Statement of Annual Income & Expenses James & Marsha Cross Fall 2019 Cash Inflows James's Salary Marsha's Self-Employment Total Inflows $250,000 $100,000 S350,000 Cash Outflows Planned Savings Cash Accounts Education (529 plan) James 401k /PSP Plan Total Savings SO $6,000 $24,000 $30,000 Taxes Income Tax Property Tax $100,000 $9.000 $127.000 Debr Payments (Principal & Interest, Principal Residence Total Debt Payments $49,500 $49.500 Living Expenses $108,000 $108,000 Insurance Paymens $17.500 $17,500 Total Outflows $332,000 Net Surplus (Deficit) $18,000 Statement of Net Worth James & Marsha Cross Fall 2019 Assets Liabilities and Net Worth Current Asset Cash & Checking Total Current Assets $ 20,000 Current Liabilities Credit Cards Total Current Liabilities $ 11,500 $ 20,000 $ 11,500 $ $ Long-term Liabilities Principle Residence Mortgage $ 900,000 Investment Account: Brokerage Account James's 401k/PSP Plan Marsha Traditional IRA Marsha Roth IRA Total Invesment Assets 27,000 465,000 33,000 16,000 S Total Long-Term Liabilities $ 900,000 $ 541,000 Total Liabilities $ 911,500 Education Assets Riley's UTMA Account 529 Plan for Riley Total Education Assets $ $ 3,000 12,000 $ 15,000 Total Net Worth $ 1,251,000 $ $ Personal Use Asset Principal Residence Lake House Cars Personal Property Total Personal Use Assets 1,000,000 425,000 60,000 90,000 $ $ 1,575,000 2,151,000 Total Assets The Cross's James and Marsha are in their middle years, suggesting that they are in both the asset accumulation and conservation (risk management) phases. James has had a successful career as an executive in a large local company. Marsha has developed a recently successful small business in the local community. They were late to have children and have one chill (Riley). Having a young child clearly establishes the need for life and disability insurance for income replacement(both parents). Marsha's Schedule C income creates the opportunity to establish a self-employed retirement plan. lames maximizes his 401k contributions annually and his company provides a match. In the past they have spent most of their cash surplus on trips, boat, car, and a vacation home. While they have saved for retirement in lames's 401k they have no cash reserve assets and limited college savings for Riley. They are now ready to make a plan and get serious about saving for the future. PERSONAL AND FINANCIAL OBJECTIVES They would like to have an adequate cash reserve in cash of an emergency They want to provide for Riley's education. They want to retire debt free when James reaches age 67 (when he will retire). They need adequate retirement income. They want to have investment portfolio that will deliver an adequate rate of return to meet the retirement and education objectives. James is primarily concerned with providing income to Marsha for the duration of her life. Current Objectives The Cross's would like to determine what their cash reserve should be if they want to have 6 to 9 months worth of living expenses in an emergency fund. 2. The Cross's want to determine the amount of money to fully fund Riley's college education today using a 529 Savings Plan 3. James still has a goal to retire at age 67. Capital needs analysis is required (annuity due model) to know how much funding is needed to provide for Marsha's through her age 95 Marsha will retire with James at her age 62). Any funding deficit of retirement needs will create the need for current annual year-end funding. They do not plan on leaving any retirement assets to Riley - just the real estate 4 The Cross's want to understand what their savings rate (ratio) would be for them to reach the objectives and if the rate is reasonable 5. The Cross's want a full review of their investment portfolio. They would like to know what the rate of return expectation would be for a 52% Large-Cap Stock, 18% Small-Capstock, 30% Long-term Government Bonds and if it will meet their objectives Question #1: Given the Cross's objective for a 6-9 month emergency reserve what is the amount they would need to have in their cash savings (use debt, living expenses, and insurance outflows to do the calculation)? Is their current cash savings adequate? (6 points - SHOW YOUR WORK) Questions#2: What is the Weighted Average Return (WAR/? Is WAR adequate? If inflation is 3% what is the Real Rate of Return? (SHOW YOUR WORK). Question #3: How much will the Cross's need to save on a monthly hasis to meet their Retirement objectives in 17 years? Assume that they will need to plan until Marsha's age 95. Assume Social Security starts at retirement Assume their Retirement Spending needs will equal current Living Expenses, Insurance Expenses, Property Tax, and 1/4 current Income Taxes (indexed for inflation) at the beginning of retirement. Keep in mind James's company 401k match and Profit Sharing Plan contributions. (SHOW YOUR WORK) (EXTRA CREDIT: Where would be the next best place to save after James's company retirement plan?) Question 14 How much will the Cross's need to save monthly in their 529 education fund until Riley's age 18 to pay for college costs assuming they will need to make the first of 4 annual payment at the beginning of Riley's first year? (SHOW YOUR WORK) Questions: Given the savings targets to meet education and retirement objectives what is the total annual amount of the projected savings? What is their projected cash flow savings rate? Does it seem reasonable and do they have adequate cash surplus to meet the targets? (SHOW YOUR WORK). Statement of Annual Income & Expenses James & Marsha Cross Fall 2019 Cash Inflows James's Salary Marsha's Self-Employment Total Inflows $250,000 $100,000 S350,000 Cash Outflows Planned Savings Cash Accounts Education (529 plan) James 401k /PSP Plan Total Savings SO $6,000 $24,000 $30,000 Taxes Income Tax Property Tax $100,000 $9.000 $127.000 Debr Payments (Principal & Interest, Principal Residence Total Debt Payments $49,500 $49.500 Living Expenses $108,000 $108,000 Insurance Paymens $17.500 $17,500 Total Outflows $332,000 Net Surplus (Deficit) $18,000 Statement of Net Worth James & Marsha Cross Fall 2019 Assets Liabilities and Net Worth Current Asset Cash & Checking Total Current Assets $ 20,000 Current Liabilities Credit Cards Total Current Liabilities $ 11,500 $ 20,000 $ 11,500 $ $ Long-term Liabilities Principle Residence Mortgage $ 900,000 Investment Account: Brokerage Account James's 401k/PSP Plan Marsha Traditional IRA Marsha Roth IRA Total Invesment Assets 27,000 465,000 33,000 16,000 S Total Long-Term Liabilities $ 900,000 $ 541,000 Total Liabilities $ 911,500 Education Assets Riley's UTMA Account 529 Plan for Riley Total Education Assets $ $ 3,000 12,000 $ 15,000 Total Net Worth $ 1,251,000 $ $ Personal Use Asset Principal Residence Lake House Cars Personal Property Total Personal Use Assets 1,000,000 425,000 60,000 90,000 $ $ 1,575,000 2,151,000 Total Assets The Cross's James and Marsha are in their middle years, suggesting that they are in both the asset accumulation and conservation (risk management) phases. James has had a successful career as an executive in a large local company. Marsha has developed a recently successful small business in the local community. They were late to have children and have one chill (Riley). Having a young child clearly establishes the need for life and disability insurance for income replacement(both parents). Marsha's Schedule C income creates the opportunity to establish a self-employed retirement plan. lames maximizes his 401k contributions annually and his company provides a match. In the past they have spent most of their cash surplus on trips, boat, car, and a vacation home. While they have saved for retirement in lames's 401k they have no cash reserve assets and limited college savings for Riley. They are now ready to make a plan and get serious about saving for the future. PERSONAL AND FINANCIAL OBJECTIVES They would like to have an adequate cash reserve in cash of an emergency They want to provide for Riley's education. They want to retire debt free when James reaches age 67 (when he will retire). They need adequate retirement income. They want to have investment portfolio that will deliver an adequate rate of return to meet the retirement and education objectives. James is primarily concerned with providing income to Marsha for the duration of her life. Current Objectives The Cross's would like to determine what their cash reserve should be if they want to have 6 to 9 months worth of living expenses in an emergency fund. 2. The Cross's want to determine the amount of money to fully fund Riley's college education today using a 529 Savings Plan 3. James still has a goal to retire at age 67. Capital needs analysis is required (annuity due model) to know how much funding is needed to provide for Marsha's through her age 95 Marsha will retire with James at her age 62). Any funding deficit of retirement needs will create the need for current annual year-end funding. They do not plan on leaving any retirement assets to Riley - just the real estate 4 The Cross's want to understand what their savings rate (ratio) would be for them to reach the objectives and if the rate is reasonable 5. The Cross's want a full review of their investment portfolio. They would like to know what the rate of return expectation would be for a 52% Large-Cap Stock, 18% Small-Capstock, 30% Long-term Government Bonds and if it will meet their objectives Question #1: Given the Cross's objective for a 6-9 month emergency reserve what is the amount they would need to have in their cash savings (use debt, living expenses, and insurance outflows to do the calculation)? Is their current cash savings adequate? (6 points - SHOW YOUR WORK) Questions#2: What is the Weighted Average Return (WAR/? Is WAR adequate? If inflation is 3% what is the Real Rate of Return? (SHOW YOUR WORK). Question #3: How much will the Cross's need to save on a monthly hasis to meet their Retirement objectives in 17 years? Assume that they will need to plan until Marsha's age 95. Assume Social Security starts at retirement Assume their Retirement Spending needs will equal current Living Expenses, Insurance Expenses, Property Tax, and 1/4 current Income Taxes (indexed for inflation) at the beginning of retirement. Keep in mind James's company 401k match and Profit Sharing Plan contributions. (SHOW YOUR WORK) (EXTRA CREDIT: Where would be the next best place to save after James's company retirement plan?) Question 14 How much will the Cross's need to save monthly in their 529 education fund until Riley's age 18 to pay for college costs assuming they will need to make the first of 4 annual payment at the beginning of Riley's first year? (SHOW YOUR WORK) Questions: Given the savings targets to meet education and retirement objectives what is the total annual amount of the projected savings? What is their projected cash flow savings rate? Does it seem reasonable and do they have adequate cash surplus to meet the targets? (SHOW YOUR WORK)