Ben Knope and his wife Leslie Knope recently relocated to McKinney, Texas from Pawnee, Michigan. The Knope family is now your typical suburban family. Ben and Leslie met at a public parks department back in Michigan.They have been married for just over 7 years and have one child name April (age 5). Ben (age 37) and Leslie (age 36) are both employed. Ben is an accountant and Leslie is a political consultant. The Knope’s want to make sure that they are tracking their expenses, meeting or exceeding important financial ratios and understand where they currently are in terms of assets, liabilities and net worth. They also have put together a list of questions for you to answer. The Knopes are very visual learners so graphs, charts, tables, and bullet points are important.
The Knope’s Financial Information
Note: missing data can be found using TVM calculations. See data in footnotes.
Data provided as of 12/31/2019
Leslie's Monthly Salary 8,500
Jewelry 30,500
401(k) Account (His) 160,258
Dividend/Interest Income (monthly) 15
401(k) Account (Her) 85,000
Mortgage Payment (PITI) ????
Boat 16,000
LEXUS 3 Series Payment (monthly) ????
2018 Prius GT 58,000
Prius Payment (monthly) 888
Furniture 25,500
Affluent Financial Credit Card Payment
(monthly) 400
LEXUS 3 Series Loani 55,200
Sears Credit Card Payment (monthly) 600
Brokerage Account (stocks only) 78,000
Satellite Bill (monthly) 300
Alarm System (monthly) 50
Affluent Financial CCii Balance 10,200
Life Insurance premium (monthly) 140
Health Insurance premium (monthly) 500
Internet bill (monthly) 100
Auto fuel costs (monthly) 370
Cellphone expense (monthly) 145
Ben 's Monthly Salary 8,000
Water and Trash (monthly) 110
FIN 430/530 – Dr. Jared Pickens, CFP®, AFC®
Sears CCiii 12,800
Entertainment (monthly) 500
Auto Insurance Premiums (monthly) 130
Child Care (monthly) 1,000
Home Repairs (monthly) 200
LEXUS Automobile (estimated) 55,100
Groceries (monthly) 500
Checking Account (Joint) 5,000
Bank CD - 6-month maturity (Joint) 4,000
Dining Out (monthly) 700
Hobbies (monthly) 300
Savings Account 10,250
Roth IRA (His) 22,250
Dry Cleaning (monthly) 120
Primary Mortgage Balance iv 325,000
Landscaping (monthly) 300
Maid (monthly) 500
Parking and Tolls (monthly) 50
Dividend/ Interest Reinvestment (monthly) 15
Student Loan Payment (monthly) 773
Ben 's 401(k) contributions (monthly) 300
Student Loan Balance Hv ?????
CD (8 month maturity) $3,500
Leslie's 401(k) contributions (monthly) 250
Cash Savings Contribution (monthly) 300
Prius Auto Loan Balancevi 58,000
Ben 's Roth Contributions (monthly) 500
Income Tax Withheld (monthly) $1,500
FICA taxes paid (monthly) ????
Primary Home (VALUE) 450,000

Questions
1. Ben and Leslie are very sensitive to commission charges and expenses. Furthermore, they are concerned with the recent horror stories they have heard about in the financial services industry. Assuming that you are a CERTIFIED FINANCIAL PLANNER™ Practitioner, explain to your clients the different types of fee structures a planner can charge and elaborate on the process required to get your designation. Finally, explain fiduciary responsibility and why it is or isn’t important.
2. Ben and Leslie feel like they will live in their home forever. They are considering refinancing their home. Ben and Leslie were told by a mortgage broker that they would qualify for a 3.85% rate on a 15 year or 4.25% on a 30-year mortgage. Provide an analysis showing the pros and cons of each decision. Remember to look at financial ratios. Remember that Ben and Leslie are very visual learners. Assume that refinance costs are $7,000 and will be rolled into the new loan. 

3. The Knopes would like to know your recommendations on an approach to get out of debt. They have told you that all options are on the table in terms of cutting expenses, but they are not sure how to put together a payoff plan or which debt to attack first. Please use powerpay.org and provide some recommendations for paying off all of their debts. Please provide an amortization sheet of the payoff plan. Please explain your strategy. Furthermore, they want a recommendation on how to use the brokerage account funds. They are thinking either using it for an emergency fund, reducing certain debts. There is no tax liability upon the sale of the stocks in the brokerage account.
4. Ben and Leslie would like to send their child to Texas Tech University. They have heard about a 529 plan. They want to know more about the plan and how much they should save for April’s 4 years of education. April will enter college at 18 years old. You will assume an 8.5% rate of return on investments before April enters college and 5% rate of return during the 4-year college experience. You will need to look up the cost for tuition for TTU at their website. College inflation will run 5% per year. If this is too much for their budget then recommend a different strategy. (Hint: community college first then transfer, student loans, etc)
5. Ben and Leslie would like to see what their retirement nest egg balance will be when they are 65. They have a household risk tolerance that suggests a portfolio return of 8%. Neither employers match contributions. 6. The Knopes are not sure if they are currently withholding enough federal income taxes. Assume they paid $12,000 in interest on their mortgage. What is their estimated total tax bill due using 2019 tax brackets? ASSUME NEX TRUMP TAX PLAN – NO PERSONAL EXEMPTIONS AND HIGHER STANDARD DEDUCTIONS Provide one another tax tip to reduce their taxable income.
7. The Knopes want you to run a detailed retirement calculation for their good friends. to see if they are saving enough for retirement. Their friends will need $120,000 per year in retirement. The friends will retire in 30 years and expect to need income for 30 years. Their friend’s assumptions include that inflation will be 3.25% and they will earn 6.5% on their investments during retirement and 7% before retirement. They don’t want to include social security in their projections. Their friends have $250,000 saved in a 401(k). They are not saving any new funds towards retirement at this time, but they can save an additional 10% towards retirement. What is the total retirement nest egg (in tomorrow’s dollars) that they will need and how much per year must be saved per year to reach their nest egg. If their annual savings required is too high for their cash flow then what would you recommend? Hint: reduce expenses and save more? Reduce annual needs in retirement?

Answer rating: 100% (QA)

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