Question
1.Steve and Charlene are married and have one child, Keri who is 10 years old.Steve and Charlene are both 45 years old.Steve expects to retire
1.Steve and Charlene are married and have one child, Keri who is 10 years old.Steve and Charlene are both 45 years old.Steve expects to retire at age 65.Charlene's life expectancy is 40 more years (at age 85).Steve's current after tax income is $6,250 a month and if Steve were to die today, Charlene would need 75% of that to maintain her lifestyle. Charlene has a part time job as a graphics artist, makes $1200 per month, and expects to do that until she retires at age 65. She will begin taking Social Security at age 60.Steve expects his income to grow at 4% per year (i.e., 3% inflation and 1% real income growth).Also assume that a 2% after tax return in excess of inflation (3%) is reasonable.All capital is liquidated by end of Charlene's life.
If Steve were to die, they would have current cash needs as follows:
a.Final expenses: $25,000
b.Mortgage Payoff: $250,000
c.Other debts:
i.Notes payable & loans:$15,000
ii.Taxes Payable: $5,000
iii.Other credit card balances: $10,000
d.College Education:$120,000
e.Emergency Fund:$36,000 (six months at $6,000 per month)
The couple's current capital assets include:
a.Life Insurance at Steve's company: $250,000
b.Cash & Savings:$25,000
c.Steve's 40lK:$200,000
d.Pension Benefits immediately payable to Charlene if Steve is not alive: $100,000
e.Other assets (jewelry and other valuables that could be liquidated): $25,000
Equations for the problem:
Show your work here and insert answers in the table on page 4.
a)Determine Present Value of After Tax Earnings. __________________________
i)PV of Steve's After Tax Earnings: ___________________________________
ii)PV of Charlene's After Tax Earnings: _______________________________________
b)What is the Family support ratio?_______________________
c)Determine the Present Value of Family Support Obligations. ______________
d)Determine the Present Value of Social Security Benefits.Use the following table.
Age
Family
$30,0001
$45,0001
$60,0001
$75,0001
$90,0001
$105,0001
35
Spouse & one child3
1742
2280
2816
3104
3358
3608
Spouse & two children4
1964
2794
3288
3624
3918
4212
One child only
871
1140
1408
1552
1679
1804
Spouse at NRA5
1161
1520
1878
2070
2238
2406
Spouse at age 606
830
1087
1343
1480
1600
1720
45
Spouse & one child3
1636
2122
2608
2984
3212
3438
Spouse & two children4
1774
2654
3088
3482
3748
4013
One child only
818
1061
1304
1492
1606
1719
Spouse at NRA5
1091
1415
1739
1989
2141
2293
Spouse at age 606
780
1012
1244
1422
1531
1639
i)Present Value of Charlene and Kerry Benefits _________________________
ii)Present Value of Charlene's Retirement Benefits ___________________________
iii)Total Social Security Benefits (i) + (ii) _______________________________
e)Determine Value of Insurance, Mkt Securities and other Capital Assets
i)_________________________________________________
ii)_________________________________________________
iii)_________________________________________________
iv)_________________________________________________
v)_________________________________________________
vi)Total: ____________________________________________
f)Determine Special Projects and Other Current Cash Needs at Death
i)______________________________
ii)______________________________
iii)______________________________
iv)______________________________
v)______________________________
vi)______________________________
vii)______________________________
viii) _Total_________________________
Summarize your work here.
ANALYSIS STEPS (SUBMIIT AMOUNTS ON LINE IN PROBLEMS 37 - 45.NO SIGNIFICANT DIGITS, I.E., NO DISMAL PLACES.TYPE ACTUAL NUMBERS ON WEBCAMPUS)
Amount
37.Determine Present Value of Steve and Charlene's After Tax Earnings
38.Family Support Ratio
39.Present Value of Family Support Obligations (1) * (2)
40.Determine Present Value of Social Security Benefits
41.Determine Value of Insurance, Mkt Securities and other Capital Assets
42.Total Adjustments to Income (4) + (5)
43.Determine Net Family Support (3) - (6)
44.Determine Special Projects and Other Current Cash Needs at Death
45.Determine Insurance Required (7) + (8)
2)State your recommendations to Steve and Charlene.
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