Buyout contract

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Jan 14, 2007 1:35 pm

 I'm new to biz. just out of college and work for an insurance/ brokerage ( Western- Southern Financial). Very poor support aned training. Anyway, my question is in regards to a clients situation.


My client is 57 and about 8 years away from being able to retire. His current employer offered him 2 years salary and benefits to leave. He can take it in a lump sum or monthly payments. Any suggestions as to what I should recommend he do are greatly appreciated since none of the dunskies in my office can be relied upon for planning advice.


Also he makes about 50,000 a year and has very little debt. I'm mostly concerned about the tax implications of him taking the lump sum.

Jan 14, 2007 1:44 pm

You need to conduct a present value calculation using a calculator. You should buy a Texas Instruments BAII and learn how to use it. You should calculate the tax liability using the IRS tables and reduce the cash inflows by that amount.


But, really, you should be honest with the client that your firm doesn't offer these services. And then start working towards your CFP.

Jan 14, 2007 2:05 pm

 A little background: I've been up front with the client from the get go, he's a personal friend and really only wants to do business with me. Also I am familiar with the BA11 an financial calculations. I guess I am just looking for a specific strategy to recommend.


Thanks for the input.

Jan 14, 2007 4:47 pm
wojo:

 I'm new to biz. just out of college and work for an insurance/ brokerage ( Western- Southern Financial). Very poor support aned training. Anyway, my question is in regards to a clients situation.


My client is 57 and about 8 years away from being able to retire. His current employer offered him 2 years salary and benefits to leave. He can take it in a lump sum or monthly payments. Any suggestions as to what I should recommend he do are greatly appreciated since none of the dunskies in my office can be relied upon for planning advice.


Also he makes about 50,000 a year and has very little debt. I'm mostly concerned about the tax implications of him taking the lump sum.



A good insurance agent would always suggest a convertable VA as the perfect choice in this situation.    


A good financial advisor would



Help this client determine his goals till retirement and afterwards
Does he plan to work, (a very good idea?)
Calculate the PV of lump sum vs Monthly, and tax implications therof
Given that the client is near the "Retirement Red Zone" sugess a conservative investment program. This may be a convertable VA that is variable for seven years and then converts to lifetime income.
Discuss retirement income annuities, and why its not a bad idea to buy one around age 65.

As for the investment program, 50% fixed income and 50% stocks (Large cap Value + International) is a good choice.