Amy and Mike, a married couple, are considering retirement; they are both aged 65 and supply the following information:

• They jointly own their home worth $820,000 and have no debt.
• They have a car ($30,000), home contents ($20,000) and savings ($20,000).
• Amy'ssuperannuation is $260,000 (tax-free $52,000, balance from a taxed source).
• Mike'ssuperannuation is $180,000 (tax-free $36,000, balance from a taxed source).
• As 'high growth' investors, expected return on investments is 4.0% p.a. above the inflation rate (currently 3.0% p.a.).
• They would like to receive $44,000 p.a. after tax to meet their living costs.

Required:

a)Explain howAmy and Mikecould derive their cash flow for retirement.(3 marks)

b)Discuss adequacy of capital for retirement and show calculations.(3 marks)

DiscussAmy and Mike'srisk tolerance relative to the 'draw-down' phase.(4 marks