Questions:
4. Mike wants to set aside 75,000 for Michael's education. If he set aside all his other cash to fund retirement; how much would would he need to save each year to fund retirement?
5. How could Mike contribute for himself in 2020 if he set up a SEP with a 25% contribution?
Use Excel spreadsheet showing Calculations and Formulas please !!
CHAPTER 15 CASE MIKE AND MARIA ROMAN e and Maria have come to you, a financial planner, for help in developing a plan to accomplish their fancial goals. From your initial meeting together, you have gathered the following information and has done a wonderful job of raising their two kids, while helping with the family business Emily is 20 years old and is a Junior at Florida State University where she is double majoring in Sholarship. She also works part time to earn additional spending money. Her brother, Michael, is 17 years attropology and communications. She has always been an excellent student and has a full academic and is a junior at Mission High School, where he plays shortstop on the baseball team and is hitting MIKE AND MARIA ROMAN Mike and Maria Roman live in the country and operate a baseball academy on their property. They have a paint home with a baseball field to the left of their house and two covered baseball batting and pitching zges Mike played professional baseball for 15 years and now provides baseball instruction through Rai Do children ages six to the early twenties. Mike currently coaches several college baseball players and is One of the most respected hitting and pitching coaches in the area. He also coaches a 9-year-old team and 14-year-old team, both competing at the major division level. Maria has the tireless job of scheduling all of the lessons Mike and Maria Roman he is 44 years old and loves his job. He is also an avid hunter and fisherman. Marta is also 44 years old PERSONAL BACKGROUND AND INFORMATION COLLECTED The Family The Children over 300 for the year. Mike and Maria Roman 845 baseball scholarship, but they plan on paying $15,000 per year for each of his five year epilates Roman's Baseball Institute (RBI) Mike started RBI seven years ago after he left professional baseball. He has built his reputation, as we that of RBI over that time period. RBI is one of the premier baseball academies in the area. Mine has three other coaches who help him provide lessons (Mickey, Mr. Joe, and Joey). His dal The primary source of income for RBI is fees from baseball lessons. Lessons are priced at $70 pet who is now retired from the Post Office, taught him how to play baseball, coached him growing Is 20 years old, played baseball for Mike growing up and played in college during his freshman year works with him now that he is retired. Mr. Joe also coached Mike as a child and now coaches for Me RBI generates $245,000 in gross annual revenue and has the following expenses: has a pension with Major League Baseball (MLB). They would like to plan on funding potential $100.000 of retirement income in today's dollars. They expect to receive Social Security and Mike retirement expenditures until they turn age 95 and would like to maintain the same level 2. Provide for the cost of Michael's college education. They expect Michael to receive a parte Coaching fees to his coaches Utilities Field Maintenance Equipment (balls, etc.) Other Expenses getting injured $60,000 $2,500 $7,000 $1,000 $3,000 Mike works 1,500 hours and the other coaches total 2,000 hours. His three coaches work the following number of hours and are paid $30 per hour: Mickey 1,100 Joey 500 Mr. Joe 400 Mike's coaches have worked with him for at least five years. Mike's net income equals the fees less the expenses listed above. He reports his revenue and expenses on Schedule of his personal income tu return Personal and Financial Objectives for Mike and Maria Roman Provide for retirement. They would like to retire when Mike is age 60. They want to play if or died early] callere 3. Establish a retirement plan for the income he earns at RBL. EXTERNAL INFORMATION Economic Information Inflation is expected to be 3.0% annually. There is no state income tax. The yield curve is slightly upward sloping but relatively flat. . 346 Chapter 15. Vem Sets and the Mika & Maria Roman Case . 15 Bank Lending Rates Education Information The historic and expected correlation between the equity markets in the modernized countries is relatively high. The correlation between these markets increase especially during economic crisis They have a required rate of return of 9 percent. The economy is in a steady slow growth expansion phase with moderate unemployment. Mike and Maria believe strongly in education. They want Michael to attend a college for learning dollars for Michael's education. Tuition has been increasing at a 7 percent rate, which is expected as well as baseball. As mentioned, they expect to fund $15,000 per year for five years in today's Vike and Maria are covered under the Major League Baseball policy. The plan includes a family deductible $12,600 at a cost of $500 per month. Neither Mike nor Maria are covered by any disability insurance. The Romans have a HO3 policy with endorsements for replacement value and open perils for Personal property. The current dwelling coverage is 100% replacement value with an inflation 15-year mortgage rate is 5.0%. 30-year mortgage rate is 6.0%. Secured personal loan rate is 100% to continue indefinitely INTERNAL INFORMATION Insurance Information Life Insurance Insured Face Amount Type Cash Value Monthly Premium Who pays premium Beneficiary Policy Owner Settlement options clause selected Policy A Mike $150,000 Term $0 $156 Mike Maria Mike None Policy B Maria $40,000 Term $0 $50 Mike Mike Maria None Bealth Insurance long-Term Disability Insurance Homeowners Insurance rider. 847 Tormation Mickey is Mike's dad and is an "old school baseball coach. He turned 70 on December 22, 2016. Hels! pension payment from the USPS of $2,000 per month and he and his wife receives a monthly and from Social Security of $2,200. He also has an IRA with a balance of $85,000 as of December 31, 209 alump sum distribution in which the FMV of the stock from the plan was $100,000. Mickey deposit Mickey also has Exxon stock that was distributed from a qualified plan 30 years ago. The distribution stock in his brokerage account and included $20,000 in his taxable income in the year of the distributi based on the Form 1099 R. Mickey still owns the stock, which is now worth $324,340 and is held in PAP $100,000/$300,000 $50,000 $5,000 per person Actual Cash Value $100,000/5300,000 $50,000 $1,000 $1,000 $3,300 Neither Mike nor Maria have PLUP coverage. Income Tax Information The Romans filing status for their federal income tax return is married filing jointly. Retirement Information Mike would like to retire at age 60 and quit working. Mike met the requirements for the MLB minima pension of $34,000 per year, which is what he expects to receive. This pension begins at age 62 ani te amount is fixed for life (both his and his spouse's life). It is not inflation adjusted from today or dur retirement. Mike expects his Social Security benefits will equal $30,000 in today's dollars at full retirement age, which is age 67. Maria does not have 40 quarters of Social Security coverage. Gifts, Estates, Trusts, and Will Information Neither Mike nor Maria have prepared a will or any other estate planning documents. Mickey Roman Automobile Insurance Both of their cars are covered. Type Bodily Injury Property Damage Medical Payments Physical Damage Uninsured Motorist Bodily Injury Uninsured Motorist Property Damage Comprehensive Deductible Collision Deductible Premium (annual) Personal Liability Insurance his grandson Michael as the beneficiary of his IRA. same brokerage account. He is hoping to leave it to Mike when he dies. Chapter 15: Nem Sets Ainancial Statements utement of Income and Expenses 15 Statement of Income and Expenses Mike and Maria Roman Statement of Income and Expenses for 2019 and Expected (Approximate) for 2020 Totals $245.000 $245,000 $40,000 $10,000 550.000 522547 $3,488 $7.968 $13,000 $47.002 CASH INFLOWS Salaries RBI Gross Revenue Total Cash Inflows CASH OUTFLOWS Taxes Federal Estimated Tax Payments Property Tax Principal Residence & Land Debt Payments Principal Residence Auto Loan - Jeep Auto Loan-Ram Credit Card Payments Total Debt Payments Living Expenses Utilities Principal Residence Gasoline for Autos Gifts Entertainment Vacations Church Donations Clothing Auto Maintenance Satellite TV Food Total Living Expenses RBI Expenses Fees Paid to the Three RBI Coaches Utilities for Batting Cages Baseball Field Maintenance Baseball Equipment Other Baseball Business Expenses Total RBI Expenses Insurance Payments MLB Health Insurance Premium HO Insurance Principal Residence Auto Insurance Premiums Life Insurance Premiums (Policy A&B) Total Insurance Payments Total Cash Outflows NET DISCRETIONARY CASH FLOWS $3,900 $3,500 $1,000 $1.750 $2,000 $500 $2.000 $2,000 $2,000 $1,650 $23.300 $60,000 $2,500 $7,000 $1,000 $3,000 $73,500 $6,000 $3.000 $3,300 $2,472 $14.772 $208574 $36426 Internal information 849 3. The home and land were financed with a $350,000 loan, seven years ago at 5 percent over 360 months 6. Mike's brokerage account is highly correlated to the market. In fact the account has a correlation with the market of about 99 percent. However, because Mike has some leveraged mutual funds in the account, the 7. The leep was financed with a loan of $13.000, 12 months ago at 3.5 percent over 48 months. margin account, which has an initial margin of 50 percent and a maintenance margin of 35 percent beta of the portfolio is approacimately 20 percent greater than the market. Mike's brokerage account is a Statement of Financial Position 1/1/2020 Statement of Financial Position Mike and Maria Roman Balance Sheet as of 1/1/2020 Liabilities and Net Worth Assets Gasth and Cash Equivalents Liabilities? Home Mortgage Credit Card Balance Visa Cash 35.000 $25,000 $307,808 $2,000 $1.200 $30,000 Savings Account Total Cash and Cash Equivalents Investment Assets Brokerage Account Municipal Hond Portfolio Education Portfolio IRA Total Investment Assets Auto Loan - Mikes Auto Loan - Maria? Total Liabilities $26.444 $9,918 $347.370 $70,000 $20,000 $10,000 $20,000 $120,000 Total Net Worth $335,630 Personal Use Assets Personal Residence Land for Home & Baseball Field Jeep - Maria Ram Truck - Mike Furniture & Personal Property Total Personal Use Assets Total Assets $200,000 $200,000 $18,000 $35.000 $80,000 $533,000 $683,000 Total Liabilities & Net Worth $683,000 1. Assets are stated at fair market value. 2. Liabilities are stated at principal only as of January 1, 2020 (prior to January payments). The Ram truck was financed with a loan of $30,000, six months ago at 3 percent over 48 months The municipal bond portfolio has a modified duration of and a current YTM of 7 percent Chapter 15 m Sets and the Mila Maria Roman Required return - use the required return as stated in the case. For retirement and other long-term goals, assume cash and cash equivalents are added to investment accounts for purposes of projections and asset allocation decisions Assume the education portfolio is not available to fund retirement Assume Social Security benefits begin at age 67. CASE ASSUMPTIONS 15 ptions 851 CHAPTER 15 CASE MIKE AND MARIA ROMAN e and Maria have come to you, a financial planner, for help in developing a plan to accomplish their fancial goals. From your initial meeting together, you have gathered the following information and has done a wonderful job of raising their two kids, while helping with the family business Emily is 20 years old and is a Junior at Florida State University where she is double majoring in Sholarship. She also works part time to earn additional spending money. Her brother, Michael, is 17 years attropology and communications. She has always been an excellent student and has a full academic and is a junior at Mission High School, where he plays shortstop on the baseball team and is hitting MIKE AND MARIA ROMAN Mike and Maria Roman live in the country and operate a baseball academy on their property. They have a paint home with a baseball field to the left of their house and two covered baseball batting and pitching zges Mike played professional baseball for 15 years and now provides baseball instruction through Rai Do children ages six to the early twenties. Mike currently coaches several college baseball players and is One of the most respected hitting and pitching coaches in the area. He also coaches a 9-year-old team and 14-year-old team, both competing at the major division level. Maria has the tireless job of scheduling all of the lessons Mike and Maria Roman he is 44 years old and loves his job. He is also an avid hunter and fisherman. Marta is also 44 years old PERSONAL BACKGROUND AND INFORMATION COLLECTED The Family The Children over 300 for the year. Mike and Maria Roman 845 baseball scholarship, but they plan on paying $15,000 per year for each of his five year epilates Roman's Baseball Institute (RBI) Mike started RBI seven years ago after he left professional baseball. He has built his reputation, as we that of RBI over that time period. RBI is one of the premier baseball academies in the area. Mine has three other coaches who help him provide lessons (Mickey, Mr. Joe, and Joey). His dal The primary source of income for RBI is fees from baseball lessons. Lessons are priced at $70 pet who is now retired from the Post Office, taught him how to play baseball, coached him growing Is 20 years old, played baseball for Mike growing up and played in college during his freshman year works with him now that he is retired. Mr. Joe also coached Mike as a child and now coaches for Me RBI generates $245,000 in gross annual revenue and has the following expenses: has a pension with Major League Baseball (MLB). They would like to plan on funding potential $100.000 of retirement income in today's dollars. They expect to receive Social Security and Mike retirement expenditures until they turn age 95 and would like to maintain the same level 2. Provide for the cost of Michael's college education. They expect Michael to receive a parte Coaching fees to his coaches Utilities Field Maintenance Equipment (balls, etc.) Other Expenses getting injured $60,000 $2,500 $7,000 $1,000 $3,000 Mike works 1,500 hours and the other coaches total 2,000 hours. His three coaches work the following number of hours and are paid $30 per hour: Mickey 1,100 Joey 500 Mr. Joe 400 Mike's coaches have worked with him for at least five years. Mike's net income equals the fees less the expenses listed above. He reports his revenue and expenses on Schedule of his personal income tu return Personal and Financial Objectives for Mike and Maria Roman Provide for retirement. They would like to retire when Mike is age 60. They want to play if or died early] callere 3. Establish a retirement plan for the income he earns at RBL. EXTERNAL INFORMATION Economic Information Inflation is expected to be 3.0% annually. There is no state income tax. The yield curve is slightly upward sloping but relatively flat. . 346 Chapter 15. Vem Sets and the Mika & Maria Roman Case . 15 Bank Lending Rates Education Information The historic and expected correlation between the equity markets in the modernized countries is relatively high. The correlation between these markets increase especially during economic crisis They have a required rate of return of 9 percent. The economy is in a steady slow growth expansion phase with moderate unemployment. Mike and Maria believe strongly in education. They want Michael to attend a college for learning dollars for Michael's education. Tuition has been increasing at a 7 percent rate, which is expected as well as baseball. As mentioned, they expect to fund $15,000 per year for five years in today's Vike and Maria are covered under the Major League Baseball policy. The plan includes a family deductible $12,600 at a cost of $500 per month. Neither Mike nor Maria are covered by any disability insurance. The Romans have a HO3 policy with endorsements for replacement value and open perils for Personal property. The current dwelling coverage is 100% replacement value with an inflation 15-year mortgage rate is 5.0%. 30-year mortgage rate is 6.0%. Secured personal loan rate is 100% to continue indefinitely INTERNAL INFORMATION Insurance Information Life Insurance Insured Face Amount Type Cash Value Monthly Premium Who pays premium Beneficiary Policy Owner Settlement options clause selected Policy A Mike $150,000 Term $0 $156 Mike Maria Mike None Policy B Maria $40,000 Term $0 $50 Mike Mike Maria None Bealth Insurance long-Term Disability Insurance Homeowners Insurance rider. 847 Tormation Mickey is Mike's dad and is an "old school baseball coach. He turned 70 on December 22, 2016. Hels! pension payment from the USPS of $2,000 per month and he and his wife receives a monthly and from Social Security of $2,200. He also has an IRA with a balance of $85,000 as of December 31, 209 alump sum distribution in which the FMV of the stock from the plan was $100,000. Mickey deposit Mickey also has Exxon stock that was distributed from a qualified plan 30 years ago. The distribution stock in his brokerage account and included $20,000 in his taxable income in the year of the distributi based on the Form 1099 R. Mickey still owns the stock, which is now worth $324,340 and is held in PAP $100,000/$300,000 $50,000 $5,000 per person Actual Cash Value $100,000/5300,000 $50,000 $1,000 $1,000 $3,300 Neither Mike nor Maria have PLUP coverage. Income Tax Information The Romans filing status for their federal income tax return is married filing jointly. Retirement Information Mike would like to retire at age 60 and quit working. Mike met the requirements for the MLB minima pension of $34,000 per year, which is what he expects to receive. This pension begins at age 62 ani te amount is fixed for life (both his and his spouse's life). It is not inflation adjusted from today or dur retirement. Mike expects his Social Security benefits will equal $30,000 in today's dollars at full retirement age, which is age 67. Maria does not have 40 quarters of Social Security coverage. Gifts, Estates, Trusts, and Will Information Neither Mike nor Maria have prepared a will or any other estate planning documents. Mickey Roman Automobile Insurance Both of their cars are covered. Type Bodily Injury Property Damage Medical Payments Physical Damage Uninsured Motorist Bodily Injury Uninsured Motorist Property Damage Comprehensive Deductible Collision Deductible Premium (annual) Personal Liability Insurance his grandson Michael as the beneficiary of his IRA. same brokerage account. He is hoping to leave it to Mike when he dies. Chapter 15: Nem Sets Ainancial Statements utement of Income and Expenses 15 Statement of Income and Expenses Mike and Maria Roman Statement of Income and Expenses for 2019 and Expected (Approximate) for 2020 Totals $245.000 $245,000 $40,000 $10,000 550.000 522547 $3,488 $7.968 $13,000 $47.002 CASH INFLOWS Salaries RBI Gross Revenue Total Cash Inflows CASH OUTFLOWS Taxes Federal Estimated Tax Payments Property Tax Principal Residence & Land Debt Payments Principal Residence Auto Loan - Jeep Auto Loan-Ram Credit Card Payments Total Debt Payments Living Expenses Utilities Principal Residence Gasoline for Autos Gifts Entertainment Vacations Church Donations Clothing Auto Maintenance Satellite TV Food Total Living Expenses RBI Expenses Fees Paid to the Three RBI Coaches Utilities for Batting Cages Baseball Field Maintenance Baseball Equipment Other Baseball Business Expenses Total RBI Expenses Insurance Payments MLB Health Insurance Premium HO Insurance Principal Residence Auto Insurance Premiums Life Insurance Premiums (Policy A&B) Total Insurance Payments Total Cash Outflows NET DISCRETIONARY CASH FLOWS $3,900 $3,500 $1,000 $1.750 $2,000 $500 $2.000 $2,000 $2,000 $1,650 $23.300 $60,000 $2,500 $7,000 $1,000 $3,000 $73,500 $6,000 $3.000 $3,300 $2,472 $14.772 $208574 $36426 Internal information 849 3. The home and land were financed with a $350,000 loan, seven years ago at 5 percent over 360 months 6. Mike's brokerage account is highly correlated to the market. In fact the account has a correlation with the market of about 99 percent. However, because Mike has some leveraged mutual funds in the account, the 7. The leep was financed with a loan of $13.000, 12 months ago at 3.5 percent over 48 months. margin account, which has an initial margin of 50 percent and a maintenance margin of 35 percent beta of the portfolio is approacimately 20 percent greater than the market. Mike's brokerage account is a Statement of Financial Position 1/1/2020 Statement of Financial Position Mike and Maria Roman Balance Sheet as of 1/1/2020 Liabilities and Net Worth Assets Gasth and Cash Equivalents Liabilities? Home Mortgage Credit Card Balance Visa Cash 35.000 $25,000 $307,808 $2,000 $1.200 $30,000 Savings Account Total Cash and Cash Equivalents Investment Assets Brokerage Account Municipal Hond Portfolio Education Portfolio IRA Total Investment Assets Auto Loan - Mikes Auto Loan - Maria? Total Liabilities $26.444 $9,918 $347.370 $70,000 $20,000 $10,000 $20,000 $120,000 Total Net Worth $335,630 Personal Use Assets Personal Residence Land for Home & Baseball Field Jeep - Maria Ram Truck - Mike Furniture & Personal Property Total Personal Use Assets Total Assets $200,000 $200,000 $18,000 $35.000 $80,000 $533,000 $683,000 Total Liabilities & Net Worth $683,000 1. Assets are stated at fair market value. 2. Liabilities are stated at principal only as of January 1, 2020 (prior to January payments). The Ram truck was financed with a loan of $30,000, six months ago at 3 percent over 48 months The municipal bond portfolio has a modified duration of and a current YTM of 7 percent Chapter 15 m Sets and the Mila Maria Roman Required return - use the required return as stated in the case. For retirement and other long-term goals, assume cash and cash equivalents are added to investment accounts for purposes of projections and asset allocation decisions Assume the education portfolio is not available to fund retirement Assume Social Security benefits begin at age 67. CASE ASSUMPTIONS 15 ptions 851
