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Money Education Mini Case 9 Alan & Angel Young Today is January 1, 2014 The Family Consists of Alan and Angel Young both 36 years old My Young recently accepted a job making $93,000 a year Mrs. Young currently unemployed They have two children (ages 4 & 2) They have a Dog and a cat Both are licensed lawyers and have been married for eight years The Extended Family: Alan has a mother in her 60's who is living far away and is modestly self sufficient Alan has two siblings both married and self sufficient Alan inherited $400,000 from his late Uncle Fred who was 100 years old when he died and had worked every day of his life. He has spent the inheritance down to $200,000 Angel has one brother who is married, wealthy and has two children Angel's mother is a pharmaceutical distributor and lives in another state - she is 60 and self sufficient Angel's father lives in the same town as the Young's and her brother - self-sufficient and healthy Angel's Father (Trust 1) Angel's father set up a trust for the benefit of Angel. Her brother is trustee but it is really controlled by the father. The trust distributes $30,000/year to Mrs. Young. The balance in the trust is $700,000 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. Internal Information: Residence The Current value of the residence is $550,000. The balance of 30-year mortgage at 5.5% is $260,514. Land value is $150,000 Monthly payment is $1703.37 and they have owned it for 8 years They will not be qualify for refinancing until Mr. Alan has been employed for 12 months Insurance Information: life insurance: Currently no life insurance for both Mr. Alan expects to have $50,000 of group-term life insurance from his employer Health insurance: They will be Covered under Mr. Alan employer plan with a cost $1,000 a month for family with unlimited lifetime benefit per person. Disability Insurance: Currently no disability insurance for both Mr. Alan will have long term disability(LTD) that is guaranteed renewable disability policy provided by employer at 65% his gross pay covering sickness and accidents with benefits at age 65. Homeowners Insurance: They have an Homeowner - HO3 with open perils and replacement value They have a $250 deductible The Dwelling is covered for $300,000 with 80/20 coinsurance clause. Premium is $2400/year Auto Insurance: They have personal automobile policy(PAP) covering both cars with a $250 deductible The Liability coverage is $100,000/$300,000/$50,000 The annual premium is Premium $1800 for the two cars. Investments Information: Investment portfolio: They have an investment portfolio of $200,000 produces variable income from -10% to +15% depending on the year. It was originally $400,000 but with poor returns and expenditure, it has been reduced to $200,000 Last year income which consisted mostly of dividend was $8,000 Other Investment Assets: The assets in the brokerage account are from gifts from Angel's father. These assets are invested in money market account, but currently earnings 0% Mr. Alan 401(K) assets are invested in equity index fund Risk Tolerance: Portfolio consists of few energy stocks that generated dividends and capital gain of seven percent. They recognize that they need to modify their assets allocation, but are not sure when to do so Tax information: For the last few years they have been low income tax payers but are uncertain as to this year Estate Info No estate planning documents Goals and Concerns They Want proper insurance, investment and estate portfolio They want their taxes analyzed They Want to know cost of college education for the 2 children so they can approach Angel's father about fully funding a 529 plan. The current cost of education is $35,000 in today's dollars with expected 5% inflation. They expect children to be in school for six years each and they expect rate of return 8.5% on 529 plan investment. They want to plan for early retirement (100% wage replacement ratio, excluding trust income) at age 62. Alan plans to save $18,000/year in a 401K starting this year and to have an employer match of $6,000. They expect to live to age 90. They do not want to include any social security retirement benefits in their planning They want to be debt free at retirement Debt Management and Short-Term Obligations Calculate the following & comment on each (show calculations): a 15-Year mortgage refinance b Emergency fund ratio c Current ratio d Housing 1 e Housing 2