Client L, Part 1: Planning to Plan

A friend I’ll call “L” asked me to help him think about his family’s finances. He wants to put in place plans for retirement savings for him and his wife, college savings for his two children, and an estate plan. He has helped me a lot with many other things so I am delighted to give him some suggestions about how to think about these personal finance issues.

We plan to meet weekly supplemented by e-mail communication. This week we had our first meeting. We talked through some of his current holdings, his goals, and the structure of the rest of our plan. We’re going to start with getting his retirement accounts in shape. Then we’ll tackle college savings and estate planning (for the latter I will mostly give him a book, which I will review on this blog later).

L has his retirement holdings at multiple institutions, which he finds inconvenient and confusing. He has no idea what his current asset allocation is or what it should be. He admits to not having saved enough for retirement. I can help him with all these things. We made a plan that will guide our future sessions:

  1. Co-Locating Funds. L has to decide which company he wants to use for his accounts other than his current employer’s 401(k). He has some funds already with Fidelity and he will likely move his others there too. While I’d prefer Vanguard he may be locked in to Fidelity with a legacy 403(b) and I agree that it will be simpler for him to get everything at one company. His first homework assignment is to submit the paperwork to move funds to Fidelity.
  2. Selecting Vehicles. L has no Roth IRA holdings. I recommend he open a Roth at Fidelity and begin to contribute to it. If it makes sense he will convert some of his rollover IRA holdings to Roth gradually (this is something I’m doing too and will blog about in the future). We will look at what is available under his 401(k) and Fidelity and decide what vehicle should hold what types of assets. I did not assign L any homework under this topic yet. We’ll work on it once he has all his funds moved (item no. 1 above).
  3. Asset Allocation. Another of L’s homework assignments is to begin to work with one or several retirement calculators listed on the Boglehead Wiki. To use them he will need to estimate future earnings, for which I recommended he consult the Historical and Expected Returns page of the Boglehead Wiki. This exercise will begin to suggest what AA is sensible given what he can contribute. I expect it will also illustrate that he needs to crank up his contributions to be able to retire. I also expect he’ll be reading my current series on investment planning. It will also walk through how to rationally think about contributions and returns needed to meet a retirement goal.
  4. Contributions. We will need to figure out what L can afford to contribute and what he should contribute to meet his goal. Of course this is related to item no. 3 above.

After we have his retirement investments on track we will discuss 529 plans for college savings and estate planning (life insurance, wills, and so forth). This will be a long process that I will document on this blog.

Hidden information below


Email Address*