Case Studies

These case studies illustrate the power of ESPlanner. The case studies are based on typical user questions and and common household economic situations.

Shedding Extra Homes

One way to raise your living standard is to sell extra homes, assuming you are rich enough to own more than one home. Take Earnest Hammokway and his wife, Ilsa. Both are currently age 60 and make $100K each. Collectively, they have $150k in regular assets and $800K in retirement accounts. Their primary home is valued at 750K and their vacation home on the Two Hearted River in Newberry, Michigan is valued at 300K. They have 10 years left on the primary home’s mortgage and 15 years left on the vacation home’s.

Which Job Offers the Highest Living Standard?

“The corne in an other mans ground semeth euer more fertyll and plentifull then doth oure owne”
—Erasmus of Rotterdam, 1545

A grandson of the great humanist and theologian thought he had it made when he secured a job in the Philosophy Department of Grand Valley State University. But Joe’s ability to wax eloquent about Dutch philosophy has attracted attention. He just received an offer from Boston University and is having second thoughts about spending the rest of his days in West Michigan.

Making it Simple

Danilo and Gina Perez live in New York City. They are 30 years old and plan to have a child in five years and retire at 65. They are both busy bees with a typical, but also highly complex economic life. They want to have a stable living standard per household member over time, but don’t know how much to spend each year to make this happen.

Taking A Flyer On Fly Fishing

Every day is tough: John manages the control tower at O’Hare International in Chicago. Prior to 2005, O’Hare laid claim to being the world’s busiest airport. (Today, Atlanta’s Hartsfield airport holds that title.) The stress is enormous. But it instantly vanishes when John’s pursues his passion—fly fishing on the Fox River, which is just down the road from his home.

How Much House Is Too Much House?

ESPlanner can be used to help make all kinds of lifestyle choices. Consider the following.

Chris and Alicia have just moved to Lawrence, Kansas, a university town where home prices are relatively sane. Chris and Alicia are both thirty, have two young children, and earn $50,000 each. They also contribute 3 percent of their earnings to a 401(k) and receive an employer match.

Sending Wunderkind to Boarding School

Our personal economic lives are full of options. Should we quit our job and go back to school. Contribute to a Roth? Switch careers? Send junior to private school? Retire now? Move to Texas? Take Social Security early? …

Each of these decisions has consequences for our personal finances that play out to the end of our days.

ESPlanner provides a way to simple way to compare options like these. Its trick is to compare living standards.

Timing Retirement Account Withdrawals and Taking Social Security

Meet Bill and Belinda Bates, residents of Mobile, Alabama. Bill and Belinda just retired at age 60. Their house is paid off, and their annual housing expenses are $5,500 a year. Paying for these and other expenses is a concern. Yes, they have assets, but they aren’t loaded. They own $400K in regular assets, $200K each in 401(k)s, and $200K each in Roth IRAs.

Beating the Tax Man

Remember that old saying—“The only thing you can count on is death and taxes.” Well, it’s not true. The only thing you can count on is death and higher taxes.

Just ask David Walker, U.S. Comptroller General and head of the General Office of Accountability. He refers to the federal government as sitting on “a burning platform” and predicts a doubling of tax rates unless we dramatically cut spending.

Annuitizing Your Assets

William and Alice James are both 65. They have $300K each in 401(k)s and $500K in regular assets. They both receive $17K annually from Social Security. They have no children. They have a modest home.

If William and Alice invest their 401(k)s in inflation indexed bonds yielding 2.4 percent in real terms (after inflation) and take steady withdrawals from their 401(k)s, ESPlanner says they can spend $59,692 each year in today’s dollars on consumption.

Save or Else!

Young Justin Thyme left Holland, Michigan and made off for Chicago, degree in hand, ready to make his way in the world. It took a few years to get on his feet, but at 33, he found himself making $50,000 per year and loving the big city. He also found himself pondering his economic future.

There are lots of ways to spend money in the Second City, and Justin has yet to save a penny for retirement. This is making him nervous. It should.
ESPlanner can show Justin the consequences of saving nothing, saving outside a retirement plan, and saving through his employer’s 401(k).

Rules of Dumb

Traditional financial planning is replete with “rules of thumb,” none of which provides a reliable basis for financial planning. No rule of thumb is repeated more often than the proposition that you need to target your retirement spending at 75-85 percent of your pre-retirement income. Some planners suggest you target to spend in retirement 100 percent of your pre-retirement income.

Invest Safely

Sixty years-old, single, with no children, and newly retired, Henry Potter has $1 million in regular assets and expects to collect $20,000 from Social Security starting at 62. He’s done well investing in large cap stocks. Since 1926 the S&P 500 has averaged 9.16 percent per year after inflation. If Henry could count on this return, he could spend $69,812 in today’s dollars for the rest of his life.

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