Question
Money Education Mini Case 9 Alan & Angel Young Today is January 1, 2014 The Family Alan and Angel Young both 36 years old My
Money Education
Mini Case 9
Alan & Angel Young
Today is January 1, 2014
The Family
Alan and Angel Young both 36 years old
My Young recently accepted a job making $93K a year
Mrs. Young currently unemployed
Two children (ages 4 & 2)
Dog and a cat
Both are licensed lawyers and have been married for eight years
The Extended Family
Mr Young has a mother in her 60?s who is living far away and is modestly self sufficient
Mr Young has two siblings both married and self sufficient
Mr Young inherited $400K from his late Uncle Fred who was 100 years old when he died and had worked everyday of his life.He has spent the inheritance down to $200K
Mrs Young has one brother who is married, wealthy and has two children
Mrs Young?s mother is a pharma distributor and lives in another state ? she is 60 and self sufficient
Mrs Young?s father lives in the same town as the Young?s and her brother ? self sufficient and healthy
Mrs Young?s Father (Trust 1)
Mrs Young?s father set up a trust for the benefit of Mrs Young.Her brother is trustee but it is really controlled by the father.The trust distributes $30K/year to Mrs Young.The balance is $700K and it has an average earnings rate of about 8.5% per year for the last 10 years.There is no plan to increase distributions.
Economic Info
Inflation averages 3% for last 20 years and expected to continue at 3%
Bank lending rates: 15 year 3.25%; 30 year 3.75%; Any closing costs associated with refinance are 3% and included in refinanced mortgage
Expected rate of return 8.5%
Residence
Current value $550K; Balance on 30 year mortgage at 5.5% $260,514; Land value $150K; Monthly payment (P&I) $1703.37; Owned home for 8 years; Not qualify for refi until Mr Young in new job 1 year
Insurance
Life - No life insurance; Mr Young expects $50K group term from new employer
Health ? Covered under Mr Young employer plan; Cost $1K/month for family
Disability ? No disability; Mr Young will be covered for LTD provided by employer at 65% of gross pay
Homeowner ? HO3 with open perils and replacement value; $250 deductible; Dwelling covered $300K with 80/20 coinsurance clause; Premium $2400/year
Auto - $250 deductible; 100/300/50; Premium $1800/year
Assets
Bank account $28K JT
Inherited portfolio $200K H
Brokerage account $67K W
401K $32K JT
Residence $550K JT
Auto 1 $40K W
Auto 2 $25K JT
HH Items $150K JT
Liabilities
Mortgage $260514 JT
Other Financial
Annual contributions to 401K $17500
SS Taxes $7115
Federal WH $10384
State WH $3715
Property tax $3000
Tuition to preschool $15K
Utilities $2400
Entertainment $7500
Cable $1200
Clothing $2000
Auto maint/gas $3000
Food $9600
Investments
Investment portfolio $200K
Brokerage account includes gifts from Mrs Young?s father ? invested in money market account at 0% earnings
401K from Mr Young?s prior job invested in index fund
PASS Score = 26
Estate Info
No estate planning documents
Goals and Concerns
Want proper insurance, investment and estate portfolio
Want to know cost of college education for the 2 children so they can approach Mrs Young?s father about funding a 529 plan.Current cost of education $35K in today?s dollars with expected 5% inflation.Expect children in school six years each and expect rate of return 8.5%
Want to plan for early retirement (100& WRR, excluding trust income) at age 62.Mr Young to save $17500/yr in 401K with an employer match of $6K.Expect to live to age 90.Do not include SS benefits in planning.
Want to be debt free at retirement
Analysis
1 - Prepare personal financial statements and pie charts using the data given
2 - Prepare an analysis of the Young?s risk management using the following format:
METRIC
ACTUAL
RECOMMEND
COST/SAVINGS
Life ? H
Life ? W
Disability ? H
Disability ? W
Health
LTC
Property ? Home
Property ? Auto
Liability
3 ? Calculate the following & comment on each (show calculations):
15-Year mortgage refinance and savings
Emergency fund ratio
Current ratio
Housing 1
Housing 2
4 ? Calculate the PV of each child?s college education (Use real vs nominal approach)
5 ? Calculate the PV of the Young?s retirement needs at age 62 (nominal $) & calculate the PV of the Young?s retirement needs now at age 36 (real $ in today?s $)
6 ? Analyze the risk tolerance and asset allocation for the Young?s using the PASS score
7 ? Describe the estate planning documents the Young?s need immediately and what are the important provisions of each? If you recommend powers, who is the power holder?
Money Education Mini Case 9 Alan & Angel Young Today is January 1, 2014 The Family Alan and Angel Young both 36 years old My Young recently accepted a job making $93K a year Mrs. Young currently unemployed Two children (ages 4 & 2) Dog and a cat Both are licensed lawyers and have been married for eight years The Extended Family Mr Young has a mother in her 60's who is living far away and is modestly self sufficient Mr Young has two siblings both married and self sufficient Mr Young inherited $400K from his late Uncle Fred who was 100 years old when he died and had worked everyday of his life. He has spent the inheritance down to $200K Mrs Young has one brother who is married, wealthy and has two children Mrs Young's mother is a pharma distributor and lives in another state - she is 60 and self sufficient Mrs Young's father lives in the same town as the Young's and her brother - self sufficient and healthy Mrs Young's Father (Trust 1) Mrs Young's father set up a trust for the benefit of Mrs Young. Her brother is trustee but it is really controlled by the father. The trust distributes $30K/year to Mrs Young. The balance is $700K and it has an average earnings rate of about 8.5% per year for the last 10 years. There is no plan to increase distributions. Economic Info Inflation averages 3% for last 20 years and expected to continue at 3% Bank lending rates: 15 year 3.25%; 30 year 3.75%; Any closing costs associated with refinance are 3% and included in refinanced mortgage Expected rate of return 8.5% Residence Current value $550K; Balance on 30 year mortgage at 5.5% $260,514; Land value $150K; Monthly payment (P&I) $1703.37; Owned home for 8 years; Not qualify for refi until Mr Young in new job 1 year Insurance Life - No life insurance; Mr Young expects $50K group term from new employer Health - Covered under Mr Young employer plan; Cost $1K/month for family Disability - No disability; Mr Young will be covered for LTD provided by employer at 65% of gross pay Homeowner - HO3 with open perils and replacement value; $250 deductible; Dwelling covered $300K with 80/20 coinsurance clause; Premium $2400/year Auto - $250 deductible; 100/300/50; Premium $1800/year Assets Bank account $28K JT Inherited portfolio $200K H Brokerage account $67K W 401K $32K JT Residence $550K JT Auto 1 $40K W Auto 2 $25K JT HH Items $150K JT Liabilities Mortgage $260514 JT Other Financial Annual contributions to 401K $17500 SS Taxes $7115 Federal WH $10384 State WH $3715 Property tax $3000 Tuition to preschool $15K Utilities $2400 Entertainment $7500 Cable $1200 Clothing $2000 Auto maint/gas $3000 Food $9600 Investments Investment portfolio $200K Brokerage account includes gifts from Mrs Young's father - invested in money market account at 0% earnings 401K from Mr Young's prior job invested in index fund PASS Score = 26 Estate Info No estate planning documents Goals and Concerns Want proper insurance, investment and estate portfolio Want to know cost of college education for the 2 children so they can approach Mrs Young's father about funding a 529 plan. Current cost of education $35K in today's dollars with expected 5% inflation. Expect children in school six years each and expect rate of return 8.5% Want to plan for early retirement (100& WRR, excluding trust income) at age 62. Mr Young to save $17500/yr in 401K with an employer match of $6K. Expect to live to age 90. Do not include SS benefits in planning. Want to be debt free at retirement Analysis 1 - Prepare personal financial statements and pie charts using the data given 2 - Prepare an analysis of the Young's risk management using the following format: METRIC ACTUAL RECOMMEND COST/SAVINGS Life - H Life - W Disability - H Disability - W Health LTC Property - Home Property - Auto Liability 3 - Calculate the following & comment on each (show calculations): 15-Year mortgage refinance and savings Emergency fund ratio Current ratio Housing 1 Housing 2 4 - Calculate the PV of each child's college education (Use real vs nominal approach) 5 - Calculate the PV of the Young's retirement needs at age 62 (nominal $) & calculate the PV of the Young's retirement needs now at age 36 (real $ in today's $) 6 - Analyze the risk tolerance and asset allocation for the Young's using the PASS score 7 - Describe the estate planning documents the Young's need immediately and what are the important provisions of each? If you recommend powers, who is the power holderStep by Step Solution
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