The FLA advisor then simulated the financial plan in the circumstance that John passes away early at the age of 67. In this scenario, because of the lost pension and reduced household Social Security income, the probability of success for the plan dropped to 32%.

John and Joan were alarmed by the fragility of their retirement plans. John suggested that they would just have to work longer and become more aggressive with their investments. Joan said that she didn’t want to get more aggressive and that they should scrap the vacation home on the coast.  The beauty of the financial planning software is that any of the suggested alterations could be tested in real time to see the effect of the changes on the plan’s probability of success.

The Smiths’ FLA advisor tested how working longer or reducing spending would improve the plan strength. By John working until age 65 the plan improved to 97% probability of success. When simulating not buying a coastal home (and incurring annual expenses for insurance, taxes, maintenance) and substituting a $30,000 per year annual vacation rental budget instead, the probability of success was 91%. One of the biggest surprises in the planning process was that even though John was an aggressive investor, he was surprised to find out that lowering investment risk actually increased the probability of success. With more risk, the potential for a large loss in the short run can permanently damage the financial plan. When the portfolio risk was decreased, the potential outcomes were much less varied, and the ultimate probability of success increased.

To address the issues of early death, the plan was simulated with a purchase of a $250,000 15- year level premium term life insurance policy on John’s life at retirement plus electing a slightly reduced pension option which carried a 100% joint survivor benefit for Joan. With those plan modifications, the probability of success rebounded from 32% to 90%.

In the end the Smiths decided on making some minor goal modifications:

  • John and Joan plan to work until John is 63 instead of the ideal age of 62.
  • Reduce portfolio risk profile from 40/60 to 55/45 (fixed income/equity).
  • Purchase a $250,000 term life policy on John for 15 years to cover the risk presented by an early passing.
  • Change from replacing cars every 5 years to every 7 years.
  • Modify Social Security claiming strategy (see comparison report) to delay John’s benefit until age 70 and for Joan to file early at age 62. This ensures the survivor will have the maximum Social Security benefit possible.
  • Reducing the luxury vacation budget from $15,000 to $10,000 per year.
  • Buying a slightly less expensive coastal vacation home $400,000 instead of $450,000.
  • With a lower vacation house value, annual costs decrease from $30,000 to $28,000.
  • Joan is going to set up a Solo 401(k) and save an additional $1,000 per month in a Roth 401(k) option until retirement.

After talking about it, John and Joan did not have a problem working a few extra years. If they keep the above modifications and end up working until John is 65, the probability of success went up to 99%. The Smiths will wait and see how things go as they approach age 62. Their goals may change, or they may feel differently about retirement at that time, but now they do feel better about knowing that no matter what they decide, they have a sense of what type of lifestyle is within their means.


Income Tax Strategies 

The income tax projections show the “baseline” or minimum possible taxable income over the next 20 years compared to the cash needed to fund all the goals in the financial plan. The Smiths will likely end up in a 25% marginal tax bracket when they both receive Social Security benefits. They are expected to remain in this tax bracket when they reach age 70 ½ and are  forced to take taxable minimum distributions from their retirement accounts. This income should cover their cash flow needs at that time. Before Social Security benefits, their taxable income is projected to drop very low in early retirement, except for their spending spikes with the purchase of a vacation home. It will probably make the most sense to mix selling brokerage assets, taking IRA distributions, and financing some of the cost to smooth out the spike in spending without creating a large spike in income tax. 

Also, based on itemized deductions, the Smiths can benefit from bunching their itemized deductions and doubling up every other year where available. In “bunching” years, the itemized deductions are much higher, and in “off” years, they will rely on the standard deduction. This simple strategy appears to be able to save an average of $1,000 in federal income taxes per year.


Investment Analysis

The investment analysis shows the Smiths’ current portfolio has slightly outperformed its relative benchmark (we are not able to ascertain if this outperformance was the actual experience of the Smiths since we are only viewing their portfolio as a snapshot at this point in time – oftentimes, investment portfolio changes have been made over time). The area of concern is the performance and fees of the variable annuity, which is more than double the cost of other investments and is expected to underperform the remaining portfolio by over 2% on average each year. This annuity should be swapped for a lower cost and better performing annuity contract in what’s called a 1035 exchange to avoid negative tax consequences.

From the financial plan projections, a much more conservative investment mix is recommended. Maintaining a diversified asset allocation and a 45% equity portfolio will keep risk in line with overall goals and should still produce a long-term return sufficient to cover the Smiths’ goals. In order to lower the tax consequences of the investment returns and increase the longevity of the portfolio, asset location should be employed. In segmenting asset classes (for example U.S. Large Cap Stocks and Intermediate Term Bonds) by tax treatment across qualified (tax-deferred such as an IRA; or tax-free such as a Roth IRA) and non-qualified accounts, 85% of the taxable investment related income can be kept in the tax-deferred accounts (causing no reportable current income); the 15% that remains will produce mostly qualified dividends, which are taxed at the lower long-term capital gains rates.


Insurance Report

As detailed in the insurance report, the Smiths’ FLA advisor discovered that they do not have an umbrella liability policy. This gap in coverage left a huge liability uncovered. For several hundred dollars a year, they added $1 million of blanket liability coverage.  They were also underinsured on the contents coverage of their homeowners’ policy, so they increased this coverage and raised their deductibles on their home and auto policies. The cost of the additional coverage was almost completely offset by the decrease in premium from increasing deductibles. These changes to property and casualty insurance increased the out-of-pocket costs moderately, but those same changes increased the catastrophic loss coverage tremendously.

It was also recommended that Joan cash in her universal life policy. The insurance coverage is no longer needed for John’s protection, is underfunded, and requires more funding to keep it in force for Joan’s whole life; otherwise, it would quickly start to lose cash value and then lapse. Luckily, the tax cost to terminate the contract was minimal.  It was also suggested that the Smiths look at long-term care insurance and carefully consider a 15-year term life policy to protect Joan if the John were to pass before age 80, which the financial projections showed to have a negative impact on Joan.


Estate Plan Review

The Smiths had estate planning documents which were drafted when their children were minors. Since they wanted everything to go to each other and then the kids, they felt their documents were fine. Although they had POAs in place, they had not used them or thought about incapacity and end of life concerns since setting up the estate plan years ago. When presented with potential contingencies for minor grandchildren as heirs, the Smiths thought further review was necessary.

After going through the estate plan review, the Smiths asked for a professional referral to an attorney who helped them draw up a new will, as well as execute new statutory durable powers of attorney, medical powers of attorney, and medical directives.


Implementation and Monitoring

After the interactive financial plan presentation meeting, John and Joan received printed copies of their reports and the retirement plan. All of the specific recommendations were also condensed into an action plan checklist so John and Joan could simply, in order, implement all of the necessary actions. 

John and Joan decided to retain Financial Life Advisors for wealth management services after the presentation. This includes managing their investments, coordinating tax planning and preparation and regular updating of the financial plan. They recognized that they wanted to focus on other things and have a trusted advisor who, moving forward, would continue to help them manage all of the moving pieces of their financial life.

FLA handled all of the paperwork to move the IRA, brokerage, and annuity to be managed at a discount broker and custodian. FLA also set up the Solo 401(k) plan for Joan to start saving additional funds for retirement. Coordinating with the Smiths’ CPA, their FLA advisor worked through the tax implications of reallocating their portfolio in line with the new lower risk and tax efficient asset allocation.

John and Joan’s FLA advisor worked with their existing insurance agent to help coordinate modification of their property coverage and helped coordinate with their attorney when their wills and other estate planning documents were being updated. To explore long-term care insurance and disability insurance, their FLA advisor referred them to independent agents who specialize in those specific areas of insurance.

After the financial plan was implemented, the Smiths had continual financial planning and investment monitoring with FLA. As questions have come up, the Smiths contact their CFP® at FLA for financial advice without additional fees beyond their asset management fee. All of their services are included in this one fee. The financial plan is updated annually and as changes in taxation; investments; and insurance occur, FLA will reach out to the Smiths, giving information about financial opportunities and threats to their retirement plan. As laws and their situation may change, FLA is available to be involved in the estate and tax planning process as needed. The Smiths have found that the long-term relationship and team approach of Financial Life Advisors have put their minds at ease, as they now feel they have a true financial advocate in their corner.


Financial Life Advisor is not a law firm or CPA firm. We do not provide tax or legal advice.



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