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 every day 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 a 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. The current cost of education $35K in todays dollars with an expected 5% inflation. Expect children in school six years each and expect a 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 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 Youngs retirement needs at age 62 (nominal $) & calculate the PV of 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 Youngs need immediately and what are the important provisions of each? If you recommend powers, who is the power holder?