*****Based on current financial situation, provide appropriate recommendations on 1) retirement income distribution strategy that minimizes their income tax liability and 2) investment strategy before and after retirement.

MIKE AND MARIA ROMAN CASE STUDY Mike and Maria have come to you, a financial planner, for help in developing a plan to accomplish their financial goals. From your initial meeting together, you have gathered the following information. PERSONAL BACKGROUND AND INFORMATION COLLECTED THE FAMILY Mike and Maria Roman live in the country and operate a baseball academy on their property. They have a quaint home with a baseball field to the left of their house and two covered baseball batting and pitching cages. Mike played professional baseball for 15 years and now provides baseball instruction through RBI to children ages six to early twenties. Mike currently coaches several college baseball players and is one of the most respected hitting and pitching coaches in the area. He also coaches a 9- year old team and a 14-year old team, both competing at the major division level. Maria has the tireless job of scheduling all of the lessons. Mike and Maria Roman Mike is 44 years old and loves his job. He is also an avid hunter and fisherman. Maria is also 44 years old and has done a wonderful job of raising their two kids, while helping with the family business. The Children Emily is 20 years old and is a junior at Florida State University where she is double majoring in anthropology and communications. She has always been an excellent student and has a full academic scholarship. She also works part time to earn additional spending money. Her brother, Michael is 17 years old and is a junior at Mission High School, where he plays shortstop on the baseball team and is hitting over 300 for the year. Roman's Baseball Institute (RBI) Mike started RBI seven years ago after he left professional baseball. He has built his reputation, as well as that of RBI over that time period. RBI is one the premier baseball academies in the area. The primary source of income for RBI is fees from baseball lessons. Lessons are priced at $70 per hour. Mike has three other coaches who help him provide lessons (Mickey, Mr. Joe, and Joey). His dad, Mickey, who is now retired from the Post Office, taught him how to play baseball, coached him growing up, and works with him now that he is retired. Mr. Joe coached Mike as a child and now coaches for Mike. Joey is 20 years old, played baseball for Mike growing up and played in college during his freshman year before getting injured. RBI generate $245,000 in gross annual revenue and has the following expenses: Coaching fees to his $ 60,000 coaches Utilities Field Maintenance Equipment (Ball, etc.) Other Expenses $ 2,500 $ 7,000 $ 1,000 $ 3,000 Mike works 1,500 hours and the other coaches total 2,000 hours. His three coaches work the following number of hours and are paid $30 per hour: Mickey Joey Mr. Joe 1,100 500 400 Mike's coaches have worked with him for the last five years. Mike's net income equals the fees less the expenses listed above. He reports his revenue and expenses on Schedule C of his personal income tax return. PERSONAL AND FINANCIAL OBJECTIES FOR MIKE AND MARIA ROMAN 1. Provide for retirement. They would like to retire when Mike is 60. They want to plan on $100,000 of retirement income in today's dollars. They expect to receive Social Security and Mike has a pension with Major League Baseball (MLB). They would like to plan on funding potential retirement expenditures until they turn age 95 and would like to maintain the same level of spending, even if Mike or Maria died early. 2. Provide for the cost of Michael's college education. They expect Michael to receive a partial baseball scholarship, but they plan on paying $15,000 per year for each of his five years for college. 3. Establish a retirement plan for the income he earns at RBI. EXTERNAL INFORMATION ECONOMIC INFORMATION Inflation is expected to be 3.0 annually. There is no state income tax They yield curve is slightly upward sloping, but relatively flat. The historic and expected correlation between the equity markets in the modernized countries is relatively high. The correlation between these markets increase especially during economic crisis. They have a required rate of return of 9 percent. The economy is in a steady slow growth expansion phase with moderate unemployment. BANK LENDING RATES 15-year mortgage rate is 5.0% 30-year mortgage rate is 6.0% Secured personal loan rate is 10.0% EDUCATION INFORMATION Mike and Maria believe strongly in education. They want Michael to attend a college for learning, as well as baseball. As mentioned, they expect to fund $15,000 per year for five years in today's dollars for Michael's education. Tuition has been increasing at a 7 percent rate, which is expected to continue indefinitely. INTERNAL INFORMATION INSURANCE INFORMATION Life Insurance Insured Face Amount Type Cash Value Annual Premium Who pays premium Beneficiary Policy Owner Settlement options clause selected Policy A Mike $150,000 Term $0 $156 Mike Maria Mike None Policy B Maria 40,000 Term $0 $50 Mike Mike Maria None Health Insurance Mike and Maria are covered under the Major League Baseball policy. The plan includes a family deductible of $ 12,600 at a cost of $500 per month. Long -Term Disability Insurance Neither Mike nor Maria are covered by any disability insurance. Homeowners Insurance The Romans have a HO3 policy with endorsements for replacement value and open perils for personal property. The current dwelling coverage is 100% replacement value with an inflation rider. Automobile Insurance Both of their cars are covered Type Bodily Injury Property Damage Medical Payment Physical Damage Uninsured Motorist Bodily Injury Uninsured Motorist Property Damage Comprehensive Deductible Collision Deductible Premium (annual) PAP $100,000/$300,000 $50,000 $5,000 per person Actual Cash Value $100,000/$300,000 $50,000 $1000 $1,000 $ 3,300 Personal Liability Insurance Neither Mike nor Maria have PLUP coverage INCOME TAX INFORMATION The Romans filing status for their federal income tax return is married filed jointly. RETIREMENT INFORMATION Mike would like to retire at age 60 and quit working. Mike met the requirements for the MLB minimum pension of $34,000 per year, which is what he expects to receive. This pension begins at age 62 and the amount is fixed for life (both his and his spouse's life). It is not inflation adjusted from today or during retirement. Mike expects his Social Security benefits will equal $30,000 in today's dollars at full retirement age, which is age 67. Maria does have 40 quarters of Social Security coverage. GIFTS, ESTATES, TRUST, AND WILL INFORMATION Neither Mike nor Maria have prepared a will or any estate planning documents. MICKEY ROMAN Mickey is Mike's dad and is an \"old school\" baseball coach. He turned 70 on December 22nd last year. He has a pension payment from the USPS of $2,000 per month and he and his wife receive a monthly payment from Social Security of $2,200. He also have an IRA with balance of $85,000 as of December 31 st 2014. Since his wife will continue to receive Social Security and his pension in the event he dies, has named his grandson Michael as the beneficiary of his IRA. Mickey also has Exxon stock that was distributed from a qualified plan 30 years ago. The distribution was a lump sum distribution in which the FMV of the stock from the plan was $100,000. Mickey deposited the stock in his brokerage account and included $20,000 in his taxable income in the year of the distribution, based on the Form 1099-R. Mickey stills owns the stock, which is not worth $324,340 and is held in the same brokerage account. He is hoping to leave it to Mike when he dies. FINANCIAL STATEMENTS Statement of Financial Position 1/1/2015 1. Assets are stated at fair market value. 2. Liabilities are stated at principal only as of January 1, 2015 (prior to January payments). 3. The home and land were financed with a $350,000 loan, seven years ago at 5 percent over 360 months. 4. They typically spend about $1,000 per month on each credit card, but the balances are higher after the holidays. They do not maintain these balances. 5. The Ram truck was financed with a loan of $30,000, six months ago at 3 percent over 48 months. 6. Mike's brokerage account is highly correlated to the market. In fact the account has a correlation with the market of about 99 percent. However, because Mike has some leveraged mutual funds in the account, the beta of the portfolio is approximately 20 percent greater than the market. Mike's brokerage account is a margin account, which has an initial margin of 50 percent and a maintenance margin of 35 percent. 7. The Jeep was financed with a loan of $13,000, 12 months ago at 3.5 percent over 48 months. 8. The municipal bond portfolio has a modified duration of 5 and a current YTM OF 7 percent. CASE ASSUMPTIONS Required return-use the required return as stated in the case. For retirement and other long-term goals, assume cash and cash equivalents are added to investment accounts for purposes of projections and asset allocation decisions. Assume Social Security benefits begin at age 67