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Statement of Advice Case Study

(Dennis and Donna Barker)

Scope

Case Study

This case study is applicable to the Diploma of Financial Planning Statement of Advice series of tasks.

You are an authorised representative of a full-service licensed dealer group, Mentor Financial Planning Pty Ltd. Dennis and Donna Barker have come in to see you to ask for your assistance to plan out their next seven years and then help them settle into retirement.

Donna (aged 53) and Dennis (aged 52) have been married for 29 years and live at Lot 3 Wattle Road, Hurstbridge, Victoria. Their only child, a daughter, Megan, is independent and has two children.

Donna works full time for Best Marketing, and has recently been promoted. She now earns $90,000 p.a, plus an addition Superannuation Guarantee Contribution of 9.5%. She has heard about salary sacrifice and thinks this might be a good idea to help build funds for her retirement.

She has informed you that she is about to start receiving $17,000 p.a for the next 7 years as part of the proceeds from her great Aunt’s estate. This amount will be paid annually into her superannuation fund as a personal (after tax) contribution Donna’s superannuation is currently in a balanced retail superannuation fund, MM Superannuation. Her current balance is $220,000 and earns on average 7% p.a. after fees and taxes. She also has $100,000 in term life

and TPD insurance cover within her superannuation fund.

She drives a new Land Cruiser that is fully paid for. It has low kilometers and she expects to keep it until she retires. Upon retirement she intends to purchase a new car, and expects that she will need an additional $30,000 on top of the trade-in she expects to receive from the Land Cruiser.

Dennis works full time making custom furniture for Newbold’s Pty Ltd. He earns $45,000 p.a. plus an addition Superannuation Guarantee Contribution of 9.5%, and intends doing this work for the foreseeable future.

He has $51,000 in superannuation savings, held within the PP Superannuation Fund. The funds are invested in a capital stable portfolio with a very low allocation to growth assets. Returns on this fund are around 4% p.a. after fees and taxes.

They are living on a semi-rural property that is valued at around $750,000, but they currently have a mortgage of $130,000 in the form of a line of credit. The interest rate on this facility is 7% and they currently pay interest only repayments of $758.33 per month ($9,100 pa).

Both are non-smokers and in excellent health, and they do not have a current will or any powers of attorney.

Diploma Case Study, Continued Their personal expenses are around $40,000 p.a. and they spend an additional $10,000 p.a. on holidays. (Total outgoings are therefore $59,100). Aside from private health cover, car, and house and contents insurance, and the only personal insurance they have is the coverage provided in Donna’s superannuation fund.

Donna intends to work for seven more years (until aged 60), once she retires they believe they will need $40,000 p.a (in today’s dollars) for their living expenses in retirement. However, Dennis intends to then start working part-time until age 65 and estimates that he will earn $25,000 p.a. and they intend to use this income to fund any holidays or other expenses as required.

Before Donna retires in seven years-time they wish to pay off the remainder of the mortgage. They also want to increase the amount of money in both of their superannuation funds.

They have also stated that they want to ensure they have sufficient money

for their grandchildren (now aged 6 and 4 years) to attend university.

They estimate they will need to accumulate approximately $120,000 (in today’s dollars) over the next 12 years to pay for this.

Aside from their superannuation funds, they also have $9,000 in a bank account earning 4% p.a., $15,000 in a term deposit earning 4% p.a. and $12,000 in a cash management account earning 5% p.a. However, they are not happy with the taxation implications of these accounts, as any interest earned seems to go in tax. Their everyday transaction account holds $3,000 but this has been set aside for emergencies and the clients do not want this changed.

Their credit card limit is $8,000, but the balance is paid out monthly as part of their $40,000 pa personal expenses. After completing a comprehensive risk profile analysis, you ascertain that they both have ‘balanced’ risk profiles.

Lifestyle Assets Liabilities ($) 130,000 Nil Nil

Assets

Owner

Value ($)

Home Cars Contents Total

Joint Joint Joint

750,000 40,000 50,000* 840,000

Assets

Owner

Value ($) Return (%)

Bank Account Term Deposit Cash Management Fund Total

Joint Joint

9,000 15,000

Joint

12,000

Net Asset Value ($) 620,000 40,000 50,000* 710,000

Investment Assets

36,000

4 4

Liabilities ($) Nil Nil

Net Asset Value ($) 9,000 15,000

5

Nil

12,000 36,000