Adam, 52, and Eve, 50, have 2 children, Mark, 25, and Mandy, 24. Adam is a senior manager in an engineering firm with annual income of $100,000. Eve is a teacher and draws annual income of $80,000. Mark has just graduated and is looking for a job while Mandy has been a marketing executive for the past 2 years and is thinking of quitting to pursue a full time MBA programme in 3 years time. Adam and Eve are concerned about their retirement and have engaged you to help them. You have a first meeting with them and gather the following facts: The family stays in a 5 room HDB flat which is fully paid up. Estimated Valuation is about $600,000. Adam and Eve also have a condominium, which will be ready in 2 years for occupancy. The purchase price was $1.2m and they took a loan of $800,000. Adam has invested $100,000 over time in Singapore stocks. He is unaware of his current stock holdings and market value. Eve has also invested $100,000 using unit trusts as an investment vehicle. She too is unaware of the funds she has selected and its market value. The whole family is insured with an integrated private shield plan. Adam and Eve are insured for $500,000 each in the event of death or total permanent disability. Both of them also have a $100,000 coverage in the event of critical illnesses. The couple has a current cash standing of $200,000. Adam & Eves current CPF Balances:

	Adam	Eve
CPF Ordinary Acccount	$100K	$70K
CPF Special Account	$150K	$120K
CPF Medisave	$48.5K	$48.5K

(a) Adam and Eve would like to retire together in 10 years time. They estimated their current living expenses as a couple to be $60,000 a year. Compute their future living expenses, assuming annual inflation is 5%. (5 marks) (b) Assuming the couple is to work for another 10 years and they would like to use 60% of their last drawn income then as their retirement income needs. Determine the retirement capital they would require as a couple for the next 20 years when they retire. Assume that the investment return net of inflation is 3% and their pay increment is 4% every year for the next 10 years. (10 marks) (c) With regards to their condominium, Adam and Eve have a few options which they are considering. Option 1: To sell it for a 20% profit of purchase price. Option 2: To rent it out as a form of retirement income. Compute the monthly instalment of their condominium, assume the loan tenure is 25 years, fully drawn down loan and an interest rate of 2%. Determine the monthly rental they need to receive in order to achieve a $500 surplus per month. Discuss the pros and cons of using rental income as a form of retirement planning. (15 marks) (d) Adams stock portfolio consists of 2 stocks and is currently valued at $130,000, while Eves unit trust portfolio (a mix of 80% stock and 20% bonds) is currently valued at $115,000. Adam feels that he should not be taking too much investment risk and should cash out all his stocks now while they are profitable. On the other hand, Eve feels that they should continue to stay invested, be it post or pre-retirement. Assess the investment risk of Adam and Eves portfolio and describe the concept of life cycle investing to them. (15 marks) (e) Adam would like to sponsor Mandys 2-year overseas MBA programme, which costs $200,000 in 3 years time. He would be 55 then and believes that his CPF should be in surplus of the full Retirement Sum he needs to set aside then. Determine how much he could withdraw from his CPF in 3 years time and if he could sponsor his daughters MBA. Assume the following: Adam continues working with the same monthly income of $8,333 and has no bonuses. CPF contribution ceiling is at $6,000 per month.

Employees contribution rate is 19% and employer contribution rate is 16%. CPF OA allocation rate is 14%, CPF SA & Medisave allocation rate is 10.5% each. Full Retirement Sum then is $170,000. The CPF Medisave ceiling is maintained at $48,500 for the next 3 years. CPF OA gives an interest rate of 2.5% and CPF SA and CPF Medisave give an interest rate of 4%. Interest rate is calculated yearly. No withdrawal from the 3 accounts for the next 3 years. (15 marks) (f) Adam and Eve wonder if they need to keep their insurance now that Mark and Mandy are independent adults and they themselves are moving into retirement phase. Examine post retirement needs for insurance for Adam and Eve. (10 marks)