Client Demographics Mike and Mary Jane Lee Checking Account - $2,000 Annual Income - $90,000 Savings Account - $4,000 Cars - $30,000 IRA - $12,000 (Mary Jane) Furniture - $20,000 401K -$50,000 (Mike) Mortgage - $90,000 Stocks - $30,000 Balance Remaining on Cars - $4,000 Emergency Fund - $1500 Utilities - $350 a month 529 Plan - $25,000 Credit Cards Bills - $550 a month _____________________________________________________________________________________ Mike and Mary Jane, 35 and 33, have now been married for 5 years and are considering life insurance. Mary Jane doesn't have any coverage, whereas Frank has a $50,000 group policy at work. The Lees have 2 young children, ages 3 and 4. Mary earns $30,000 annually from a part-time home-based business. Mike's annual salary is $60,000. From their income, they save approximately $7500 a year. The remainder goes toward expenses. The couple estimates that the children will be financially dependent for another 17 years. This includes college expenses which are estimated to be approximately $60,000 a year for the two of them. In preparation for a visit with their insurance agent they estimated the following expenses if Mike were to die: Immediate needs at death - $25,000 Outstanding debt (Including mortgage repayment) - 94,000 Transitional funds for Mary Jane to expand her business and fully support the family - $30,000 College Expenses for both children - $240,000 ____________________________________________________________________________________ They also anticipate, should Mike die, that Mary will receive $3,600 a year in Social Security survivor's benefits until the youngest child turns 18 and $6,000 annually in pension benefits until Mary Jane turns 80. Mary Jane projects her gross annual income to be $40,000 after her business expansion. Once the children are self-supporting, Mary Jane wants to plan a spousal life income-that is, funds to make up the difference between her income and pension benefits and her expenses - for 15 more years from age 45 to age 60. Lastly, she wants to plan on $30,000 a year in retirement income for another 20 years, from age 60 to age 80. She anticipates receiving 5 percent after-tax, after inflation return on their investments. However, she hasn't reviewed her accounts In years and really doesn't know the return on investment. 2 To date, the Lees have accumulated a total of $124,500 of assets, not including $45,000 of home equity or the cars and furniture. Their assets include $1,500 in an emergency fund, $12,000 in an IRA for Mary Jane, $30,000 in other investments, and $50,000 in Mike's 401k plan through his employer. Mike and Mary Jane have 25 and 27 years to go until retirement. They estimate they'll need approximately $1.2 million to retire and live comfortably. A retirement savings of $1.2 million is the ideal amount and will allow them to take exotic vacations together each year to different countries. It will also allow them to maintain memberships at the local country club where annual fees are approximately $20,000. Mike also has a passion for restoring classic cars and anything less than the ideal amount would put a damper on their lifestyle. They know it's a challenge to reach the "ideal" amount but they'd like to put their best foot forward and see what happens. They save approximately $7,500 a year. Mary Jane's savings goes into an IRA at a local bank that doesn't offer investment options but is tied to a savings vehicle with an annual yield of .45%. Mike on the other hand has money ($50k) in his employer sponsored 401k plan. He doesn't like a lot of risk so he took the advice of someone he met at a local bar and had $15,000 of the funds allocated toward stocks, $25,000 in bonds, and another $10,000 in cash and cash equivalents. There's another $30,000 in an investment portfolio that he inherited from his father. The value of this portfolio doesn't appear to change much either. He doesn't know why his father owned this combination of stocks. He's reluctant to change any of the holdings for sentimental reasons. Mike is not a risk taker. He's concerned about losing money. His father told him stories about the 1929 stock market crash and he's been somewhat leery ever since. To him, traditional savings and money market accounts are the best things going. Everyone tells him the stock market is a great way to grow his money so he could retire someday. Although his portfolio hasn't growth much with the current allocation, his thinking is - if the stock market should go down, at least I won't lose everything. Mary Jane isn't much different. Her IRA subaccounts are invested in a money market that yields .45%. Why? Because she overheard her beautician say, "her fiance knows investing and right now, he thinks we're heading for a major market correction." They have no idea what investments make up the 529 plan. All they know is except for their deposits, the value hasn't changed much over the past 5 years.

Looking only at their retirement saving and investment accounts, determine their current general asset allocation between stocks, bonds, and cash.