David grew up in a rural town in Connecticut. His parents worked on an assembly line at Goliath Assembly Company, earning just enough money to support David and his two younger sisters. He lived in a modest house, attended public schools, and enjoyed a stable, unremarkable childhood.
Neither of Davidâs parents had attended college, but they were keenly aware that the world was changingâin a way that seemed to place a growing premium on formal education. They told their children that they would one day need to attend college and that they would support them in any way they could. Davidâs parents were firm on one point: college would not be optional for their children.
Davidâs mother and father were both thrifty and, of necessity, disciplined about their spending. They saved what they could, but they didnât worry too much about their financial future, let alone think about retirement. Like many in their generation, they assumed that Social Security and Medicare would take care of their retirement needs, allowing them to spend their hard-earned money where it counted most: on supporting and nurturing their family. They didnât feel that they had any choice in the matter. They just didnât have much in the way of discretionary income, and, on their fixed salariesâwhich increased on occasion to account for the effects of inflationâthey couldnât afford to worry about the future, including saving money for retirement or buying insurance for seemingly abstract concepts like long-term care, disability, or untimely death.
David was a good student, and, to the delight of his proud parents, David went on to become a three-sport varsity athlete in high-school. Smart and handsome, David was popular, had quite a few girlfriends, and generally enjoyed his four brief years in high school. At the beginning of his senior year, he became friends with Abby, who graciously agreed to be Davidâs prom date after David summoned the courage to ask her.
Abby lived on the other side of town from David; but she, too, came from a good, hard-working family of modest means. Abby was Davidâs natural match in almost every way. The two had actually known each other since the sixth grade, where they were both placed in their schoolâs âaccelerated trackâ for academically higher-performing students. And while Abby was Davidâs academic equal, she was also his athletic equal, being a three-sport varsity athlete herself. Their friends and even their parents had always suggested that the two should be a couple, but it wasnât until they sat next to each other in an SAT preparatory class that they became friends and the start of something more occurred.
After scoring well on his SAT and laboring over his college applications with his guidance counselor, David was accepted into Connecticut College. Equally importantly, with some very modest help from his parents, a generous aid and loan package from the school, and a part-time job as a waiter, he found the money to attend.
In college, David excelled as a student, especially at business-related subjects like economics and accounting. By his junior year, he knew that he wanted to pursue an advanced degree in business administration and hopefully a career in business. Like many his age, he dreamed of a bright future for himself and for the family that he would have one day.
All in all, things were going very nicely for David. He took the GMAT (graduate management admission test) at the beginning of his senior year in college, and his score was in the top 1% of all test takersâon his first try! Coupled with his 3.88 GPA at Connecticut College, at which he also participated in an extensive work-study program, he had his choice of just about any business school he wanted. He knew which one he would choose before he even had to make the decision: Harvard.
An MBA from Harvard would make his parents proud (and it wouldnât look too bad on a resume either)! But even better, Abby, who had maintained a not-too-long-distance relationship with David throughout college, was living in Massachusetts and planning to pursue a masterâs degree herselfâin Mass Communications from Boston University.
Abby, too, had excelled during her years in college. An avid reader and natural writer, she had double-majored in English and communications at Boston College. She graduated near the top of her class, Phi Beta Kappa, with highest honors, and envisioned a career utilizing her specialized knowledge and skills as an entrepreneur focused on marketing consulting and online design.
Only a year later, David and Abby were engaged. The following year, David graduated with a masterâs degree in Business Administration, while Abby graduated with a masterâs degree in Mass Communications. The newly-minted graduates were married that fall, with their friends and family now playfully (but accurately) referring to them as a âpower couple.â Of course, between the two of them, they also owed Harvard, Boston University, Connecticut College, and Boston College $350,000 in student debt; but theyâd pay that off quickly with all of the money they were going to earn.
Abby soon started her own consulting and online design company. She wrote up a business plan, which impressed David with its bold vision and striking detail. He told Abby (and he was being sincere) that it was better and had more potential than most of the plans he had studied in business school.
Yet, Abby was equally focused on practicality and certain mundane details, such as the basic need to protect herself from potential lawsuits and creditors by creating a corporate entity to house her new business. With the help of a paralegal that she hired for a few hundred dollars, she incorporated her own company, Slingshot Innovation, Inc., when she was only 24.
As for David, he applied for and, after a series of interviews, got the job he always wantedâas a Manager at Goliath, his parentsâ old workplace. As a Manager of Corporate Strategy, David now had the privilege of, and responsibility for, formulating and implementing business strategy at the very company that had afforded his parents the opportunity to raise their children in such a nurturing environment.
Over the next several years, David and Abby welcomed two children (a boy and a girl) and acquired an oversized home (and an oversized mortgage to go with it), two nice cars, and a membership at an exclusive country club. They also built a successful business for Abby while working for Davidâs eventual ascendancy to becoming a corporate executive at Goliath.
Along the way, David and Abby madeâand spentâplenty of money. They also increasingly attracted the attention of many who sought to âadviseâ themâin areas that included investments, taxes, retirement planning, asset allocation, mortgages, education planning for their children, insurance, and even philanthropy. Sometimes they listened, but usually they didnât, especially when they felt that the âadvisorâ was really just trying to sell them something. They used tax software that they found online to do their own tax returnsâusually right before the deadline.
When David became an officer of Goliath, he was presented with a formal employment agreement. Prior to that time, he had received an offer letter to become an âemployee at willâ and a series of letters that updated the original offer letter, but he had never received anything so formal until now. The employment agreement was about 15 pages long and addressed base and variable compensation, corporate benefit plans, equity opportunities, termination and severance scenarios, changes of control, and restrictive covenants. David did not feel comfortable negotiating the agreement, as it seemed fair, if not generous, and he also did not feel that it would send the right message to his employer if he hired a lawyer or other advisor to evaluate itâeven though the agreement explicitly made David represent that he had been afforded the opportunity to do exactly that.
In addition to his base salary and annual incentive bonuses, David had been granted a series of ânonqualified stock options,â âincentive stock options,â and ârestricted stockâ at Goliath, which had long been a public company. These equity awards were all subject to vesting over time, which David understood to mean that if he left Goliath for any reason before the designated vesting period, he would lose the unvested portion of those awards. It seemed pretty simple. David also was given the right to participate in the companyâs âemployee stock purchase plan,â which enabled him to make regular purchases of Goliath stock at discounted prices.
David and Abby were only 40 years old when David became an executive officer of Goliath. David was earning a great salary, and Abbyâs income was ramping up too, after a few slower-growth years in which she simultaneously focused on her business and on the coupleâs growing children. In fact, Abby seemed increasingly well positioned to capitalize on the information age and the growing needs of businesses to adapt to it. Her company, Slingshot, now had 14 employees and had just leased a newly renovated office; and she was now thinking about further professionalizing the business with a dedicated management team. She and David had the sense that Abbyâs business was getting too large and complicated to run the way it had been run in its earlier years.
Their lives were increasingly complicated, but they seemed to be happily earning plenty of money and living the good life. As the couple made more money, they gradually raised their standard of living to coincide with their earning power. They didnât behave excessively, but it seemed to them that they never were able to build up any meaningful savings.
David did participate in Goliathâs âdefined contributionâ retirement plan; and he did buy Goliath shares as part of the companyâs employee stock purchase plan. He also had his stock options and restricted stock awards. Abby had put a limited amount of money away in an individual retirement account, but she had never set up a formal retirement plan for her business; and she usually found herself reinvesting her profits back into her business. She even found it necessary to secure a line of credit from a bank, which she had to guarantee personally, to ensure that she always had enough cash to pay her employees during periods of lagging cash flow.
David and Abby often joked with their friends and family that they were âcash poorâ because their money was tied up in their home, their retirement accounts, and in Goliath and Slingshot equityâand they were only now finishing the repayment of their student loans. They even had to borrow against Davidâs retirement account to update the older kitchen and bathrooms in their home.
Still, David and Abby didnât worry too much. Goliath was a great company; Davidâs career was going wellâhe might even be the CEO one day; and they had more time to save for their childrenâs education and their own retirement. David thought that he could always ...