PID 1426

Case Studies

Case Study: Should I Rent or Sell My Home?

Jenny Hagadorn, CFP®

As families grow, kids go off to college, or lifestyles simply adjust, it is common to move houses multiple times in our adult lives. “Passive income” is a hot topic, and having a rental property is becoming more and more popular. When buying a new home, people often wonder if they should keep their existing home and rent it out versus selling and taking the proceeds.

While we could analyze dozens of different scenarios, the answer to that question really comes down to interest rates & net cash flow. Assuming a strong rental market in the area, the lower the interest rate, the more attractive it becomes to keep a home and rent it out. The higher the interest rate, the harder it is to bring in enough income to generate positive cash flow on a property.

Consider the following case:

Dave & Marie’s existing home is worth $300,000. They owe $200,000 at a 2.5% interest rate, so their monthly payment is $948. Based on the current market, Dave & Marie can expect to get $2,000 per month in rent. Carrying costs including taxes, insurance, maintenance, etc. are $400/month. Dave & Marie’s net income from holding the property would be $652/month.

Now, if we simply change the interest rate to 7.31% (current average as of 9/29/23), things look a lot different. Now, the monthly payment becomes $1,647. With the same carrying costs and rent, Dave & Marie are barely breaking even. If they are without a renter for even a month, or a major maintenance item comes up, they would be in the red for the year.


 The decision to keep versus sell your home shouldn’t be made solely on the desire to have a rental property. We must take into consideration the specific facts and evaluate whether or not the cash flow makes sense. At a low interest rate, it is more likely that enough cash flow can be generated to justify retaining a current residence as a rental property. However, if the rent generated is not enough to cover debt servicing and carrying costs, putting that equity towards a new home purchase with a higher interest rate or investing the proceeds is the more lucrative option.

Case Study: Wealth Gap

Rob Coleman, CFP®, CIMA®

Many individuals, especially business owners, struggle with assessing their retirement readiness, or determining how much money they actually need to retire comfortably.

“Have I saved enough?”

“How long do I need to continue to work?”

“How much do I need to sell my business for to be able to retire today?”

These are many of the questions people ask themselves as they approach retirement. What they are really asking is, “What is my Wealth Gap?” Your wealth gap identifies how much more money you need to retire comfortably today. The Wealth Gap can be broken down into a simple equation:

(What do you need?) – (What do you have?) = Your Wealth Gap

Let’s unpack that equation…

What do you need?

Determining what you need to retire comfortably starts by confirming your annual retirement consumption level, and this is the most critical part of the wealth gap equation. Most people underestimate how much they will spend in retirement. The best place to start is to analyze your current monthly spending:

Which of your current expenses will you continue to have in retirement?

Will any of your current expenses drop off in retirement?

What additional expenses will you pick up in retirement?

You also want to consider the large expenses that may occur randomly throughout the year and are not captured in your current monthly expenses – charitable donations, family support, travel, etc. And if you are a business owner, what expenses are currently paid by the business that you will continue to incur even after the business is sold?

Once you get a grasp on your total annual retirement consumption, you then need to factor in inflation, taxes, life expectancy, investment returns, asset allocation, and the list goes on. However, a quick way to estimate your total retirement need, without going into much arithmetic or attempting to use the financial calculator you haven’t touched since college, is using the 4% rule.

The 4% rule is a well-regarded guideline on how much you can safely withdraw from a retirement portfolio without exhausting your assets. Let’s look at an example using the 4% rule, assuming your total annual retirement consumption level is $200,000. Using the 4% rule, we would divide $200,000 by 4% to determine total retirement need.

$200,000 / 0.04 = $5,000,000

Using this simplified 4% method, your total retirement need would be $5,000,000. This is often referred to as your “Retirement Number” or the value of assets you need to maintain your lifestyle in retirement. Now that you know how much you need, let’s focus on how much you have already accumulated…

What do you have?

Now you want to calculate the total value of investments and income producing assets you have already accumulated (not including your business, primary residence, or non-income producing property). Yes, you may be able to liquidate those other items, but the wealth gap exercise is attempting to quantify your current retirement readiness, as it stands today.

Let’s assume you have a total of $2,750,000 of total investments and income producing assets already accumulated.

So, what is your Wealth Gap?

Given your $5,000,000 “retirement number” and having $2,750,000 already accumulated in investments and income producing assets, your wealth gap is $2,250,000.

Let’s breakdown how we got there:

(Your $200,000/year desired retirement consumption) / (4% rule) = ($5,000,000 Retirement Need)

($5,000,000 Retirement Need) – ($2,750,000 You Have Accumulated) = ($2,250,000 Wealth Gap)

Well, what about Social Security?

Without overcomplicating it, let’s apply the same 4% rule to your Social Security benefit. Let’s assume you are receiving $30,000 per year in Social Security benefits. That income stream is extremely valuable, especially since it makes up for 15% of your desired annual retirement spending ($30,000 / $200,000 = 15%). When we apply the 4% rule to your $30,000 Social Security benefit, it values that benefit at $750,000, thus cutting your Wealth Gap down to only $1,500,000.

Now that you know what your Wealth Gap is, you can start to build out a plan to answer the following questions:

What is the bottom-dollar I can sell my business for?

How much longer must I work to be able to retire comfortably?

How much do I need to save per year to close my Wealth Gap?


While the Wealth Gap example above was oversimplified (by not addressing taxes, holding many variables constant, and treating all investment assets/income the same), the overall Wealth Gap concept is very straightforward. Your Wealth Gap equals what you need minus what you have already accumulated. Quantifying your wealth gap is the first step in building out a retirement plan. The sooner you quantify your retirement shortfall, the easier it will be to plan for how to eliminate that wealth gap.

Case Study: Treating Savings Like a Bill

Katie Sanders, CLU®

While most people agree that saving for the future is important, putting this habit into practice is often difficult.  According to a 2022 U.S. Federal Reserve Study, only 54% of adults said they had three months of living expenses saved in cash or its equivalent. When asked about spending, 51% said they would reduce savings if their budget was affected by price increases for other goods and services. 1

We’ve found that people who choose to save “whatever is leftover” at the end of month tend save very little – or nothing at all.  To create the habit, we recommend the time-honored “Pay Yourself First” strategy, where you view your monthly saving as a bill that you must pay as opposed to a lower priority line item. This strategy involves a little bit of budgeting up front to set a realistic amount or percentage of total income that you can comfortably save on an ongoing basis, but results in savings that is earmarked for a specific purpose – for example: retirement, emergency fund, or new vehicle purchase.

Consider the following case:

Leigh (Age 30) has been reviewing her cash flow to determine how much she is spending monthly versus the net income she is bringing in. She makes $90,000 a year and currently contributes to a retirement plan through work. Her take-home pay is about $5,200/month, and after working on her budget, she’s determined that her monthly expenses are $3,300. Of her surplus, she’s committed to saving $1,500 into her investment account at the beginning of each month. This amount still leaves her some “wiggle room” each month for incidental expenses.

Elizabeth (Age 30) works at the same company in the same position, so her take home pay is also $5,200 each month. She’s tried to work off a budget in the past but doesn’t stick to it. Elizabeth says there’s always enough to cover her monthly expenses, and she saves any surplus at the end of the year into her savings account. The monthly savings amount fluctuates since she keeps everything in her checking account – and sometimes she dips into savings for bigger expenses. Elizabeth makes an average deposit of $10K into her investment account each December.

Leigh’s Investment Account

  • Monthly Savings on the 1st of Each Month: $1,500
  • Total Number of Savings Payments (Monthly Payments for 35 Years): 420
  • Assumed Average Annual Investment Return: 7%
  • Future Value at Age 65: $2,717,341
  • Total Amount Saved over 35 Years: $630,000
  • Elizabeth’s Investment Account

    • Annual Savings Payment: $10,000
    • Total Number of Savings Payments (Monthly Payments for 35 Years): 35
    • Assumed Average Annual Investment Return: 7%
    • Future Value at Age 65: $1,382,368
    • Total Amount Saved over 35 Years: $350,000

If we assume they contribute the same amount to their work retirement accounts and that they are invested in the same funds, at age 65 Leigh will have approximately $2.7M compared to Elizabeth’s $1.3M.

By treating savings as a bill, Leigh was able to save $8,000 more per year, and she was able to take advantage of compounding through a systematic monthly deposit into her investment account.  Since she paid herself first, Leigh was able to leverage this extra $8,000 in annual savings into a difference of more than $1.3M in retirement compared to Elizabeth.

**This case study is for illustrative purposes and uses a hypothetical investment return rate.


  1. Consumer and Community Research Section of the Federal Reserve Board’s Division of Consumer and Community Affairs. (May 2023). Economic Well-Being of U.S. Households in 2022.
    Federal Reserve Report

Case Study: Donor Advised Fund

January 2023

To help illustrate the use of a Donor Advised Fund (DAF) for tax advantaged giving to charity we have put together the following hypothetical case study:

Mike and Susan Smith (Age 52) are happily married and feel highly confident with their current track to retirement. Mike is a successful business owner and Susan has been an annual top performer at her engineering firm. Both are passionate about supporting their church and several local charities and have voiced these goals to their planning team.  Combined, Mike and Susan make $585,000 and are in a 35% marginal tax bracket.  Mike and Susan have been dedicated savers to both their retirement plans and taxable investments and continue to fund both on an annual basis.  Mike and Susan max out both of their 401k’s ($30,000 each) and fund $50,000 into their joint taxable account annually. Their joint taxable investment account has appreciated nicely over the last 15 years.  Susan has even made comments that she is concerned about the tax liability within this account when they start to consume these assets.

Mike and Susan’s planning team have introduced a Donor Advised Fund (DAF) as a planning concept that aligns with their charitable initiatives and overall financial planning goals.  The establishment of a Donor Advised Fund will allow Mike and Susan to contribute the low-cost basis stocks and investment positions within their joint taxable investment account.  This contribution serves two purposes.  It will provide Mike and Susan a charitable contribution during the 2023 tax year.  Additionally, the charitable contribution of low-cost basis positions held more than one year allows Mike and Susan to avoid paying capital gains that would otherwise be due if they were to sell the positions.  Given Mike and Susan’s 20% capital gains tax rate, also subject to a 3.8% NIIT plus applicable state tax rate, this is a significant tax savings during the 2023 tax year.  This is also a portfolio management tool for Mike and Susan’s investment team as they can evaluate positions that may already be marked to sell or rebalance as part of their investment strategy.

The Donor Advised Fund also offers additional benefits for Mike and Susan beyond the tax advantages.  You can receive the tax benefit for 2023, but you do not have to give the money to charity.  This provides the opportunity to “bunch” charitable giving into a single year, but Mike and Susan are not committed to give it away during 2023.  Additionally, their charitable giving receipts for the year are aggregated on a single statement.  A Donor Advised Fund can also allow you to potentially create a “bucket” for charitable giving in retirement but receive the tax benefit during your working years.

The combined tax and philanthropic benefits make a Donor Advised Fund a potentially valuable planning tool as part of Mike and Susan’s overall financial plan.

Modeled below is a potential Donor Advised Fund contribution for Mike and Susan:

  • $50,000 charitable contribution in 2023
  • 35% marginal tax bracket

$17,500 Tax Savings

  • $25,000 unrealized capital gain from low-cost basis positions
  • 20% capital gains tax bracket
  • 3.8% net investment income tax bracket

$5,950 Tax Savings

$23,450 Total Tax Savings

The below diagram helps illustrate the mechanics of a Donor Advised Fund:

Donor Advised Fund Overview

** This case study is for illustrative purposes only.  Foster Victor recommends consulting your tax advisor, CPA and/or accountant with questions about the suitability of a Donor Advised Fund given your specific tax position.

DISCLAIMER: The scenarios and characters referenced in these case studies are for educational purposes only.  Rates of return referenced are conservatively based on aggregate historical market returns over time. Past performance does not dictate or ensure future success and should not be viewed as a recommendation or financial planning advice.

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