Practical_Assessment_S2_2016_v2(1)

1. Calculate the Cheung?s combined annual after-tax income. (Assume they are exempt from the Medicare levy surcharge because they have private health insurance in Alan?s name).
2. Will the Cheung?s be able to meet their objective of saving at least 25% of their combined after tax income until retirement? Discuss.
3. Calculate the amount of combined savings Alan and Sarah will accumulate in their insurance bond for their retirement using two investment options. Option 1) they invest into a fixed interest insurance bond paying 2.3 % p.a. Option 2) they invest into a managed fund paying 5.5% p.a. Use an excel spread sheet or financial formulae provided below to show calculations and assume that savings are made at the end of each year.
4. Analyse two other issues the Cheung?s need to consider in planning for their retirement.

Assessment task Question 1: Case study You are a financial adviser and the following information is an extract of data you gathered as part of fact finding during an initial client consultation for married couple Alan Cheung and Sarah Cheung: Personal details, income and savings: Name Age Gross annual salary Insurance Bond Superannuation Alan Cheung 50 $85,500 $45,000 $125,000 Sarah Cheung 52 $101,500 $50,000 $180,000 The Cheung's have one 16 year old daughter who attends a State Secondary College. Additional Information Alan plans to retire at age 60 and Sarah plans to retire at age 62. Alan and Sarah have decided to save additional money for their retirement using insurance bonds, which they opened at the beginning of year. At the end of each year, they will transfer any surplus money into the insurance bonds with 60% invested into Sarah's and 40% invested into Alan's insurance bonds. Alan and Sarah have set an objective that will save at least 25% of their combined after tax income until their retirement. Assume their income will remain constant in dollar terms and that the 2015/16 tax rate will stay constant until their respective retirements. Assume that the school fees and related education expenses will be incurred for the next 5 years while their daughter completes secondary school and an undergraduate business degree. Assume that all expense amounts have been adjusted for inflation and will stay constant in dollar terms until the Cheung's respective retirements. Assume that both Alan and Sarah have 9.5% employer superannuation contributions until their retirement. This is paid in addition to their salary and they do not salary sacrifice into their superannuation. 2 Annual Budget Sheet Regular Commitments $ House repayments (5 year term).... ........................ 32,500 Rates ............................................................ 960 Electricity/Water/Gas ........................................ 840 Telephone/Mobile ............................................ 6,200 Pay television/Internet ....................................... 1450 Insurance - home/contents .................................. 1250 School fees and related expenses ........................... 10,000 Insurance - car ................................................ 875 Health Insurance .............................................. 3,235 Credit cards p.a .. ......................... .................... 6,000 Loans (10 year term).......................................... 8,000 Petrol/maintenance ........................................... 6,500 Car registration ................................................ 720 Public transport ............................................... 2,800 Other expenses Food ............................................................ 13,500 Clothing/Haircuts/Beauty ................................... 4,500 House maintenance ........................................... 3,800 Medical/Dental ................................................ 2,500 Entertainment/Dinners ....................................... 2,500 Prof. Memberships (Sarah).................................. 1,000 Gifts - Birthdays/Christmas ................................. 5,000 Total ........................................................... 114,130 Required: A. Calculate the Cheung's combined annual after-tax income. (Assume they are exempt from the Medicare levy surcharge because they have private health insurance in Alan's name). B. Will the Cheung's be able to meet their objective of saving at least 25% of their combined after tax income until retirement? Discuss. C. Calculate the amount of combined savings Alan and Sarah will accumulate in their insurance bond for their retirement using two investment options. Option 1) they invest into a fixed interest insurance bond paying 2.3 % p.a. Option 2) they invest into a managed fund paying 5.5% p.a. Use an excel spread sheet or financial formulae provided below to show calculations and assume that savings are made at the end of each year. D. Analyse two other issues the Cheung's need to consider in planning for their retirement. (3 + 3 + 3 + 6 = 15 marks) 3