assignment for personal finance-client scenario?
Paul is a 45 year old single parent with a 5 year old son, Tom. He is a head chef in a CBD located restaurant. He loves his job as it pays reasonably well and gives him the opportunity to create his own dishes, which he really enjoys. For a number of years he has been collecting recipes and even had one of them published in the Australian Women’s Weekly Best Ever Recipes book.
Being the head chef already, Paul does not really have any prospects for further advancement within the current organisation. Paul has no immediate plans to change jobs and will be quite happy staying in the same role up until his planned retirement. Paul would like to retire in 15 years, when he is 60 and then his child would grow up.
Paul is currently earning $ 70,000 pa before taxes. Given the nature of the industry, Paul does not expect significant pay rises in the next 10 years, but believes that his salary will at least keep up with inflation.
The family can live on a budget of $ 35,000 per year for food, clothes, entertainment, minor housing costs, petrol, etc. However, this budget does not include his other major costs of car insurance $ 500 and the family’s health insurance $ 1000. He currently does not have home owner’s insurance but is considering one costing $ 300 pa.
The home owner’s insurance is for $ 200,000 with QBE Insurance Limited. Among his personal property is an antique jewellery collection worth around $ 10,000 that he inherited when his grandmother passed away a few years ago. His car, which is fully paid for, is a 2007 Mazda 6 Hatch currently valued at $ 25,000 and is insured comprehensively with CGU Insurance Ltd with $ 500. Paul does not believe he needs any personal insurance. He does not have any life insurance, and also not have any private health insurance.
Paul owns a $ 250,000 town house and has a mortgage on it of $ 100,000 at a variable rate of 8% pa. The loan has a remaining term of 20 years with monthly repayments. Paul wants the loan to be gone by the time he retires. He would like to renovate his unit within the next three years which should cost around $ 20,000 but will add at least $ 40,000 in value. He would also like to save towards a deposit for an investment property (another similar townhouse) within the next five years.
Paul has a small parcel of direct shares valued at $ 20,000 which earn 5% dividend per year as well as a $ 5,000 term deposit invested with a major bank, earning 6.5%. Paul is not sure whether he should maintain these investments. He also has an ANZ saving account containing $ 20,000 and earning 1% pa interest. He also has a cheque account with ANZ which currently contains $ 3,000 and earns zero interest.
Over the recent years Paul has been concentrating on paying off the home loan, but now is not sure if he should be focusing on pumping money into 401(k) instead. The employer contributes dollar for dollar up to 9% of his salary. Paul has $ 150,000 accumulated in his 401(k) so far. He would like to have a lump sum when he retires that is enough to cover his expected retirement living costs, which he believes will be close to $ 30,000 per year (all inclusive, in today’s terms). Paul feels that the 401(k) will not be enough to get him the required lump sum, and he is considering if he should use his after tax money to set up an IRA. Paul is not sure how he can afford any additional contributions, as in the next 10 years he is planning to take holidays every two years that will each cost $ 2,000. He would also like to continue with his car changeovers every five years, which is expected to cost $ 15,000 net each time. Assumption: Social Security Benefit accounts for 35% of retirement expenditures.
Paul wants to save for Tom’s college by setting up a Coverdell Education Savings Account.
Paul is not happy with his pension fund where his current 401(K) are invested, as it has limited investment options and relatively low returns with the balanced investment option. Paul would like to change to a convenient platform that has a good selection of asset specialised funds that he can tailor to match his aggressive risk profile, even if it means paying higher fees. He would also like a similar investment platform for his non-pension investments.
You have been engaged by Paul as his financial planner and your role is to prepare a comprehensive Pre-Retirement Financial Plan (Statement of Advice) for him based on the information provided.
You are required to answer following questions:
1.What is Paul’s current situation including a table summarising what you consider to be the client’s important details, balance sheet and income statement, including short comments on potential areas of concern with the client’s current financial situation and investment strategies?
2. What are the goals and objectives?
3.How much more life insurance does Paul need to buy? What life insurance policy features would you look for? Do they have adequate health