Personal Information

Kassim (40 years old) and Mariam (30 years old) have been married for five years. Kassim has a son from his previous marriage with Zubaidah; Iskandar (10 years old).

Kassim is the only son in the family and his mother passed away 2 years ago. He inherits a house in Bangi with a current market value of RM500,000 from his late mother's estate and he is renting out this house at RM1,000 per month. He contributes RM1,000 per month for alimony as part of the separation agreement with Zubaidah since the last seven years. His father is currently staying with him.

Mariam is currently a teacher. She contributes RM500 monthly to her mother who lives with her sister after her father died in an accident. She wanted to show that although she is the wife to Kassim, her responsibility towards her mother remains. Her mother lives in Kampung Baru and she always makes an effort to visit her every month. Her sister is the only sibling that she has.

Due to the increasing cost of tertiary education, Kassim wishes to set up an education fund for Iskandar, and he prefers not to take any education financing for him. He wants to estimate how much money should be invested to prepare for Iskandar's education cost and seeks your advice on ways to set up the education plans. He anticipates that Iskandar will begin attending university at the age of 18 years old. He plans to enrol Iskandar in local universities. The average current cost of study for a 4-year social sciences degree programme, including living expenses is RM20,000 per year, and this cost is expected to rise at 5% per annum.

Financial Information

As a Chief Financial Officer (CFO) of Manjung Tin Company (MTC), Kassim Is currently enjoying a lucrative remuneration package for his position; a salary of RM20,000 per month and the salary is expected to grow at 4% per year. For retirement purpose, currently contributes 11% of his salary to Employee Provident Fund (EPF) while the company contributes 12%. His current EPF balance is RM300,000.

Meanwhile, Mariam earns a monthly salary of RM4,000. Her salary is expected to increase 4% per year. She has chosen the pension scheme as her retirement option; therefore, she does not contribute to EPF. As a government servant, she receives yearly bonus amounting to half of her monthly salary.

Kassim contributes RM1,000 while Mariam contributes RM200 per month for their Takaful protection plans and they are entitled to a total coverage of RM500,000 and RM100,000 respectively. The current cash value for both Takaful plans is RM100,000 for Kassim and RM20,000 for Mariam.

They are also covered by their organisation's coverage, where the death benefit is at ten times of their basic monthly salary. For health coverage, Kassim participated in a medical Takaful plan which provides cover for all of his family members since the last four years, with an annual contribution of RM5,000.

Kassim and Mariam submit separate tax assessment to Inland Revenue Board of Malaysia (IRBM), and both have been paying taxes of RM1,000 and RM200 every month respectively. They also pay zakat; RM3,000 from Kassim and RM500 from Mariam annually. They have asked you on the current status of these tax and zakat payments, including zakat on wealth.

Presently, they are residing in a double storey bungalow in Sungai Long which was purchased by Kassim 4 years ago. He bought this house using a RM1,000,000 Islamic home financing plan attached with Mortgage Reducing Term Takaful (MRTT) for 20 years at 8% profit rate per annum. The current value of similar houses in this area is at RM2,000,000 per unit.

Mariam also bought a single terrace house in Kajang 2 years ago using Islamic home financing plan (with MRTT) worth RM250,000 for 25 years at the profit rate of 9% per annum. The current market value of the house is RM300,000 and has been rented out at RM500 per month.

Kassim drives an Audi A7 that cost him RM350,000 when he bought it three years ago. He paid RM100,000 as the down payment, and secured a 9-year Islamic hire purchase financing (with Hire Purchase Reducing Term Takaful) to finance its balance with 5% profit rate.

Mariam drives herself to school since her office schedule is different than Kassim's. For this, Kassim bought Mariam a Mini Cooper 2 years ago at the price of RM250,000. He took RM50,000 conventional hire purchase loan with 2.5% interest rate for seven years.

Other than that, both of them have conventional credit cards with an outstanding balance of RM10,000 for Kassim and RM4,000 for Mariam.

List of assets with their current values, owned by the couple, are as follows:

Asset

Kassim

Mariam

Mudharabah savings account

RM10,000

RM5,000

Tabung haji

RM6,000

RM4,000

ABC unit trust

RM20,000

RM10,000

Minjung tin company shares

RM100,000

-

Bank kerjasama rakyat Malaysia shares

-

RM5,000

SMN bhd shares

RM120,000

-

Bitcoin

RM10,000

Gold bar

RM5,000

In January 2017, Kassim invested 20,000 shares in SMN Bhd with a face value of RM5 per share. But based on your findings and also information received from Jabatan Kemajuan Islam Malaysia (JAKIM), this company produces non-halal products and is classified as Shariah Non-Compliant stock by Securities Commissions last November. You have informed this to him, and Kassim seeks your advice on the method of cleansing for this investment.

In your first meeting, Kassim provides the following information on his family expenses for the year 2017. He plans to remove some of the current expenditure and asks your opinion to have 30% reduction in his ongoing costs for the telephone bill, UNIFI internet bill, dining and vacation expenses.

Kassim

Mariam

Yearly (RM)

Yearly (RM)

Groceries

6,000

-

Utilities

2,000

-

Telephone

5,000

2,500

UNIFI (TV satellite)

2,400

Dining out

6,000

Clothing

5,000

5,000

Books

1,000

1,000

Personal expenses

2,000

3,000

Maid - mak senah

-

9,000

Vacation

20,000

-

Miscellaneous

4,000

2,000

Car takaful & road tax

1,500

8,000

Car maintenance

3,000

2,000

Petrol

4,000

2,000

Kassim and Mariam plan to perform haj together five years from now. Due to the limited national haj quota, they opt to choose a private haj package which will cost them RMS0,000 each and this rate is expected to rise at 4% per annum. They want you to estimate the amount of fund needed for the haj purpose. They plan to continue working until they reach 50 years old. After Kassim's retirement, they plan to reside in Kassim's house in Bangi. They estimate that an allowance of RM15,000 per month in its current value is sufficient for them to maintain their lifestyle for the next 20 years. The bungalow in Sg Long will be rented out. At present, the monthly rental rate for a similar house in the area is around RM2,000 and is estimated to increase at 3a year.

QUESTION:

You have been asked to advise them on how to achieve this retirement target. At the same time, they have also realised the importance of having a proper plan for estate planning, and they seek your advice on Faraid distributions. The couple also indicates their willingness to share the matrimonial assets at a ratio of 50:50 on the assets when one of them dies.

NOTE: TO PREPARED:

1) CASH FLOW STATEMENT

2) NET WORTH STATEMENT

3) RISK MANAGEMENT PLANNING - IF THE HUSBAND DIES OR BECOME DISABLED (USING CAPITAL INTACT METHOD)

How much money needed to sustain family?

Capital Intact methodTotal

Estimated annual expenses????

Return on investment p.a. (from case assumptions/asset allocation)6.74%

Capital Intact Amount =Expenses / Return

ASSUMPTIONS:

-Inflation rate is at 3% per annum.

-Future EPF dividends are expected at 5% a year.

-EPF withdrawal at the age of 50: one third of EPF balance or Account II.

-The rate of return on equity investment is 8%, REIT at 6% and saving account at 3%.

-While unit trust is 8% and Tabung Haji is 6%. For unspecified investments, weighted returns will be used in the calculation. All return is reinvested.

-Income tax as at 2018 rate.

-No dividends are expected from stock investments held and the market value is not expected to change substantially in the near term.

-All cars depreciate in value at an annual rate of 15%.

-Life expectancy for male and female: 80 years.

-Tabung Haji account is dedicated for Hajj planning only.

-Zakat calculation is based on Lembaga Zakat Selangor for the year 2018. Based on LZS, for financial assets, nisab for 2018 is RM14,850.

-Post retirement return on investment is expected to be at 6%.

-Investment in Bitcoin has been giving 20% average return annually, gold bar 5% average return per annum.

-Bank Kerjasama Rakyat Malaysia has been declaring an annual dividend of 15% in average.

APPENDIX 1 (NET WORT STATEMENT) - ASSET

Calculation

Sg. Long House

r

Financing

1,000,000

PV

Term (20*12)

240

n

Profit rate

8%

i

CMPD (n=20x12, i=8/12, pv= 1000000) :

Re payment per month

(End mode)

????

PMT

AMRT (PM1=1, PM2=4x12)

Balance

???

BAL

Kajang House

Financing

250,000

PV

Term

300

n

Profit rate

9%

i

CMPD (n=25x12, i-9/12, pv=250000) :

Re payment per month

???

PMT

AMRT (PM1=1, PM2=2x12)

Balance

???

BAL

Audi

Dys = 365x9i%=5, pv=250,000

SI=??????

SFV=????

Monthly payment= TOTAL FINANCING/108=???

Amount paid monthly pmt x months paid=????

Balance= SFV - Amount pais - Rebate=

To calculate rebate for early settlement:

[n(n+1)/N(N+1)]*SI=[72(73)/108(109)]*112500=50,229.36

Mini cooper

Dys = 365x7i%=2.5, pv=50,000

SI=

SFV=

Monthly payment= TOTAL FINANCING/84=

Amount paid monthly pmt x months paid=

Balance= SFV - Amount pais - Rebate=

To calculate rebate for early settlement:

[n(n+1)/N(N+1)]*SI=[60(61)/84(85)]*8750=4,485.29

NET WORTH STATEMENT - LIABILITIES

APPENDIX 2 - TAX COMPUTATIONKASSIMMARIAM

Tax shortfall or refund

payable minus paid

26,020

-1,732

APPENDIX 3 ZAKAT CALCULATION

ZAKAT DUE

8,661

1,063

APPENDIX 4 - EDUCATION AND HAJJ

EDUCATION - RM10,040RECOMMENDED

HAJJ - RM18,122