Reference no: EM132891202

ECF3150 Personal Finance

Generate creative ideas for business innovations that respond to opportunities and constant change.

Case Study One:

Hannah and Jordan are meeting with you (A Financial Adviser) for the first time. They are both 67. Jordan is working as a Manager of a cleaning company earning $100,000 per year and Hannah has recently retired. Jordan has $240,000 in his Superannuation and Hannah has a Superannuation balance of $110,000. Their two children are grown and are no longer dependent. Jordan and Hannah own their 6-bedroom house in Nedlands which they recently had valued to be worth $1,600,000. They have no debt. Assume they have no other assets.

The purpose for the meeting is that Jordan would like to retire and they would like to know if they can draw down from their Superannuation savings an amount equivalent to Jordan's current net income (after tax) for the next 15 years until they downsize their house. They do not want to take on any risk in their investments. They wish to live in their house for at least another 15 years. After 15 years they expect that they will be able to downsize and release equity to fund the rest of their lives.

It is immediately evident to you that their combined Superannuation balances will be rapidly depleted if they follow the path they are considering.

YOUR TASKS

• In the form of a report written to Jordan and Hannah explain why they are unlikely to meet their objectives. Use the assumption that they will need to fund their retirement from their savings for the next 15 years until they downsize their house. This will form your ‘Base Case'. Use calculations and assumptions to show why.
• In the form of a report to Jordan and Hannah, provide five strategies for them to consider. These strategies may require for some of their objectives to be altered. Compare each of these strategies to the ‘Base Case'
• As an appendix to the report, provide assumptions used and calculations to support the strategies.
• To help you get started consider - Age Pension payments, Extending the retirement date, Reducing expenditure levels, investing in riskier investments, taking on a Reverse Mortgage.
• This report should not be in the form of a Statement of Advice which will be taught in Week 12.

Maximum 2000 words What we will be looking for when we assess your report
1) YOUR ASSUMPTIONS
Have you made suitable assumptions - for example (but not limited to):
• Rates of return
• Inflation rate
2) YOUR CALCULATIONS
Have you made accurate assumptions, showing that your client's initial objectives are not achievable - for example (but not limited to):
• Current savings < NPV of planned expenditure
• Clients rolled to pension phase (ie no tax)
• Age pension received
3) YOUR INNOVATIVE STRATEGIES
Have you presented and discussed five alternative strategies, including the assumptions made and the associated NPV calculations? Have you suggested the use of multiple strategies to be used concurrently?

Case Study Two:
Fiona and Dan have recently had their third child 1 month ago. They already have a 5 year old and a 2 year old. They want to review their insurances to ensure that if either of them suffer an insurable event then there is financial support for the surviving spouse and children.
Fiona (37) is a nurse and works full time earning $110,000pa. Her income is sufficient to pay all of their bills and their rent. Dan (38) is a stay at home father but expects to return to full time work when his youngest child turns 12 and starts high school. He thinks he'll be able to earn the same as Fiona as an electrician. Once Dan starts working again, they think that his entire salary will be used to save for retirement. Fiona is healthy and fit. However she recently had an operation on her arm after a motorcycle accident. Dan is a smoker.
The mortgage on their house is $300,000.
Fiona has $200,000 in her Superannuation. Dan has $70,000 in Superannuation.
When the children go to high school for 5 years (at age 12) Dan and Fiona think that they'll send them to private school which is currently $9,000pa each.

YOUR TASKS
• Consider Life Insurance, Total and Permanent Disability Insurance, Trauma Insurance and Income Protection. (disregard all other types of insurance).
o Describe these types of Insurance and how much should Fiona and Dan be insured for?
o Discuss the impact of Fiona's and Dan's occupations and health on the cost (premiums) of their insurance.

Attachment:- Personal Finance.rar