Description

Formulate a simple financial plan for your clients shown in the case below. Address their concerns and recommend suitable strategies that will meet their needs. Make appropriate assumptions if necessary and address your concerns or limitations, if any. Use point form to highlight your recommended strategies and give a brief summary at the end.

Circumstances

Ben and Alison, both aged 38, have been busy raising a young family while balancing their careers, family, and social demands. They recently moved into their second home which can easily accommodate a growing family. Their three children are currently 8, 5, and 2 years old. Ben and Alison do not have much spare time and their personal finances are often neglected. Recently they have decided to get their finances in order. They are concerned they may not be on track to reach all of their goals. They are motivated to take action on several items. Two immediate priorities are planning for their estate and planning for their children’s upcoming college education. They are interested in developing a written financial plan to clarify the areas of deficiency and monitor future progress toward goals like education and retirement.

They have many future goals which include:

- Paying 75% of three children’s college education

- Retiring at age 60 with their current lifestyle

- Ensure their pension money is properly invested

- Develop and monitor a written financial plan

- Prepare for the event of incapacity and/or death

- Pay off several short –term debts

The Numbers

Ben works as design engineer at a medical device company, and Alison works in IT at a local consulting firm. Their combined household income is USD175,000 a year. Both Ben and Alison have access to standard employee benefit packages including health insurance, disability insurance, life insurance, and pension. Given their lifestyle they have the ability to save USD2,200 per month. Assume both clients live and pay taxes in Hong Kong.  

Net Worth Statement for Ben & Alison (in USD)

Fixed Assets:

Savings Account $10,000

Checking Account 10,000

Total Fixed Assets $20,000

Variable Assets:

Mandatory Pension Funds (MPF) $90,000

Voluntary Contribution in MPF 40,000

Mutual Funds 5,000

Individual Stocks 10,000

Variable Life Cash Value Insurance 10,000

Total Variable Assets $155,000

Personal and Other Assets:

Home $600,000

Vehicles 60,000

Personal Property 50,000

Total $710,000

Total Assets $885,000

Liabilities:

Mortgage (30 years @ 6%) $480,000

Personal Bank Loan (@ 7%) 95,000

Vehicle Loan (@ 9%) 40,000

Credit Cards (@ 18%) 5,000

Total Liabilities 620,000

Net Worth (Assets – Liabilities): $265,000

Question 10 (20 marks)

Formulate a simple financial plan for your clients, Larry & Margie. Address their concerns and recommend suitable strategies that will meet their needs. Make appropriate assumptions if necessary and address your concerns or limitations, if any. Use point form to highlight your recommended strategies and give a brief summary at the end.

Circumstances

Larry is now 53 and has worked for the same company for 32 years. He never thought he could retire before age 62. He and his wife, Margie, would like to retire early so they can enjoy their hobbies and spend time with their grandchildren.

Since most of their net worth is in the private stock of Larry’s company, they do not have much experience investing money and generating income from their investments.

They have many financial goals at the moment:

- They want to know if they can retire at age 55.

- They want to know the benefits of working to age 57 when they get 100% of their medical benefits paid by the company.

- They want to know if they should diversify Larry’s company stock.

- They want to know where their income will come from at retirement.

- They want to be sure they don’t have to ever go back to work, because they are already financially secure.

- They want to set up a trust for their grandchildren to pay for their future education when they both pass away.

The Numbers

Larry earns HKD800,000 per year and would like to retire at age 55. He would like to replace 100% of his income at retirement (i.e. continue to maintain the same income after retirement) but would like to spend some money right away on a new car and take several trips with Margie.

If Larry works until age 57, his company will cover 100% of the cost of health insurance for both Larry and Margie.

Margie’s mother is currently in poor health and Margie is concerned about needing to get some help taking care of her.

Larry will receive $8000 in pension every month from his company after he retires.