Dan's income will increase by 5%, effective January 1. His bonus is generally 10% of his income in the previous year, and he receives it in January Lucy's raise will be 3%, effective January 1. Interest and dividend income will conservatively be the same in 2017 as it was in 2016 and will be received on a monthly basis. Mortgage payments will be the same in 2017 as they were in 2016. Federal income taxes are estimated at 20%, state income taxes at 6%, and social security taxes at 7.65% of wages, including Dan's bonus. Property insurance and property taxes are paid every six months, in June and December. The amount is expected to be the same in 2017 as it was in 2016. Lucy will contribute $60 per week for the employee portion of their medical insurance. Auto insurance is paid at the end of each calendar quarter and should not be more than it was in 2016. . Dan and Lucy would like to purchase a new car in the next few years and will put $500 a month away specifically for that purpose. Dan and Lucy don't expect the amount of variable expenses to change in 2017 except that they would like to double their charitable contributions. Gift purchases are made mostly around the holidays, so Dan and Lucy are planning to pay half of the gift expense in December and half in January when the credit card bill comes in. Water and sewer is billed quarterly, in January, April, July, and October. The cost of heat should be spread over six months from November to April All other variable expenses can be spread evenly every month at 2016 amounts. Use the information from their cash-flow statement (listed in the first column of the following annual budget) and their budget assumptions to fill in the missing amounts for the first six months of Dan and Lucy's monthly budget for 2017. (Note: Be sure to fill in every blank space with a value. Round each answer to the nearest dollar.) Annual Budget Name: Dan and Lucy McDermott 2017 Cash-Flow Statement 2016 Jan. Feb. Mar 60,000 54,000 5,000 5,250 4,635 5,250 4,635 5,250 4,635 0 0 150 13 13 13 $119,150 $9,898 $9,898 1,176 1,176 1,050 315 1,176 1,050 315 INCOME Dan's salary Lucy's salary Dan's Bonus Interest and dividends Total Income EXPENDITURES Fixed Expenses Mortgage Dan's federal income taxes Dan's state income taxes Dan's social security taxes Lucy's federal income taxes Lucy's state income taxes Lucy's social security taxes Property taxes Property insurance Medical insurance Automobile insurance and registration Savings for auto purchase Total Fixed Expenses Variable Expenses 14,112 13,000 3,900 4,973 10,800 3,240 4,131 402 402 927 927 927 278 278 278 355 355 355 4,200 0 0 0 1,200 0 0 0 2,400 240 240 240 700 0 0 500 500 500 $62,656 $5,243 158 158 158 250 1,896 3,000 4,700 350 250 392 250 392 392 29 29 29 0 0 208 208 800 1,250 3,000 600 208 250 250250 50 250 50 50 Variable Expenses Food Entertainment Dining out Electric Water and sewer Heat Cable TV Telephone Cell phone Gifts Personal care Medical expenses Vehicle gas and maintenance Charitable contributions Vacation Total Variable Expenses Total Expenses SURPLUS (DEFICIT) 75 75 75 900 2,000 600 50 50 50 308 308 3,700 2,530 1,500 308 211 211 211 250 250 250 $26,826 $89,482 $29,668 $2,231 $7,474 $2,424 $2,231 $7,649 $2,249 Dan and Lucy have an emergency fund of $40,000. They would like to start saving for retirement, but they have not signed up for their companies 401(k) plans. Neither company matches 401(k) contributions What do you suggest for Dan and Lucy based on their goals and the budget that they have put together? What do you suggest for Dan and Lucy based on their goals and the budget that they have put together? The $40,000 that the McDermotts have saved for an emergency is three months of expenses. They have not, however, taken advantage of the employer 401(k) plans that are available to them. If an employer does not match contributions, it is advantageous to contribute to a company-sponsored retirement savings plan because the contributions to the plan are invested with earnings. 11 the McDermotts invest part of their surplus in their 401(k) plans, they will save the designated amount plus another because of the tax savings. of that amount