Alan and Angel Young are both 36 years old. Mr. Young recently accepted a new job...

  

 

 

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Alan and Angel Young are both 36 years old. Mr. Young recently accepted a new job making $93,000 a year and Mrs. Young is currently unemployed. The Youngs have two children (ages 4 and 2), a dog, and a Maine Coon cat. Angel is also highly educated in literature and law from prestigious universities. They are both licensed lawyers. The Youngs have been married for eight years. The Extended Family Mr. Young has a mother in her 60s, who is living far away and is modestly self-sufficient. He also has two siblings who are both married and self sufficient. Alan inherited $400,000 from his late Uncle Fred, who was 100 years old when he died and had worked everyday of his life. He has dwindled this inheritance down to $200,000. Mrs. Young has one brother who is married to a wealthy entrepreneur and they have two children. Angel's mother is a pharmaceutical distributor and lives in another state. She is 60 years old and modestly self sufficient. Angel's father lives in the same town as the Youngs and her brother. He is self sufficient, healthy, and has the utmost faith that the Youngs will become productive members of society. Angel's Father (Trust #1) Angel's father set up a trust for the benefit of Mrs. Young. Her brother is the trustee, but the trust is really controlled by her father. The trust regularly distributes $30,000 per year to Angel and from time to time, invades the corpus to buy her a new car or give her money for nonessentials. The balance in the trust is $700,000 and it has an average earnings rate of about 8.5% per year for the last ten years. The trust balance is growing, but there is no sign that distributions will increase. GOALS & CONCERNS 1. They want to have a proper insurance, investment, and estates portfolio. 2. They want their taxes analyzed. 3. They want to know the cost of college education for the two children so that they can approach Angel's father about fully funding 529 Plans. The current cost of education is $35,000 per year in today's dollars and the inflation rate is expected to be 5%. They expect the children to be in school for 6 years each, and while they don't know, they expect the 529 Plan's investment rate of return to be 8.5%. 4. They want to plan for an early retirement (100% wage replacement ratio, excluding the trust income) at age 62, as they want to spend the autumn of their lives together traveling and visiting friends and family. Alan plans to save $18,000 per year in a 401(k) plan starting this year and to have an employer match of $6,000. They expect to live to age 90. 5. As neither of the Youngs currently have 40 quarters of Social Security earnings and because they are plan- ning to retire at age 62, they do not want to include any Social Security retirement benefits in their plan- ning. 6. They want to be debt free at retirement. INTERNAL INFORMATION THE RESIDENCE The current value of the residence is $550,000. The balance of the 30-year mortgage at 5.5% is $260,514. The land value is $150,000. The monthly payment is $1,703.37 and they have owned it for 8 years. They will not qualify for refinancing until Mr. Young has been employed for 12 months. INSURANCE INFORMATION Life Insurance Neither Alan nor Angel Young currently have any life insurance. Mr. Young expects to have $50,000 of group-term life insurance from his employer. Health Insurance They will be covered under Mr. Young's employers health plan, which is an excellent plan. However, the cost will be $1,000 per month for the family. The lifetime benefit per person is unlimited. Disability Insurance Neither Alan nor Angel Young currently have disability insurance. Mr. Young will have a long-term, guaranteed- renewable disability policy, provided by his employer, as of tomorrow for 65 percent of his gross pay, covering sickness and accidents with benefits to age 65. Homeowners Insurance The Youngs have an HO3 policy with endorsements for open perils and replacement value. They have a $250 deductible. The dwelling is covered for $300,000 and they have an 80/20 coinsurance clause. The premium is $2,400 per year. Auto Insurance They have a personal automobile policy (PAP) covering both cars with a $250 deductible for comprehensive and collision. They do not have uninsured motorist as they do not drive much and both have safe vehicles. The liability coverage is $100,000/$300,000/$50,000. The annual premium is $1,800 for the two cars. mini case INVESTMENT INFORMATION The Investment Portfolio The $200,000 investment portfolio produces variable income from -10% to +15%, depending on the year. It was originally $400,000 but with poor investment returns and expenditures, it has been reduced to $200,000 at this time. Last year's income, which consisted mostly of dividends, was $8,000. Other Investment Assets The assets in the brokerage account are from gifts from Angel's father. These assets are invested in a money market account, but are currently earning 0%. Mr. Young's 401(k) assets, which are from when he worked at the consulting firm, are invested in an equity index fund. Risk Tolerance Their portfolio consists of a few energy stocks that generated dividends and capital gains of approximately seven percent. They recognize that they need to modify their asset allocation, but are not sure what to do. TAX INFORMATION For the last few years they have been low income tax payers but are uncertain as to this year. ESTATE INFORMATION They have not prepared any estate planning documents. 2. Debt Management and Short Term Obligations Calculate the following; a. 15 year mortgage refinance b. The Emergency Fund Ratio C. The current Ratio d. Housing Ratio 1 e. Housing Ratio 2 Alan and Angel Young are both 36 years old. Mr. Young recently accepted a new job making $93,000 a year and Mrs. Young is currently unemployed. The Youngs have two children (ages 4 and 2), a dog, and a Maine Coon cat. Angel is also highly educated in literature and law from prestigious universities. They are both licensed lawyers. The Youngs have been married for eight years. The Extended Family Mr. Young has a mother in her 60s, who is living far away and is modestly self-sufficient. He also has two siblings who are both married and self sufficient. Alan inherited $400,000 from his late Uncle Fred, who was 100 years old when he died and had worked everyday of his life. He has dwindled this inheritance down to $200,000. Mrs. Young has one brother who is married to a wealthy entrepreneur and they have two children. Angel's mother is a pharmaceutical distributor and lives in another state. She is 60 years old and modestly self sufficient. Angel's father lives in the same town as the Youngs and her brother. He is self sufficient, healthy, and has the utmost faith that the Youngs will become productive members of society. Angel's Father (Trust #1) Angel's father set up a trust for the benefit of Mrs. Young. Her brother is the trustee, but the trust is really controlled by her father. The trust regularly distributes $30,000 per year to Angel and from time to time, invades the corpus to buy her a new car or give her money for nonessentials. The balance in the trust is $700,000 and it has an average earnings rate of about 8.5% per year for the last ten years. The trust balance is growing, but there is no sign that distributions will increase. GOALS & CONCERNS 1. They want to have a proper insurance, investment, and estates portfolio. 2. They want their taxes analyzed. 3. They want to know the cost of college education for the two children so that they can approach Angel's father about fully funding 529 Plans. The current cost of education is $35,000 per year in today's dollars and the inflation rate is expected to be 5%. They expect the children to be in school for 6 years each, and while they don't know, they expect the 529 Plan's investment rate of return to be 8.5%. 4. They want to plan for an early retirement (100% wage replacement ratio, excluding the trust income) at age 62, as they want to spend the autumn of their lives together traveling and visiting friends and family. Alan plans to save $18,000 per year in a 401(k) plan starting this year and to have an employer match of $6,000. They expect to live to age 90. 5. As neither of the Youngs currently have 40 quarters of Social Security earnings and because they are plan- ning to retire at age 62, they do not want to include any Social Security retirement benefits in their plan- ning. 6. They want to be debt free at retirement. INTERNAL INFORMATION THE RESIDENCE The current value of the residence is $550,000. The balance of the 30-year mortgage at 5.5% is $260,514. The land value is $150,000. The monthly payment is $1,703.37 and they have owned it for 8 years. They will not qualify for refinancing until Mr. Young has been employed for 12 months. INSURANCE INFORMATION Life Insurance Neither Alan nor Angel Young currently have any life insurance. Mr. Young expects to have $50,000 of group-term life insurance from his employer. Health Insurance They will be covered under Mr. Young's employers health plan, which is an excellent plan. However, the cost will be $1,000 per month for the family. The lifetime benefit per person is unlimited. Disability Insurance Neither Alan nor Angel Young currently have disability insurance. Mr. Young will have a long-term, guaranteed- renewable disability policy, provided by his employer, as of tomorrow for 65 percent of his gross pay, covering sickness and accidents with benefits to age 65. Homeowners Insurance The Youngs have an HO3 policy with endorsements for open perils and replacement value. They have a $250 deductible. The dwelling is covered for $300,000 and they have an 80/20 coinsurance clause. The premium is $2,400 per year. Auto Insurance They have a personal automobile policy (PAP) covering both cars with a $250 deductible for comprehensive and collision. They do not have uninsured motorist as they do not drive much and both have safe vehicles. The liability coverage is $100,000/$300,000/$50,000. The annual premium is $1,800 for the two cars. mini case INVESTMENT INFORMATION The Investment Portfolio The $200,000 investment portfolio produces variable income from -10% to +15%, depending on the year. It was originally $400,000 but with poor investment returns and expenditures, it has been reduced to $200,000 at this time. Last year's income, which consisted mostly of dividends, was $8,000. Other Investment Assets The assets in the brokerage account are from gifts from Angel's father. These assets are invested in a money market account, but are currently earning 0%. Mr. Young's 401(k) assets, which are from when he worked at the consulting firm, are invested in an equity index fund. Risk Tolerance Their portfolio consists of a few energy stocks that generated dividends and capital gains of approximately seven percent. They recognize that they need to modify their asset allocation, but are not sure what to do. TAX INFORMATION For the last few years they have been low income tax payers but are uncertain as to this year. ESTATE INFORMATION They have not prepared any estate planning documents. 2. Debt Management and Short Term Obligations Calculate the following; a. 15 year mortgage refinance b. The Emergency Fund Ratio C. The current Ratio d. Housing Ratio 1 e. Housing Ratio 2

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