Financial Planning Case Challenge

Case 5
Prepared by : Benjamin Lau
Eugenia Cheng
Jia Hui Chan
Esther H’ng
Introduction (Abigail)

 57 years old
 Single with one child (aged 26)
 Divorced (12 years ago)
 Likes to cook and travel
 Travels a lot for work
(in U.S & Canada)
Primary Goals and Objectives
Abigail’s Financial Information
Financial Layout (Asset)
Total Assets Amount (In
Assets thousands)
Checking account 35
2% Checking 401k 496
account Company Stocks 250
45% Invested Brokerage assets 450
Car 43
53%
House 750
Personal
Use Jewelry 75
Furniture &
household items 150
2,249
Financial Layout (Liabilities)
Total Liabilities

Liabilities Amount
Mortgage
8% Credit Card original amount 305,000
debt
Payment 2017 28,992
Monthly
Remaining payment 2,416
mortgage
Remaining
92% balance
Balance 246,964
 Mortgage payments

Mortgage Eau Claire home: 15 years

Original Amount (@5.2%) 305,000 305,000

Monthly PITI 2416 2444

2017 annual payment 28,992 29,325

Ending Principal Balance 226964 228296

Mortgage payments
Year Total payments Principal paid Interest paid Ending
Principal
Balance
0 305,000
5 29326 16973 12353 228296
6 29664 17658 12005 210638

14 31247 27872 3374 30021

15 31288 30021 1266 0
Goal 1: Retiring at 67

Retiring at full benefits age

Fully payoff mortgage at retirement

Additional funds for Lake Cabin

Increase 401k value

401k Recommendations

Recommended 401k Portfolio Mix

U.S. Stock
30% 35%
Non U.S. Stock

Bond
5%
30% Short-term
Treasury
Abigail’s current investment holdings (401k)
Stocks 40%
Mid-Cap: FSCKX
40%
Small-Cap: FSSVX
20%
Large Cap: EILVX
Abigail’s new investment holdings (401k)
30%
Short-term Treasury: VMMXX
30%
Bond/Stable Value: VBTLX
15%
Blended: VTTVX (Target-date)
10%
Blended: OAKBX
Abigail’s new investment holdings (401k)
Stocks 5%
(Index Fund)
Mid-Cap: FSCKX
5%
Small-Cap: FSSVX
5%
International: FSIVX
401K Value Estimation
Balance with Employer Match
1400000

1200000 1145776
1062079
983215
1000000
908907
838891

800000 772919
710757

Balance
652186
596998
600000 544997
496000

Matrix book US (2016) 400000

200000

0
57 58 59 60 61 62 63 64 65 66 67
Age
Abigail’s current investment holdings (mutual funds)
Current Asset Allocation Recommended Asset Allocation

US Bond
35%
US Treasury
30%
Large-Cap Fund
16%
Mid-Cap Fund
8%
Small-Cap
Fund
6%
Internationa
l Fund
5%
Brokerage Account and Company Stock
(Comparison)

Accounts Before After

Company Stock $250,000 0
Brokerage Account $450,000 $692,500

250,000 - (50,000*0.85) = 242,500

242,500 + 450,000 = 692,500

Assumptions: $200,000 initially investment

$50,000 capital gains
Abigail’s new brokerage account holdings (mutual funds)

New Balance
Estimated Investment Returns
Abigail Financial Information

Home
• HO-3

Auto
• Collision, comprehensive, liability
• 50k/100k/300k

Welfare
• Health, Disability and Life
• Health and Disability
• Medicare in the future
• Whole life insurance
Home Insurance - Special Form (HO-3)
Dwelling: $600,000
Contents: $150,000 ACV
Liability: $1,000,000
Auto Insurance
Original Cost $43,000
(Paid off loans)
Collision : $100,000
Comprehensive : $300,000
Liability : $50,000
Life Insurance

 Term Life  Whole Life

 $400,000 Face value  $250,000 Face value

 Terminate at age 70  $30,000 Cash value
 Bought 15 years ago

Term life + Whole life

To beneficiaries before age 70: $650,000
To beneficiaries after age 70: $250,000 (no mortgage left)
Other Welfare Benefits

 Company's provided benefits

 Disability insurance
 Health insurance (paid until Medicare being execute)
Long-Term Care Insurance

 Long-Term Care Insurance

Nursing Home (private Home Health Aide

room)
Monthly Benefit Amount $8,874 $4,667
Monthly Estimated $547 $288
Premium
Rate per hour - $24.31
Rate per day $291.73 -
Abigail’s Cash Flows
Current Average Sources
Expenses
Mortgage (PITI) $ 28,992.00 $ 28,992.00 Original
Insurance Premiums $ 12,500.00 $ 12,500.00 Original
Benefits $ 8,500.00 $ 8,500.00 Original
Utilities $ 8,000.00 $ 2,184.00 EC Numbeo
Medical $ 5,200.00 $ 5,200.00 Original
Food - Groceries $ 8,400.00 $ 4,049.00 BLS
Food - Restaurants $ 8,500.00 $ 3,154.00 BLS
Auto- Fuel/Repairs $ 6,500.00 $ 4,785.00 BLS
Clothing $ 7,700.00 $ 1,803.00 BLS
Entertainment $ 8,000.00 $ 2,913.00 BLS
Hobbies $ 11,500.00 $ 2,913.00 BLS
Travel (Fun) $ 18,500.00 $ 2,000.00 Expedia
Gifts $ 9,450.00 $ 700.00 Time
Unknown $ 29,258.00 $ 3,933.00 BLS
Total $ 171,000.00 $ 83,626.00
Surplus $ - -
 Goal 1&2 - Abigail’s Cash Flows: If she retires at 67
Age 57 64 67 68

Income $250,000.00 $250,000.00 $250,000.00 $0.00

Payroll Taxes $55,000.00 $55,000.00 $55,000.00 $0.00

$195,000.00 $195,000.00 $195,000.00 $0.00

Expenses before 67 Surplus till 67
Savings

401(k) contributions $12,000.00 $12,000.00 $12,000.00 $0.00 ~52% of current

~$70,000
Company Stock Plan $6,000.00 $0.00 $0.00 $0.00 expenses
Taxable Account $12,000.00 $12,000.00 $12,000.00 $0.00

Emergency Fund Goal $0.00 $5,000.00 $5,000.00 $0.00

Total $24,000.00 $29,000.00 $29,000.00 $0.00
~$670,000 (total)
Expenses
Mortgage (PITI) $28,992.00 $31,054.00 $31,289.00 $0.00

Insurance Premiums $12,500.00 $12,500.00 $12,500.00 $12,500.00 Expenses after 67

Benefits $8,500.00 $8,500.00 $8,500.00 $8,500.00
Utilities $8,000.00 $2,000.00 $2,000.00 $2,000.00
Medical $5,200.00 $5,200.00 $5,200.00 $5,200.00
Food - Groceries $8,400.00 $3,000.00 $3,000.00 $4,000.00 ~30% of current *Assuming Life expectancy of 100
Food - Restaurants $8,500.00 $3,000.00 $3,000.00 $1,550.00
Auto- Fuel/Repairs $6,500.00 $6,500.00 $6,500.00 $4,000.00 expenses
Clothing $7,700.00 $1,700.00 $1,700.00 $1,700.00 **All expenses adjusted to 3%
Entertainment $8,000.00 $2,500.00 $2,500.00 $2,500.00
Hobbies $11,500.00 $5,000.00 $5,000.00 $5,000.00
inflation except mortgage
Travel (Fun) $18,500.00 $3,000.00 $3,000.00 $3,000.00 ~$2.9 million
Gifts $9,450.00 $2,450.00 $1,450.00 $1,450.00
Unknown $29,258.00
Total $171,000.00 $88,996.12 $88,208.17 $52,942.00
Surplus $0.00 $77,003.88 $77,791.83 -$52,942.00
Recommended Emergency Fund Goal

Abigail Age 58 Age 59

• $171,000 • $60,000 • $33,250

• $128,250 (9 months)
• $35,000 current
Goal 3:
Planning for her daughter’s wedding & honeymoon

(~$17,600 Needed)
Goal 4 - Education Funds (529 Plans)
One Year Four Years Forecast at 2041 Abigail’s
(5% inflation per Contribution
year) (44%)
UWEC Cost
$16,100.00 $64,400 $197,806.13 $87,035

Average Cost
$21,728 $86,912 $266,952.27 $117,459

529 College Savings Plan Setting up a trust as successor

• $8,000 annually • Scholarship to UWEC
• 10 years
• 4% Treasury Withdrawal:
• 10% tax penalty & Income tax

$111,733 (95% of average)

Goal 5 - Travel expenses
Abigail’s Current Travel Expenses:$18,500 (Flight, hotels, and transport)
Entertainment and Hobbies:$8,000 , $11,500
COPENHAGEN

1 week 1 month Christmas

• $2,000 - • $1,000 - • $2,000 -
$5,000 $4,000 $5,000
TBILISI

Hotel Rates VS Homestay:

• $600 - $2460 VS. $200 - $500

SAN SEBASTIAN
Goal 6 - Lake Cabin

Age 67
• Purchase less than $150,000
• Surplus
• Consider other costs of
maintaining the cabin
Recommended Assisted Living Plan
 Average Annual Cost: $41,724.00
 Total amount adjusted for 3% inflation from age 80 to 90:
$1,054,669.77

Social Brokerage Surplus Jewelry Vehicle

Security Account • $141,358.40 • $75,000 • After
Benefits • $550,423.95 Depreciation
$10,000
• Total $527,604
after 15% tax
at Year 2037
Consistent Income Post-Retirement
Annuity planning

Withdraw $400,000 $1,400,000 annuity

$1,000,000 rollover planning capital.
from Brokerage
from 401K,
Account, R = 5%, $7377 monthly,
$145,776 remaining in beginning 2028.
$550,424 remaining in
funds
funds

Amount
Income from annuity if live until 100 $ 2,915,931.00
Expenses if live until 100 ~$ 2,900,000.00
Net positive ~ $ 15,931.00
Estate Planning
• Assuming no growth:
Whole life insurance $650,000
Home $750,000
Car $0
• Other assumptions:
Remaining 401k $550,424
(32years, $147,776, 6.13%)
Remaining emergency fund $128,250
Plan $ to $ to $ to Heirs Total
Liabilities Education
and Fees or Charity

Possible $10,000 $87,035 $1,678,674 $1,775,709

plan
Brief Summary
SWOT Analysis

Strengths Opportunities
Insurances safe Increase in income
Essentials are covered Better money management

Weaknesses
Weak cash flow
High expenses Threats
No emergency funds Economic Downturn
Risky mutual fund portfolio Sudden loss of income
Low liquidity Pending legislation changes
Outdated will (Taxes)
Limited disability insurance
Overview

Can Abigail not be a burden to her

daughter after retirement and fund her
granddaughter’s education?

When should Abigail purchase her cabin

of her dreams?

Can Abigail fund her daughter’s

wedding and travel to Europe before
retirement?

When should Abigail retire ?

64 or a few more years > 64 ?
Overview

Education funds, Estate

planning

Long term care, Whole life

insurance, Market Correction

Travel goals, Perpetual income,

Fund wedding, Buy Lake Cabin

Expenses till age 100

Questions?
Appendix
Surplus Calculation
Surplus $ 674,613.20
Wedding & Honeymoon $ 17,509.80
Education $ 80,000.00
Cabin $ 146,929.00
LTC $ 288,816.00

Remaining (Assisted Living) $ 141,358.40

Lake Cabin Opportunity Cost
 Proposed Cash Flow – Adjusted to inflation
Age 57 58 59 60 61 62 63 64 67 68
Income $250,000.00 $250,000.00 $250,000.00 $250,000.00 $250,000.00 $250,000.00 $250,000.00 $250,000.00 $250,000.00 $0.00
Payroll Taxes $55,000.00 $55,000.00 $55,000.00 $55,000.00 $55,000.00 $55,000.00 $55,000.00 $55,000.00 $55,000.00 $0.00
$195,000.00 $195,000.00 $195,000.00 $195,000.00 $195,000.00 $195,000.00 $195,000.00 $195,000.00 $195,000.00 $0.00

Savings
401(k) contributions $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $0.00
Company Stock Plan $6,000.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Taxable Account $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $0.00
Emergency Fund Goal $0.00 $60,000.00 $33,250.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $0.00
Total $24,000.00 $84,000.00 $57,250.00 $29,000.00 $29,000.00 $29,000.00 $29,000.00 $29,000.00 $29,000.00 $0.00

Expenses
Mortgage (PITI) $28,992.00 $29,664.00 $29,973.00 $30,253.00 $30,502.00 $30,719.00 $30,903.00 $31,054.00 $31,289.00 $0.00
Insurance Premiums $12,500.00 $12,500.00 $12,500.00 $12,500.00 $12,500.00 $12,500.00 $12,500.00 $12,500.00 $12,500.00 $12,500.00
Benefits $8,500.00 $8,500.00 $8,500.00 $8,500.00 $8,500.00 $8,500.00 $8,500.00 $8,500.00 $8,500.00 $8,500.00
Utilities $8,000.00 $4,000.00 $3,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00
Medical $5,200.00 $5,200.00 $5,200.00 $5,200.00 $5,200.00 $5,200.00 $5,200.00 $5,200.00 $5,200.00 $5,200.00
Food - Groceries $8,400.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $4,000.00
Food - Restaurants $8,500.00 $5,440.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $1,550.00
Auto- Fuel/Repairs $6,500.00 $6,500.00 $6,500.00 $6,500.00 $6,500.00 $6,500.00 $6,500.00 $6,500.00 $6,500.00 $4,000.00
Clothing $7,700.00 $1,700.00 $1,700.00 $1,700.00 $1,700.00 $1,700.00 $1,700.00 $1,700.00 $1,700.00 $1,700.00
Entertainment $8,000.00 $5,000.00 $5,000.00 $4,000.00 $3,000.00 $3,000.00 $3,000.00 $2,500.00 $2,500.00 $2,500.00
Hobbies $11,500.00 $8,000.00 $6,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00
Travel (Fun) $18,500.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00
Gifts $9,450.00 $5,450.00 $3,450.00 $2,450.00 $2,450.00 $2,450.00 $2,450.00 $2,450.00 $1,450.00 $1,450.00
Unknown $29,258.00
Total $171,000.00 $97,954.00 $93,547.69 $89,716.09 $88,942.56 $89,166.07 $89,355.59 $88,996.12 $88,208.17 $52,942.00
Surplus $0.00 $13,046.00 $44,202.31 $76,283.91 $77,057.44 $76,833.93 $76,644.41 $77,003.88 $77,791.83 -$52,942.00

33 Years
T.Surplus(10 yrs): $674,613.20 $656,613.20 $57,248.31 Expenses $2,915,931.07

$128,250.00
Emergency $93,250.00
Total Fund
Goal (9months)
Mortgage Payment Schedule - DinkyTown
Social Security Benefits: December
2027~2037
Social Security Benefits (at age 67)
Amount from Social Security Benefit
600000

530586
Accumulated Amount

500000 480054

429522

400000 378990

328458

300000 277926

227394

200000 176862

126330

100000 75798

25266

0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
67 68 69 70 71 72 73 74 75 76 77

Age at Year
Social Security Benefits (2027) – Invested at 4%

Age Amount received Cumm SSB INVESTED @4%

67 25266 26277
68 50532 75798 78830
69 50532 126330 131383
70 50532 176862 183936
71 50532 227394 236490
72 50532 277926 289043
73 50532 328458 341596
74 50532 378990 394150
75 50532 429522 446703
76 50532 480054 499256
77 50532 530586 551809
78 551809 573882

If withdraw
with 15%
79 573882 596837 tax
80 596837 620711 527604
Brokerage account
Human Life Value Analysis