Case Study on Robert & Evon

Background:

Robert Yap and Evon are married with a 5-year old son named Joe Yap. Robert Yap, aged 37, is a senior contract engineer with a construction company named T&T Construction Sdn Bhd for the past 7 years. Evon is a school teacher in a government secondary school. Robert was born on 20th July and Evon is 3 years younger than him, her birthday is on 30th November.

Income:

Robert earns RM9,500 per month (monthly schedule tax deduction is RM1,048) with variable bonuses up to 6 months per annum depending on the company's performance. The company does not contribute EPF for contract employee. For Robert's position, he is given a transport allowance of 12% of his basic salary.

Evon earns RM45,000 per annum (monthly schedule tax deduction is RM80) with a potential one- month bonus, if it is declared by government. Last year there was no bonus. As a government servant, she opted for retirement benefit thus she is not contributing to EPF.

Assets & Liabilities:

They live in a double storey linked house in Puchong Jaya that was bought 5 years ago with a current market value of RM550,000. The property is bought with a RM330,000 bank loan. The loan is 30 years at 4.5% p.a. monthly rest.

They both have about RM205,000 worth of shares in the KLSE which on average give them annual dividend income of RM3,000. There are some small amounts of cash placed in ASW2020 i.e. RM1,000. They have a bank savings account of RM20,000. Evon also has a personal fixed deposit of RM50,000 with a foreign bank.

Both of them have the EPF latest balance check done. Robert has RM210,000 and Evon has RM80,000 in her EPF account. These are the amount accumulated from their previous employments. They have not done any withdrawals from EPF.

Robert and Evon bought a numbers of life insurance policies. The total cash value for the whole life policies for Robert worked out to be RM12,000, and for Evon's worth about RM6,200.

Apart from mortgage and car loan, both Robert and Evon have credit card balance of RM8,000 respectively.

Expenses:

Both Robert and Evon do try to be prudent in their spending. They love travelling thus spend RM12,000 a year going overseas. Most of the weekends, they spend their time at the family club for activities. The transferable club membership is currently worth RM8,000. Robert has a very wide circle of friends thus he spends about RM800 per month on entertainment. The family spend about RM500 per month on food and another RM400 per month dining out.

They each drive a car which is financed by a finance company with a total outstanding of RM110,000. Total annual repayment is RM15,600. Robert needs RM8,000 per annum to maintain his Honda Civic and has a comprehensive insurance for RM70,000. The annual premium is RM1,092. Evon's Myvi spends about RM350 per month. She also has a comprehensive motor insurance of RM40,000 with annual premium of RM685.

Since Evon is teaching and Robert being a senior engineer, they do spend some money in their clothing to maintain the image and on average they spend RM1,500 a year.

Robert and Evon bought a numbers of life insurance policies. For Robert, he has 2 whole life policies with annual premium RM1,425 and RM1,146 respectively. Evon has a whole life insurance policy with the annual premium RM1,176.

Joe's aikido class costs RM200 every quarter. His kindergarten costs RM3,000 per term and there are 3 terms a year. His other expenses such as school bus fare, uniform, books and stationery work out to be RM600 per annum.

On average, the entire family spent about RM1,000 a year for medical and dental care. The electricity bill is an average of RM160 per month, water bill comes to RM50 per 2 months, and the telephone bill is about RM80 per month. Unifi is RM88 per month. Evon's mobile phone bill is RM120 per month while Robert's is RM350. His company reimburses him 50% of the phone bill. They have a maid that costs RM450 per month. Other miscellaneous spending such as newspaper, repairs, up keep, etc come to RM1,200 per annum.

Retirement Funding Needs for Robert and Evon:

This couple speaks eagerly of financial freedom and the dream of retiring early so that they can have more time enjoying life. They are keen on a basic financial freedom situation where they have a lump sum of assets giving today's dollar of RM10,000 per month. They strive to achieve this when Robert is age 50. They expect to live another 20 years after retirement.

With their current lifestyle, they anticipate that an inflation rate of 4% p.a. is fair. They also expect an average return of 6% p.a. for all their pre- and post retirement investment return.

They would like to get some advices on how to achieve their retirement goals i.e. where/how/what to invest to get the best return. Provide your advices/ recommendation based on Malaysian financial framework.

Estate Planning Needs for the Family:

Both husband and wife have not written any Wills. They are concerned about Joe's well-being should anything happened to either one of them.

You MUST show all the workings to the calculations in the report, and to include discussion on your findings and to provide recommendations/suggestions/opinion to their situation for each of the question. Let Robert and Evon know of any constraints and assumptions used, if any.

You are required to answer the following questions based on Robert and Evon's current financial status:

Question 1:

Prepare a combined cash flow and net worth statement for Robert and Evon. Conduct personal financial ratios analysis on the couple's financial status and comment on their current financial situation.

Question 2:

Evaluate Robert and Evon's Retirement Needs.

Question 3:

Discuss the importance of having Wills to the couple.