As retirement approaches, many couples consider opportunities for service, like a senior mission for the Church. They need careful financial planning to support themselves while serving. Let’s explore a case study of a couple looking to retire in 2 years and considering a senior mission.
Meet John and Sarah, a couple eagerly anticipating their retirement. They are considering serving a senior mission internationally in Asia but need to figure out their finances. They are taking stock of their assets, retirement savings, investments, and expected expenses to plan for their financial future.
John and Sarah have a couple of 401ks, IRAs, and some stocks in a taxable brokerage account. Some of the assets were saved as Roth contributions, so they have some tax-free withdrawals available. Their investments are a mix of mutual funds they selected based on what they believed was risky and safe, making a mix they thought was a middle risk. They have paid off their home and have no debt. They both have good health and are staying physically active. After looking over their expenses, they figure they can live off $6000 a month.
After gaining a clear understanding of their financial status, John and Sarah can begin to explore different strategies for funding their retirement and mission service. Through their brainstorming and online research, they consider adjusting their investment portfolio to ensure a steady income stream and evaluating the timing of their retirement to maximize their social security benefits. They also consider downsizing their home to free up additional funds for their mission service, but they would rather accomplish their mission without moving. At this point, they felt they didn’t know enough to make any critical decisions, so they sought out the help of a financial advisor who was familiar with missionary service expenses and strategies.
Their advisor walked them through the costs of serving and which ones are tax deductible and which are not. They also walked the couple through investing for income rather than the haphazard growth funds they currently hold. They ran through some income scenarios to ensure the longevity of their assets and pinpoint when to claim Social Security. Lastly, the advisor looked at healthcare options and the best ways to fund once they retire.
After working through things with their advisor, they decided on the following plan: First, they feel good working for two more years, retiring, then starting their mission soon after. During the next two years, they will max out their 401ks with tax-deductible contributions to reduce their current tax bill. Once they retire, their income will decrease substantially, so they will begin a process of Roth conversions for the next ten years. This will save them an estimated $70k in taxes over their lives. They decided to fund the tax-deductible portion of their missionary service with the stocks they owned so they could claim the total value as a charitable contribution and avoid paying tax on their unrealized gains. They plan on donating to a donor-advised fund since their income is higher this year. That way, they can maximize the tax savings and direct the assets toward their mission in a couple of years. This created an estimated tax savings of $6,350. For the taxable portion of their mission expenses, they will use a combination of taxable 401k distributions up to maxing out the 12% tax bracket, and anything they need more than that will come from their tax-free Roth money. Lastly, after reviewing health insurance, and since they won’t be eligible for Medicare before they start their mission, they plan on using Healthcare.gov and the church's international healthcare plan to cover themselves until they qualify for Medicare.
After implementing these ideas, they felt more confident and peaceful about serving, decreased the risk on their investments by 50%, and saved an estimated $16,350 in taxes over the next three years, enough to pay about half of their mission. Over their lifetime, this led to over $100k less in taxes, more reliable investing returns, and $110k more in social security benefits and tax-free Roth assets anticipated to outlive them.
As John and Sarah navigated these complex financial considerations, it was important for them to seek out professional guidance and advice. They only knew so much and didn’t know what they didn’t know. Consulting with a qualified financial planner gave them the expertise and insights to make informed decisions and create a solid financial plan that aligns with their retirement and mission service goals.