Today is January 1, 2014 The Family Alan and Angel Young both 36 years old My Young recently accepted a job making $93K a year Mrs. Young currently unemployed Two children (ages 4 & 2) Dog and a cat Both are licensed lawyers and have been married for eight years The Extended Family Mr Young has a mother in her 60s who is living far away and is modestly self sufficient Mr Young has two siblings both married and self sufficient Mr Young inherited $400K from his late Uncle Fred who was 100 years old when he died and had worked everyday of his life. He has spent the inheritance down to $200K Mrs Young has one brother who is married, wealthy and has two children Mrs Youngs mother is a pharma distributor and lives in another state she is 60 and self sufficient Mrs Youngs father lives in the same town as the Youngs and her brother self sufficient and healthy Mrs Youngs Father (Trust 1) Mrs Youngs father set up a trust for the benefit of Mrs Young. Her brother is trustee but it is really controlled by the father. The trust distributes $30K/year to Mrs Young. The balance is $700K 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. Economic Info Inflation averages 3% for last 20 years and expected to continue at 3% Bank lending rates: 15 year 3.25%; 30 year 3.75%; Any closing costs associated with refinance are 3% and included in refinanced mortgage Expected rate of return 8.5% Residence Current value $550K; Balance on 30 year mortgage at 5.5% $260,514; Land value $150K; Monthly payment (P&I) $1703.37; Owned home for 8 years; Not qualify for refi until Mr Young in new job 1 year Insurance Life - No life insurance; Mr Young expects $50K group term from new employer Health Covered under Mr Young employer plan; Cost $1K/month for family Disability No disability; Mr Young will be covered for LTD provided by employer at 65% of gross pay Homeowner HO3 with open perils and replacement value; $250 deductible; Dwelling covered $300K with 80/20 coinsurance clause; Premium $2400/year Auto - $250 deductible; 100/300/50; Premium $1800/year Assets Bank account $28K JT Inherited portfolio $200K H Brokerage account $67K W 401K $32K JT Residence $550K JT Auto 1 $40K W Auto 2 $25K JT HH Items $150K JT Liabilities Mortgage $260514 JT Other Financial Annual contributions to 401K $17500 SS Taxes $7115 Federal WH $10384 State WH $3715 Property tax $3000 Tuition to preschool $15K Utilities $2400 Entertainment $7500 Cable $1200 Clothing $2000 Auto maint/gas $3000 Food $9600 Investments Investment portfolio $200K Brokerage account includes gifts from Mrs Youngs father invested in money market account at 0% earnings 401K from Mr Youngs prior job invested in index fund PASS Score = 26 Estate Info No estate planning documents Goals and Concerns Want proper insurance, investment and estate portfolio Want to know cost of college education for the 2 children so they can approach Mrs Youngs father about funding a 529 plan. Current cost of education $35K in todays dollars with expected 5% inflation. Expect children in school six years each and expect rate of return 8.5% Want to plan for early retirement (100& WRR, excluding trust income) at age 62. Mr Young to save $17500/yr in 401K with an employer match of $6K. Expect to live to age 90. Do not include SS benefits in planning. Want to be debt free at retirement Analysis 1 - Prepare personal financial statements and pie charts using the data given 2 - Prepare an analysis of the Youngs risk management using the following format: METRIC ACTUAL RECOMMEND COST/SAVINGS Life H Life W Disability H Disability W Health LTC Property Home Property Auto Liability 3 Calculate the following & comment on each (show calculations): 15-Year mortgage refinance and savings Emergency fund ratio Current ratio Housing 1 Housing 2 4 Calculate the PV of each childs college education (Use real vs nominal approach) 5 Calculate the PV of the Youngs retirement needs at age 62 (nominal $) & calculate the PV of the Youngs retirement needs now at age 36 (real $ in todays $) 6 Analyze the risk tolerance and asset allocation for the Youngs using the PASS score 7 Describe the estate planning documents the Youngs need immediately and what are the important provisions of each? If you recommend powers, who is the power holder?