FIN2IFP: Jerry and Jenny Jones 45 Trouble Street - Thornbury - Financial Planning Advice - Financial Assessment Answer

Subject Code: FIN2IFP Internal Code: 1AHJHI TASK: CASE STUDY 1 Jerry and Jenny Jones 45 Trouble Street, Thornbury Jerry, and Jenny Jones approach you for some financial planning advice. The couple earns a good level of combined income and enjoy a very comfortable lifestyle. They have accumulated a few investments but have not taken much interest in their superannuation balances. However, they have read a few reports of late which point out that the accumulated superannuation balances of many Australians will not be sufficient to support their retirement. The couple now feels that perhaps the time has come to seek some professional advice before it is too late. INITIAL MEETING – May 2017

1. Personal Details:

Jerry Jones Address – 45 Trouble Street, Thornbury Age – 45 Health – good (smoker) Employment: Marketing manager with Support Beds-Salary of $105,000 p.a. plus 9.5% superannuation guarantee contribution based on salary -Employer allows salary sacrificing Jenny Jones Address - 45 Trouble Street, Thornbury Age – 45 Health – good (non-smoker) Employment: Part-time accountant (4 days a week) at Creative Accounts-Salary of $50,000 p.a. plus 9.5% superannuation guarantee contribution based on salary -Employer allows salary sacrificing. The couple has 3 children: Jack (aged 14), Jade (aged 12) and Jasmine (aged 8).

2. Client objectives:

• Build wealth between now and when they retire – expected to be when Jerry and Jenny turn 60
• The couple estimate they will require a combined real income of $58,000 per annum in present value dollars from their superannuation funds when they retire
• They want an investment plan that is easy to manage
• The want to ensure that their overall investments are well proportioned based on their risk profile and of a suitable quality
• To continue to have their children attend private schools.
• They would like to minimise their tax liability as much as possible
• They wish to reduce their level of debt as quickly as possible

3. Attitude to investment risk: The couple advise that they have a reasonably good knowledge and interest in financial markets but do not have the time to manage their investments themselves. They are prepared to take on some risk in order to achieve a higher rate of return but not an excessive amount of risk. They realise that there will be some short-term volatility in financial markets and are prepared to invest for the long-term. They also realise that their current investment allocation and plan is unlikely to provide them with an appropriate nest-egg in retirement.

The couple has completed the following table to assist you in the task of identifying their risk profile. SECOND MEETING – end of June 2017 • Jenny advises that she is to be retrenched from her employment effective from 1 July 2018 and that she will receive a lump sum termination payment from her employer of around $15,000 in accrued annual and long service leave and other employment payments. Assume these are fully taxable. Jenny wants to now stay at home for a period to look after the children and will not seek to resume employment until 1 July 2019 (expected pre-tax salary of around $30,000 p.a. working 2.5 days a week; work-related expenses of $500). • To cover the lost income in the event of retrenchment, the couple advises that although they would like to retain their current lifestyle as much as possible, they are prepared to reduce their entertainment expenses to a net $5,000 p.a. and reduce their travel and holiday expenses also to a net $5,000 p.a. commencing in July 2018. They do not believe they could cut back on much else. Required: The couple requests that you analyse their current and future financial situation based on the above information and provide some suggestions on how they could improve their long-term net wealth. The couple are not sure what their financial situation will be once Jenny is retrenched although they realise it will be a struggle. You are required to prepare a report for the couple answering the issues detailed below. The report should be addressed and written for the couple. The report should contain a covering letter addressed to the couple detailing the purpose and general content of the report. There are no specific requirements for the format of the report. It should be user-friendly for the client, answer the following questions through the use of headings, and make use of tables, charts etc where appropriate. 1. Cash flow statements for the 3 financial years ending 30 June 2018 - 2020, including detailed tax calculations (use current tax rates). 2. Balance sheets for the 3 financial years ended 30 June 2018-2020. 3. i An excel spreadsheet of accumulated superannuation for both Jerry and Jenny for each year from 1 July 2017 to their retirement in 30 June 2032.

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