FPC003: Superannuation And Retirement Planning - Kaplan Professional - Nathan and Mary Davidson - Case Study Assessment Answer

Subject Code: FPC003 Internal Code: 1AIFBI

Case Study Assessment Answer

Assignment Task: FPC003 Case Study – Nathan and Mary Davidson You are a financial planner for AFS licensee EANWB Financial Planning. Nathan and Mary Davidson have been undertaking their own research into planning their retirement, and recently attended one of your firm’s retirement seminars. After this seminar they spoke with you about their concerns that they may not accumulate enough money in superannuation to fund their retirement. You met with them and during your initial meeting you provided them with some basic information, including a fact finder for them to fill out. You then organised a second meeting, at which you collected more information on their current financial situation and spent time clarifying their needs and objectives. A summary of their financial situation, based on your interviews with the clients, is provided below. The completed fact finder, including the risk profile questionnaire, can be found on page 10 of this assignment. Current situation Nathan, age 54, and Mary, age 52, are married and have two children, Jonathan and Sarah, who are nearing the end of their schooling. They own their own home, valued at $600,000, and have recently received an inheritance from the estate of Mary’s mother. Although they have cleared their mortgage, they still have access to a redraw facility of $100,000. However, they do not want to access this unless there is as an emergency. Nathan is a full-time sales representative for an agricultural supplies company. He earns $140,000 annually plus superannuation guarantee (SG) contributions from his employer paid into the employer’s default fund. Mary is primarily a self-employed marketing consultant and has business income net of expenses of $65,000 annually. She also works as a contracted employee in a mining engineering company. Her hours vary, but typically she earns about $5600 annually, plus SG which is paid into the employer’s default fund. Jonathan and Sarah attend a private school and Nathan and Mary pay a total of $7,000 annually in fees, uniforms, books, school trips etc. The only other assets they have are their two cars. Superannuation Nathan has $270,000 in his superannuation fund and Mary has $99,000. They are both invested in the default balanced option. Further details of their superannuation are in the fact find (Appendix 1). Neither Nathan nor Mary has made any personal contributions to their superannuation fund. v Nathan’s employer will allow salary sacrificing to superannuation without impacting on any other employee benefits and will maintain his SG contribution based on his pre-salary sacrifice income. Mary’s employer will not allow her to salary sacrifice to superannuation but does make SG contributions to her superannuation fund. Nathan and Mary are happy with their current superannuation funds and the underlying investments they are invested in. They do not wish to receive advice in regard to changing their funds or investment portfolios. Insurance Nathan and Mary’s their life insurance and total and permanent disability (TPD) insurance are owned by their superannuation funds. Nathan and Mary both have self-owned trauma policies and income protection policies. Mary also has business overheads insurance. Their cars are comprehensively insured and they have home building and contents insurance cover including legal liability cover. Nathan and Mary have family private health insurance cover. Further details on their insurance policies are in the fact find. They have specifically stated that they do not require any advice on their insurance policies. Investments Nathan and Mary have not had any investments other than their superannuation. Surplus income had been used to pay off their mortgage. However, they do have $350,000 in their savings account that was left over from the inheritance from Mary’s mother’s estate after paying off their mortgage. This savings account, which is their bank’s ordinary transaction account, does not pay any interest. Other information Nathan and Mary have a credit card with a limit of $30,000 that they use for all their general expenses and entertainment. However, they never spend up to their limit and their average expenses are $7,500 per month, which they repay within the interest-free period. Nathan and Mary take regular annual holidays with their children and spend approximately $10,000 per trip. Other expenses include deductible charity donations of $1,220 and accountant’s expenses of $500 annually. Needs and objectives Nathan and Mary are concerned they will not have enough money to provide an adequate income in retirement. They do not want to rely on the age pension and would like to be fully self-sufficient if possible. After your initial meeting with them, they reviewed their situation and decided they would like you to prepare advice using a retirement income of $80,000 a year (in today’s dollars). They based this figure on their current spending after deleting items that will not apply after retirement (such as school fees) and considering their desired lifestyle in retirement. They have used their bank’s ‘Retirement Projector’ and determined that if they live to age 95 and earn 4% (net of inflation) on their investments, they will need almost $1.3 million in retirement savings when Nathan is age 65. Nathan and Mary would like to channel their surplus income into their retirement planning now that they do not owe anything on their mortgage. They have ‘parked’ the inheritance money in their savings account and plan to retain $50,000 in a secure investment to support the children in their last years at school and into university. They want to invest the balance in a tax-effective way, and are considering adding it to Mary’s superannuation to help her ‘catch up’ because she earns less than Nathan and took time out of the workforce to raise the children when they were young. Like most people, they would also like to reduce their overall tax liability. Closing the interview Before concluding your meeting, you review the information Nathan and Mary provided to check that it is complete and accurate and ask if they have any questions. Nathan and Mary understand from their own research that there are many ways to add money to their superannuation, but are confused about which will be the most appropriate for them. You advise Nathan and Mary what happens next and explain that, with their agreement, you will prepare a written report based on the information they have shared with you, which will include recommended strategies to help them to achieve their financial goal of having adequate funds for retirement. Nathan and Mary agree to proceed to the next stage of the financial planning process and you make an appointment to present the plan in a fortnight. As their financial planner, your task is to prepare a statement of advice (SOA) that will include strategies to meet Nathan and Mary’s goals.

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