You are working as a financial planner and are hired by Mike and Christine Phillips for your advice. Mike , age 67, is head of security systems for a small business and Christine , age 67, is a real estate agent. Both of them have been maxing out their 401(k)s the past few years to try to save as much as possible for retirement. What makes their situation unique is they have a special needs child (Mason, age 36) who depends on them for support. They want to make sure they have enough for retirement but also are concerned with the care their son will receive when they are gone. They would rather continue working if they dont have enough money to support Mason after they pass.

Information on their current finances:

Mike's 401k is valued at $327,000. Hes receiving a military pension of $3,000 per month. This pension is subject to a 2.5% per year Cost of Live Adjustment (COLA). He also has a Roth IRA with $45,000 and a rollover IRA worth $120,000. All of his retirement accounts are invested 100% in the Vanguard 500 Index fund (VFIAX). Mike is not risk averse and feels it makes sense to always invest in just stocks as they return the most over time.

Mike earns $80,000 per year at his current job. Christine also has a 401k at her job valued at $490,000. Christine doesnt like to take on too much risk and is much more conservative. All of her accounts invested with the same allocation with 50% in the Vanguard 500 Index Fund (VFIAX) and the other 50% invested in the Pimco Total Return Fund (PTTRX). Her Roth IRA is valued at $35,000 and she has a small rollover IRA valued at $45,000. Her income is $95,000 per year.

Together they also have an investment account that is registered as a Joint with rights of survivorship. It is invested 60% in an international stock fund called the Oakmark International Fund (OANIX) and 40% in the same Pimco Total Return bond fund (PTTRX). The account has a value of $215,000.

Additionally, they have $60,000 in the bank in their checking and savings accounts. The $60,000 is not earning any interest.

They own their home in Trenton without any debt but still pay taxes of $12,000 per year. Insurance on the home is an additional $1k per year. They plan to stay in NJ when they retire. They do not have any debt.

Social Security:

Mike is eligible for Social Security now with a monthly benefit of $2,800 per month. If he waits until age 70, he can collect $3,527.19 per month. Christine is also eligible for social security at $2950 per month or could wait until 70 to collect $3,716.15 per month. They also receive an additional $1,000 per month in Social Security Disability Income for Mason.

Assume all social security benefits will rise by 2.5% as an inflation adjustment

Expenses:

Their expenses total $120,000 plus property taxes and insurance from their home as well as Federal and State Income taxes. Additionally, they are spending $30,000 per year on care for their son on top of the $1,000 per month that they receive from Social Security. If they were to pass on, they would want to make sure they could leave enough to Mason so that he could still be cared for the same.

Question:

If they retire at the end of 2019, what does their cash flow look like for 2020? How much would they need to pull from their savings, and/or investments to fund their first year of retirement based on their expenses? Which accounts would you recommend they pull from first and why?