Case Study on Leo and Julie Retirement Plans

Introduction

During the working ages, people have retirement plans which help save for the future after they have gained an age where they can no longer work. The retirement plan is supposed to provide a method that will be used on achieving the savings goals. The recommendations presented are based on the income of a person, a current situation such as the amount needed for payment of the bills and the financial objective. When people are married, they can plan together on their retirement plan by agreeing how much each person will be contributing (Coe & Belbase, 2015). It is necessary to consider the state laws in relation to retirement. The following will show a case of Leo and Julie his wife, planning for retirement using Australia retirement laws.

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Leo is a 52 years old sales manager working for a luxury car dealer. His wife Julie 49 is a nurse at a public hospital. Julie worked for ten years part-time when she was taking care of the children. However, she is now back to full employment for the last six months. The couple has two children; David 19 years old currently doing an apprentice as a plumber but still operates from home. Elizabeth 12 is in grade 7 first year high school. Both employers pay 9.5% SGC on the adjusted salary if one partner decides to sacrifice their salary. The couple has a binding death policy with each other being the nominated beneficiary. Leo and Julie would like to maximize their wealth with the intention of getting the best from their retirement planning. The following report gives a breakdown of the capital requirements and the contributions required to reach the desired target.

Goals and Objectives

The overall goal of Leo and Julie is to maximize their wealth at retirement. The client desire adequate funds at retirement that will allow them to obtain an after-tax income of $45,000 per annum considering the time value for money. Leo would like to remain with the current employer for the next 13 years and has an option of remaining with the employer after retirement. Julie would like to retire in the next 11 years and can also work for a few years on part-time. The couple is also concerned about the mortgage and would like to pay it as soon as possible. Similarly, they would like to replace their cars at retirement at the cost of $35,000 at the current market value.

The couple would also like to fund their daughter's university education in six years at the cost of $60,000.Other considerations by the client include a decision as to whether to maintain the current block of land or not and the protection of their assets in the event of sickness or death. They desire to have an insurance cover that protects their assets in addition to ensuring children will be looked after (Esperti, Peterson, & Cahoone, 2014). The will also need to be reviewed and updated in addition to seeking legal advice on the same. Lastly, the couple would like to establish enduring powers of an attorney.

Overview of Financial Situation

Leo and Julie current financial position is as follows; the couple jointly holds $6000 in cash similarly, they have a home that was purchased in 2013 currently valued at $680,000. The two also hold a block of land valued at $145,000. Leo has a motor vehicle worth $45,000 while Julie's car is valued at $15,000. Additionally, Leo superannuation is valued at $152,000 while Julie's stands at $48,000. The home content which is jointly held by the two has a value of $50,000. Life insurance for Leo is $750,000 while that of Julie is $200,000. The liabilities held by the couple include credit cards worth $10,000, loan on the car $20,000 and home mortgage $350,000.

Asset Owner Value $ Liabilities $

Cash Joint $6,000 Credit Cards $10,000

Term Deposit Julie $2,000 Investment Loan $0

Home (Purch 2013) Joint $680,000 Loan on the Car $20,000

Block of Land Joint $145,000 Home Mortgage $350,000

Other Investments Joint $0 Motor Vehicle Leo

Julie $45,000

$15,000 Superannuation Leo

Julie $152,000

$48,000 Home Contents Joint $50,000 Life Insurance Leo $750,000 Life Insurance Julie $200,000 Joe has a gross salary of $81,000 while Julie's salary is $46,000. Their joint expenses are as follows; food, household and clothes $31200, Mortgage with 25 years left at a rate of 4%$1,925 per month. General insurance $5,630, presents, gifts and others $2,600, Land costs $3,000. Motor vehicles cots $9,800. Accountancy fees $750 and entertainment and hospitality $5,200. Leo has a car loan payable in three years at an interest rate of 5.5%. He pays $1,125 each month for the loan.

Details of Income and Expenses Annual Income Expenses

Gross Salary $81,000 Leo Note:

Gross Salary $46,000 Julie Salary $65000/yr

- Food, Household, clothes Joint $31,200

- Mortgage (25 yrs. remain 4.4%) Joint $ 1,925/mth

- Loan Car (3 yrs 5.5%)

- Insurances - general Leo

Joint $ 1,125/mth

$ 5,630

- Presents, gifts, etc Joint $ 2,600

- Land costs Joint $ 3,000

- Motor Vehicle Costs Joint $ 9,800

- Accountancy Fees

- Entertainment & Hols Joint

Joint $ 750

$ 5,200

The insurance portfolio held by the couple is as follows; life which is provided by Inside Super with the insured benefits being $750,000 for Leo and $200,000 for Julie. Leo has insured the life of Julie while Julie insured that of the partner. Julie owns the first policy and pays $750 per annum while Leo pays $250 for the second policy. The couple holds a joint policy for the home and its content. The insured benefits are as follows $450,000 for the home and $65,000 for the contents. The couple pays premiums at the tune of $1,260 per annum for the home and $540 for the contents payable per annum. Leo also has a comprehensive market value cover for the two motor vehicles which he pays $1200 per annum. He also owns a health cover policy that caters for them and pays $2,630 per annum.

Policy Type Insurer Policy Number Insured Benefit Life Insured Policy Owner Premium & Frequency

Life - Leo Inside super 123456 $750000 Leo Julie $750 pa

Life -Julie Inside super 123457 $200,000 Julie Leo $250 pa

Home and Contents 145541 $450,000 Home and $65,000 contents Leo and Julie $ 1800 pa

(i.e. $1260 pa for home and $540 for contents)

Motor Vehicles (2) 7489987 Comprehensive - Market value cover Leo $ 1200 pa

Health Cover MBF Q/YLP 650 Hospital Leo and Julie Leo $ 2630 pa

Status of Estate Planning

Leo and Julie need to secure their assets while ensuring that the two children are catered for in case of any eventualities like death. The two want to be sure that their children will be taken care of. For this reasons, the couple would like to insure their assets. Similarly, they are determined to review and update their wills since they were created out of the will kit. The process will also require the input of a lawyer in addition to establishing enduring powers of an Attorney (Esperti, Peterson &Cahoone, 2014). The couple should ensure that life insurance policies are clearly understood and clearly identify the beneficiaries. The purpose of the different policies is to offer support and other expenses coverage in addition to availing cash for retirements plan. Policyholders are exempted from any taxes on any payments made to the insurance companies (Coe & Belbase, 2015). Therefore the estate plan ensures that tax burdens are reduced while guaranteeing the beneficiaries an agreed amount upon the expiry of the policy term or when one of the partners dies.

Strategy Discussion

Leo and Julie desire to maximize their wealth by selecting investment options that guarantee them a stated outcome when they retire. The current investment, however, cannot guarantee the couple that they will receive $45,000 in today's dollars when they retire. Similarly, it is evident that the current position cannot guarantee a comfortable lifestyle for the couple once they retire. Similarly, Leo and Julie can face challenges in educating their daughter in the University at an approximate cost of $60,000 in six years. Educating the daughter can strain the finances and therefore reduce the amount invested for retirement. The couple must, therefore, develop strategies that will enhance their abilities to continue investing for their retirement while meeting their obligations. Similarly, Leo and Julie would like to reduce or complete their mortgage repayment before they retire to avoid any serious financial issues once they retire.

Strategies Considered

Wealth creation can be achieved if the couple decides to consolidate its liabilities to the mortgage. Such an approach will ensure that the burden is reduced since they will be required to repay the mortgage alone. Such a strategy will ensure that the couple can focus on other investment opportunities by releasing the much-needed cash for investment purposes. This strategy, however, has its shortcomings given that the burden of repaying the mortgage can increase and the repayment period can extend too far such that the couple will still be repaying the mortgage even in their retirement. Such a strategy can pose serious issues if the couple lacks adequate cash to repay the mortgage once they are out of employment.

The second strategy that can be adopted by the couple is retirement planning. Under this strategy, Leo and Julie can implement salary sacrificing by arranging with their respective employer to increase their current contribution toward their retirement. Similarly, the two can increase their contribution to the superannuation fund. The couple can change their current investments to high-risk investments that have high returns. Such a move will ensure that the couple has adequate investments for their retirement (Esperti, Peterson, & Cahoone, 2014). However, this strategy has its shortcomings one of them being the risk profile of the couple. According to the case, Julie is risk-averse while Leo is moderate implying that chances of investing in high-risk investments are slim.

A third strategy that can be adopted by the couple is estate planning. In this approach, the first step is to consult a solicitor to determine whether the current will reflects the wishes of the couple. Once everything is confirmed, the enduring power of an attorney can be implemented with the aim of binding the de...