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Case Study Assignment

Assessment task

Question 1: Presentation Slides

You have been asked to give a talk to the staff at the local primary school about financial planning. The Principal has specifically asked to address the following issues:

1. What is financial planning?

2. How do you know if an advisor is qualified to give advice?

3. The concept of risk and return

4. What is salary sacrifice and how does it work?

Required: You are required to prepare a PowerPoint Presentation (PPT) which will be the basis of your talk. (Note: you are not required to give the actual talk). The PPT should be no more than 10 slides and should clearly address each of the above issues, but note that as a PPT you should not attempt to include full explanations on each slide. For your submission, you should submit Handouts or Notes format with at least 2 slides per page.

Question 2: Case study

You are a financial adviser and the following information is an extract of data you gathered as part of fact finding during an initial client consultation for married couple Jason and Sandra Barlow:

Husband - Jason Barlow aged 54 Wife - Sandra Barlow aged 49

3 children -aged 26, 22 and 16    Older two children are independent, 16 year-old - Cooper attends secondary college and lives at home.

Jason has annual gross income of $115,000 Sandra has gross annual income of $55,000

The couple have combined savings of $30,000 earning minimal bank interest.

Jason has a balance of $320,000 in superannuation. Sandra's superannuation balance is $125,000 The couple do not salary sacrifice.

Jason has a managed fund with a current value of $40,000

They have a mortgage of $60,000 on their home. The mortgage will paid off in 4 years time. Jason plans to retire at 60 and Sandra will retire at 55.

The couple have set an objective of saving at least 15% of their combined after tax income until their retirement.

Assume their income will remain constant in dollar terms and that the 2015/16 tax rate will stay constant until their respective retirements.

Assume that the school fees and related education expenses will remain constant and continue for the next 4 years as their son completes secondary school and an undergraduate business degree.

Assume all expenses have been adjusted for inflation and will stay constant in dollar terms until the couple retire.

Assume the couple both have 9.5% employer superannuation until their retirement.

Annual Budget Sheet

Regular Commitments	$
Mortgage repayments .......................................	18,000
Rates ............................................................	1,260
Electricity/Water/Gas ........................................	1,350
Telephone/Mobile ............................................	2,500
Pay television/Internet ........................................	1200
Insurance - home/contents ..................................	550
School fees and related expenses ...........................	7,500
Insurance - car ................................................	475
Private health insurance .....................................	3,000
Credit cards .....................................................	15,000
Loans ...........................................................	5,000
Petrol/maintenance ...........................................	8,000
Car registrations .............................................	1050
Public transport ...............................................	2,500
Annual deposit to Jason's managed fund.................	2,000
Other expenses
Food ............................................................	8,000
Clothing/Haircuts/Beauty ...................................	4,500
House maintenance ..........................................	3,500
Medical/Dental expenses.....................................	2,000
Entertainment/Dinners .......................................	2,500
Clubs/Prof. Memberships ...................................	1,000
Gifts - Birthdays/Christmas .................................	3,500
Total ............................................................	94,385

Required:

2A) Calculate the Sandra Barlow's and Jason Barlow's annual income after tax and Medicare.

You can exclude income earned from the combined savings and Jason's managed fund.

Assume that the Barlows' Private Health Insurance has the tax rebate included in the premiums.

2B) Calculate the amount of combined funds Jason and Sandra will accumulate for their retirement. This will include their actual savings according to:

• their annual budget;
• Jason's managed fund and;
• their 9.5% superannuation contributions.

You can show these as separate calculations. Use an excel spreadsheet to show calculations on a yearly basis up to the time of the Barlow's retirement age.

Assume a real rate of return of 4% for saving, managed funds and superannuation.

For ease of calculation, assume their savings, managed fund savings and superannuation contributions are made at the end of each year.

You can assume the Barlows have the correct amount of tax deducted from their gross earnings and do not need to pay more tax (or receive a tax refund) for each year until their retirement.

You can use a spreadsheet to make the calculations or use the relevant future value formulas below:

Future value - FV = PV(1 + i)n    

Annuity (Future value) FV = (PMT[(1 + i)ⁿ - 1]/i)

2C) Using all the information provided, comment on the key issues the Barlow's need to consider in planning for their retirement.

TAX RATES & FORMULA SHEET-

Income Tax Rates

Taxable income	Tax on this income
$1 - $18,200	Nil
$18,201 - $37,000	$0 + 19% of excess over       $18,200
$37,001 - $80,000	$3,572 + 32.5 % excess over $37,000
$80,001 - $180,000	$17,547 + 37% excess over  $80,000
$180,001 and over	$54,547  + 45% excess over $180,000

The above rates do not include the Medicare levy of 2%

Other Tax Rates

Complying superannuation fund.             15%

Non-complying superannuation fund.    45%

Fringe Benefits (Effective 1 April 2014)   47 %

Company Tax     30%

Friendly Society & Life Insurance Bonds 30%

Tax Rates for Minors     

Taxable Income	Tax Payable
$0 - $416	Nil
$417- $1,307	68% of each $1 over $416
$1,308 +	47% on total amount

Medicare Levy:

Medicare Levy is paid at 2% of taxable income.

A Medicare Levy does not need to be paid if taxable income is equal to or less than $20,896 ($33,044 for seniors and pensioners). Only part of the Medicare Levy is paid if your taxable income is between $20,896 and $26,121. ($33,044 and $41,306 for seniors and pensioners).

 A family is exempt from Medicare Levy if they earn less than A$ $35,261and, this is increased by $ 3,283 for each dependent child. Only part Medicare Levy is paid by a family whose income is between A$ $35,261and $44,076, increasing by $4,047 for each dependent child.

Medicare Levy surcharge of up to additional 1.5% of taxable income is payable where taxpayer does not have private health insurance.  Here is how the surcharge is calculated based on income.

Income thresholds and MLS rate

	Unchanged	Tier 1	Tier 2	Tier 3
Singles	$90,000 or less	$90,001 - $105,000	$105,001 - $140,000	$140,001 or more
Families	$180,000 or less	$180,001 - $210,000	$210,001 - $280,000	$280,001 or more
Medicare levy surcharge rate	0%	1%	1.25%	1.5%