You are an authorised representative of Premium Financial Planners. Your new client is Marcus Aurelius who has just won $575,000 in Powerball. Marcus seeks the preparation of a financial plan including a Statement of Advice to maximise his savings for retirement in a logical, efficient and tax effective way.

Your analysis and fact find reveals the following he has just turned 55 and has been widowed for 15 years and has never remarried. He has a 25 year old married daughter and three young grandchildren (none of whom are dependent on him). Marcus lives in his own home, recently valued at $1,000,000 (outstanding mortgage $175,000 at 7.5% pa interest; monthly payment $1,550). Marcus has an everyday savings account (paying 1% pa interest if the balance is less than $3,000, and 1.5% pa interest if balance is over $3,000). The balance in the account is currently $580,000 which is $5,000 plus his recent winnings. For practical purposes Marcus has simply parked the inheritance money in this account. Marcus has a 10 year old car valued at $2,000 (Marcus drives 30,000 km annually, so would like to replace the car within the next 2 years at a change over cost of $25,000), household contents of $150,000 & 200 ABC bank shares valued $20,000 (acquired in the year 2000 for $5,000).

Marcus currently earns $100,000 pa gross; he thinks he is in excellent health although he does have a family history of hereditary heart disease and smokes 3 packets of cigarettes per day and is 20kg overweight. Marcus does have private medical insurance cover. Marcus wants to be a grey nomad when he retires he loves travelling and would like to do the big trip around Australia in 12 months time, costing $25,000. An analysis of his financial situation reveals that he requires $50,000 pa to maintain his current lifestyle. He would also like to target this as his yearly income in retirement.

Marcus wishes to retire from full time work when he is 62. He currently has a balance of $200,000 with an Industry Superannuation Fund (an accumulation type fund, not a defined benefit fund). His employer contributes 9.5% superannuation on top of his salary; salary sacrifice & Transition to Retirement (TTR) arrangements are allowed, though Marcus has not considered this as yet. The current investment asset allocation for

Marcos super is designated as conservative; you have confirmed that that his appropriate risk tolerance classification is balanced. You note that fees associated with his industry super fund are: management expense ratio (MER) 1% pa; monthly member fee of $5; exit fee of $150.

Marcus also has $250,000 death and disability insurance cover included within the super fund. Marco has a current will in place leaving all his estate to his daughter, who is also nominated as his executor. Initial advice is charged by Premium Financial Planners as a flat fee for service of $4,000 for the work involved in the preparation and implementation of strategies in the SOA.

1. Clearly identify the specific goals that Marcus wishes to achieve

2.

a) Explain your role as Marcus financial adviser when specifically advising him about retirement planning.

b) Outline the strategy you would recommend to Marcus to achieve his retirement goal.

c) Make an appropriate assumption for Marcus in relation to life expectancy then calculate the amount he will need to accumulate to fund his retirement income goal. Assume a real rate of investment of 5% pa.

d) Also outline to Marcus what is meant by an account based pension and a transition to retirement pension

e) Marcuss employer allows salary sacrifice to superannuation. Explain to Marco what salary sacrifice is and the advantages and disadvantages associated with it.

f) You have classified Marcus as having an aggressive risk profile.

I. Describe the characteristics of this risk profile

II. Describe the differences between balanced and conservative investors