Financial Planning and Wealth Management – Long case studies

Case 1:

Miss Kerry is working with TESCOs Horsham, West Sussex. She is on a day shift and works additional
shifts on weekends to meet her routine expenses. She has moved from her parents’ house recently, post
her graduation in Retail Management. She works in the operations side in this TESCO mall. She has a
brother who is married and well settled in London. He is a finance analyst. Her friends, Jane, Janice and
John form her circle of friends. She has no addiction and is healthy. She is registered for the NHS
schemes of the UK government, which takes care of the future health issues, if any. She is a social drinker
and does not have too many late nights. Her immediate superior, Mr. William, is a professional and a
dedicated worker at TESCO. He is very caring and supportive a well. On one occasion, Ms. Rachel, who
was working with TESCOs since last 30 years was to retire in a couple of days and the employees has
planned a farewell for her. Kerry was given the task to arrange the food for the farewell party. With
conversing with Rachel during the lunch break, Kerry found that Rachel was subdued and looked sad.
On inquiring whether her Rachel had a down mood due to her impending retirement, Kerry was
shocked to hear that Rachel was sad, as she did not have a retirement corpus or plan in place and her
retirement was going to hit her bad financially, especially in line of her pending house loans, her kid’s
college education and her recent divorce which had taken a big hit on her savings. She mentioned to
take up a job elsewhere as TESCOs did not allow her to continue on an hourly or part time basis as well.
Further, she mentioned to Kerry, that, had she planned her retirement and finances more effectively,
she would not have been in such a position as of now. Hearing her side of the story Kerry has a spike in
her spine and anxiety entered her thoughts. Even though she was just 20 years old, she had never
thought of any financial goals and plans including retirement plans. Kerry was surprised that she at her
young age, was a deterrent to all such ideas, on money management as even though had a decent income
and carefree of what was to come in the future. However, after discussing the same with her friends,
they all realized that they needed a much better financial plan. Among the various ideas, Kerry decided
to work on her retirement goal as savings started from a very young age would add to a better corpus
due to the added advantage of compounding. Kerry approaches you, the financial planner as a client.
She decides to put an equal amount of funds aside every year for the next twenty years. Considering the
future cost of living, she wants to withdraw fifty thousand pounds per year for twenty years once she
retires at age sixty. Her first withdrawal to be on her sixty first birthday. Suggest how much amount she
should keep aside each year for her retirement if these savings and investments earn her a ten percent
return on her funds based on her risk aversion index. Ignore taxes and inflation. What would be your
answer in the following other situations:

i. She is 30 years old now and will invest till age of 40 only.
ii. She expects a conservative return of nine percent considering the uncertainty of the future in
lieu of twelve percent as envisaged by the financial planner.
iii. She has an Aunt Ms. Kim, who is 40 years old and plans to retire at sixty but is a risk taker and
expects a fourteen percent return due to higher equity exposure in her investments. Calculate
her corpus at age 40, assuming Kerry financial data being the same as applicable to her.
Case 2:

Kitty is employed with DBI Bank. She is single, aged twenty-seven and marriage is not on the cards at
present. She has completed her Masters in Finance and had joined the bank a few years back. Her job
profile consists of Customer facing roles and Client acquisition for investment and retirement plans.
She was a high achiever and with her pleasing personality, aptitude, good enunciation skills and
convincing power, she has been in the top three target achievers for the Bank for the last three years.
She is highly motivated and enjoys her work very much. Due to her good performance she has been
posted to Dubai as a Senior Business Development Officer. As a part of her new job profile, she was to
develop and manage the High Net Worth Individuals (HNI) wealth. Wealth Management was her niche
domain in her job profile and she was to acquire and manage new HNI clients. One of her new clients
was Ms. Penny from Norway who was employed as a Marketing CEO at DD Water Sports Private
Limited, a pioneering company in Water sports in Dubai. She had an annual income of Dirhams (DH)
300,000. Ms. Penny’s living costs in Dubai consisted of rent payments, utility bills, routine food and
maintenance expenses and local conveyance. Her total current level of expenses came to 180,000 DH.
She did not have any loans or any other annuity of liabilities. Kitty was to prepare a retire portfolio for
Penny. On gathering information from Penny, Kitty estimates that Penny meet her post retirement
expenses equal to seventy percent of her pre-retirement expenses. However, Kitty who had come
across a report on inflation in Dubai, wanted to adjust the plan for inflation which is six percent. She
plans to maintain a diversified portfolio for Penny with a higher exposure to equity considering the
volatile Dubai Financial Markets with an aim to generate a ten percent return on Penny’s portfolio.
Penny wants to know her retirement corpus, if she wishes to retire at age sixty and hopes to live for
another twenty years after that, she is twenty-seven at present. Assume withdrawals are done at end
of year.

i. What would be your answer in case Penny is 37 years old with an investment return expectation
of thirteen percent? Assume withdrawals are done at end of year.
ii. What would be your answer in case she is? a) Aged 35 b) Aged 36 c) Aged 45 other things
remaining the same as in original data
iii. Would your original answer change if the inflation is estimated at 8% other things remaining the
same? If yes, what would it be?
iv. Would your original answer change ifthe Inflation is estimated at 4% other things remaining the
same? If yes, what would it be?
v. Would your original answer change if the post-retirement expenses are estimated at 80% of the
pre-retirement expenses other things remaining the same? If yes, what would it be?
vi. Would your original answer change if the post-retirement expenses are estimated at 90% of the
pre-retirement expenses other things remaining the same? If yes, what would it be?
Case 3:

Mr. Ramesh is employed with Wonderla Apparel Mall, a high Mall for Designer Clothing outlet in Oxford
Street, London. He is a designer and is well known for his unique designs in men and women wear. He
has recently started kids wear design in the previous few weeks and they have been a super hit with
the customers. The other sales of the firm have picked up in view of the upcoming festive season. Due
to his contribution the owner has increased Ramesh’s salary to Rs. 6,00,000 per annum. His current
living costs are Rs. 3,00,000. A friend of his, Ms. Karishma advised him to approach a wealth
management adviser and get proper financial plans laid down. She directs him to her personal financial
planner, Mr. Rupayewala and asked him to take an appointment, which Ramesh did. Mr. Rupayewala,
collected the information based on a questionnaire from Ramesh, his client and found that Mr.
Ramesh`s post retirement expenses would be eighty percent of his preretirement expenses. His analysis
revealed that inflation would be on an average of six percent. A detail study of his net worth indicated
that at present he has Rs. 8 lakhs invested in various asset classes across equity and debt. Mr. Ramesh
indicated that he expects to generate a return of 12.20% on his investments till the time of retirement
and thereafter 9.75%. His aim is to retire at age 60 and expects to live for another twenty years. His
current age is 45 years. As an analyst you are requested to answer the following:

i. What will be the Clients real rate of return during retirement days, i.e. post retirement?
ii. How much would be the amount of annual retirement expenses during the first year of
retirement
iii. His retirement corpus would add up to what amount
iv. Calculate the amount to be saved annually to reach his retirement corpus
v. Calculate the amount to be saved monthly to reach his retirement corpus
vi. Recalculate the answers from (a) to (e), assuming that his age is 35 and inflation is 8%, other
data remaining the same
vii. Recalculate the answers from (a) to (e), assuming that his pre-retirement returns expectations
are 10% and post retirement are 9% per annum, other data remaining the same.
Case 4:

Ms. Hillaree, a Chinese national working for Xi-Bill Private Limited, a toy design and manufacturing
company. She is a specialist in children toy designing. She was always fascinated since childhood to live
and work near the Himalayas and hence, she took a voluntary retirement from her current employer in
China. She is 55 years old at present. Immediately post retirement, she migrated to Arunachal Pradesh
and secured a job with a private company. Her employer is based in Arunchal Pradesh. She has over 30
years of experience in designing children toys and her role as designer for various children toys has
helped her get a secured job in the company. She speacialises in designing toys for age groups 4 to 14.
She plans to reside in India permanently. Her employer informed her that there is no social security in
India post retirement unlike in many other countries and that she needs to plan the same. She
approached a wealth management adviser to help her plan her finances. Her current annual income
was Rs. 600,000. The living costs amounted to Rs. 300,000 and she suggested that she could meet her
post retirement expenses amounting to eighty percent of the preretirement expenses. The inflation
would be on an average at six percent and at present she has a cash balance of Rs. 500,000 savings,
which she accumulated and brought from China. Considering the uncertainity post retirement, she
plans to take up a part time job during retirement generating her an income of rupees two lakhs per
annum and hopes to continue with it. The increment is expected to match the inflation. Her financial
advisor has recommended a portfolio of various investment in diverse asset classes, giving her a pre-
retirement of 10.8% and post retirement a return of 9.40%. She plans to retire at age 60 and fulfill her
childhood dreams of spending more time in the Himalayas, and undertaking adventure of trekking in
these beautiful mountains. She has a life expectancy of eighty years. You are required to calculate the
following:

i. Compute the real rate of return during retirement

ii. Estimate the first year’s expenses after retirement
iii. Calculate the corpus to be accumulated at time of retirement, at age 60
iv. Calculate the retirement corpus, if she does not intend to take up the part time job during
retirement
v. What would be the annual savings required to achieve the retirement corpus in point 3
vi. What would be the monthly savings required to achieve the retirement corpus in point 3
vii. Recalculate answers to point 1 to 6, if her age today was (a) 45 and (b) 35
Case 5:

Mr. Dharmesh is working at M/s. BKC designers as an assistant designer. He has worked in the design
industry since last twenty years and has contributed innovative ideas. The Laser drone with night
vision – ‘Andheri-Udaan’ being his recent design. He is 50 years old at present. His current annual
income is Rs. 500,000. His current annual expenses are Rs. 300,000. He can meet his retirement
expenses with 80% of pre-retirement expenses. Consider inflation is 6%. He wishes to retire at age 60
and hopes to survive for 20 years after that. Expected equity returns @ 15% per annum and debt
returns @ 8% per annum. His advisor has advised him for a 60%:40% asset allocation in favor of equity
till retirement and thereafter 80%:20% in favour of debt. He intends to plan an overseas trip to Bhutan,
a peace-loving nation with his family at retirement, which may entail Rs. 300,000 now. You are
requested to:

i. Calculate the pre-retirement rate of return

ii. Calculate the post retirement rate of return
iii. Calculate the real rate of return during retirement
iv. What will his first year’s expenses after retirement?
v. Calculate his retirement corpus at age 60 including for overseas trip.
vi. What will be the monthly saving required for achieving the required retirement corpus
including overseas trip?
vii. What will be the yearly saving required for achieving the required retirement corpus including
overseas trip?
viii. What will be the yearly saving required for achieving the required retirement corpus excluding
overseas trip?
ix. What will be the monthly saving required for achieving the required retirement corpus
excluding overseas trip?
Case 6:

Mr. David, son of Mr. Arnold, and brother of Mr. Hercules, was born in Greece. At present in 2030 AD,
he lives in Mumbai and works in a big and huge private sector factory manufacturing earrings and pins
of all kinds. He is a research analyst, having developed many prototypes. He completed his graduation
in from National Institute of Design and is the head of the design department. He is 57 years old and
will retire in the next three years. His current annual income is Rs. 900,000. His current annual expenses
are Rs. 4,00,000. He can meet his retirement expenses with 90% of pre-retirement expenses. Inflation
is 5.5% per annum. He expects his life expectancy to be 80 years and he expects his wife to have a life
expectancy for next 25 years from now. At present he has investments of Rs. 15,00,000 each in Debt
and equity. Expected equity returns @ 12% and Debt returns @ 8% per annum. Till date he has been
investing in Debt: Equity ratio of 1:1 but now his financial planner has advised to maintain a ratio of
Debt: Equity as 3:1. He intends an overseas trip with family at retirement which may entail Rs. 300,000
now. He intends to purchase an immediate annuity on his retirement with option of joint annuity till
last survivor. You are requested to calculate:

i. What will be the pre-retirement rate of return?

ii. What would be the post retirement rate of return?
iii. What is the real rate of return during retirement?
iv. What will be his first year’s expenses after retirement?
v. Calculate his retirement corpus at age 60 excluding for overseas trip
vi. What will be the monthly saving required to achieve the required retirement corpus?
vii. What will be the annual saving required to achieve the required retirement corpus?
viii. Re-calculate points (1) to (7), if he is 47 years old and there are 13 years to retirement. Assume
other things remaining the same.
ix. Re-calculate points (1) to (7), if he is 37 years old and there are 23 years to retirement and
inflation is 6.5%. Assume other things remaining the same.
Case 7:

Mr. Ramaswamy is 56 years old and is working as Vice president with a public sector bank. He draws
a salary of Rs. 30000 per month (net of taxes) and will retire after 4 years. His expenses are Rs. 20,000
per month. His wife is 50 years old and is a housewife. His two sons aged 25 and 23 are employs in
very good establishments. Both are unmarried. He lives in his own flat in Mumbai. He plans to build a
house on a plot of land bought by him near Mumbai after retirement so that he can generate a regular
income from this house after retirement.

His present investments are as follows:

RBI Bonds (8% - 6 years) - 100,000 (invested 3 years ago)

Mutual Funds (diversified equity) - 10, 00,000 (present value)

5 year FD @ 9% p.a. - 5, 00,000 (bank FD, invested 4 years ago)

Direct Stocks - 250,000 (present value)

PPF (8% average returns) - 8, 00,000 (present value, started 11 years ago)

Expected retirement corpus - 25, 00,000

Savings A/c balance - 1, 25,000

He also contributes Rs. 50,000 every year towards PPF

Following are his liabilities:

Outstanding housing loan 5, 00,000 (EMI of Rs. 2800 per month)

Outstanding car loan 3, 50,000 (EMI of Rs. 2700 per month)

The employer gives 100% reimbursement for medical expenses and will take care of medical needs
even after retirement. He will get a pension of Rs. 19000 per month which will take care of his annual
living expenses after retirement.

He has approached you to provide for the following goals:

1. To provide for elder son’s marriage after 1 year - required amount Rs. 750,000
2. To provide for younger son’s marriage after 4 years - required sum is Rs. 9, 00,000
3. To build a house on a plot of land after retirement - required sum is Rs. 12, 00,000

Note: Liquid funds estimated to provide 5% per annum returns and Balanced funds 10% p.a.
Case 8:

Mr. Rohit Khurana is 30 years old and works with a private sector insurance company as a manager. He
is married and his wife Smita is working as a teacher in a government school. His daughter Aisha is 2
years old. He lives with his parents in their own house and has no plans to purchase a house.

His salary per month Rs. 38,000 (net of taxes)

Expenses per month Rs. 20,000

Savings account balance Rs. 69,000

His goals are:

Short term:

To buy a car worth Rs. 500,000 after 2 years without taking a loan

Medium term:

To take his parents and wife on a trip to Europe after 5 years – approximate cost Rs. 9,00,000 in today’s
terms

Long term:

1. To save for his daughter’s higher education starting after 17 years – cost in present terms is Rs.
12,00,000
2. To save systematically for his daughter’s marriage after 23 years- cost in present terms is Rs.
10,00,000

His present investments are:

PPF Rs. 2,25,000 (started contributing Rs. 70,000 every year, 3 years ago)

ELSS Rs. 75,000 (value as of today)

Diversified equity Rs. 50000 (value of today)

RBI bonds (8% taxable) Rs. 250,000 (bought 3 years ago with a cumulative option)

Wipro shares Rs. 150,000 (PV)

MMMF Rs. 125,000 (PV)

HLV = Rs. 50,00,000

Debt & Liquid fund returns - 8% p.a., Inflation – 5% p.a. long term equity returns – 12% p.a.

Education cost (g) - 5% p.a.

Suggest financial plans to achieve his goals.