- Please Analyze Or Better Yet Criticize Case 1 And Case 2 At The End Of Your Syllabus And Include 5 Recommendations To Im 1 (10.17 KiB) Viewed 47 times
Personal Finance Case #1 Mary and Harry Reser, 57 and 62, are looking ahead to retirement early next year. They are thinking about heading south to a cheaper and warmer state but haven't made a firm decision. Harry is the sole breadwinner and earns $64.543, plus an additional $8.169 from investments. The Reser's two main concerns are longevity and taxes. "We want to take income from investments with the least amount of tax liability and make the money we have accrued last as long as we do," notes Harry. He also noted a concern about taking money out of tax-deferred plans in the correct manner to avoid IRS penalties. The Reser's can be considered "millionaires next door," with an impressive net worth of $1.065.951. They have absolutely no debt and the following assets: $32.000 in a 2% bank passbook account, $347.365 in telephone stock; $224,901 in Harry's 401(k): $31,000 in an annuity; $202.685 in mutual funds; $23,000 in whole life insurance; their $190,000 home; and $15,000 of personal property. No information was provided as to the type of mutual funds or the 401(k)'s asset allocation (i.e. the percentage of the account in different types of assets like stocks and bonds). Harry contributes 15% of his salary to the 401(k) and appears to have been doing this for many years. Neither spouse has an individual retirement account (IRA), however. The Resers estimate that their monthly expenses total $1,500. The are concerned about the future cost of health care and note that, in retirement, "the biggest expense not in our current budget will be medical insurance." Currently, Harry shares part of the cost of health coverage with his employer but this coverage will end after he retires. His employer also provides short-term disability coverage and matches his 401(k) contribution up to the first 8% of pay. The Reser's car and home have $500.000 and $300,000 of liability coverage. respectively. They do not own an umbrella liability policy. The Resers are thinking of tapping their $23.000 of life insurance cash value. "We do not feel that we need life insurance any longer," says Harry, "and will most likely cash them in." Taxes were mentioned several times as a major concern. The Reser's taxable income is $50,543. If their adjusted gross income in retirement exceeds $44.000. 85% of their Social Security benefits will be taxed. Tax on Social Security is figured on what is known as "preliminary adjusted gross income." This figure includes all earnings, pensions, dividends and interest from investments, including tax-free municipal bonds, and half of a person's Social Security benefit. The Resers do not have wills. They have no children and it is unclear who their heirs are.
Personal Finance Case #2 Roy Bemmer, 54, has lots of concerns about his finances such as "should I chance taking $5,000 and investing it aggressively?" and "How well am I able to retire at age 60 or 62?" Bemmer is also very concerned about unemployment. His income last year was $83,866, but he expects to earn only $27.000 this year. Earlier this year, he was downsized and took early retirement in order to keep his medical benefits. He was also laid off previously in the late 1990s. Right now, he is living "paycheck to paycheck." Bemmer is currently working in a series of temporary jobs with variable hours, so his monthly income is unpredictable. His financial goal for the near term is to save as much as possible for retirement and accumulate liquid assets in case he becomes unemployed again. Within ten years, he wants to purchase a new $25,000 vehicle and take vacations costing $3,000 to $5,000 per year. After that, retirement is on the horizon. Bemmer would like to live off his investments and Social Security. Fortunately. Bemmer has accumulated significant assets to help achieve his goals. His net worth is $700,200. This includes $406.172 in a former employer's 401(k), $102, 413 in seven different mutual funds, $5,750 in savings and checking accounts, and $25,865 in 14 certificates of deposit. Approximately 90% of Bemmer's portfolio is invested in growth or growth and income mutual funds, including five different Vanguard funds and five different Fidelity funds. Bemmer's $110,000 house is owned free and clear, along with $30,000 of property and a $20.000 car, and he has no other debts. Bemmer's monthly expenses were not listed. He did note, however, that he put 15% of his salary, when he was working into a 401(k). Currently, he invests all surplus funds in two Vanguard index funds. Bemmer's financial data is meticulously kept in a series of computer-generated tables. He is single, lives alone, and has no financial dependents. As for insurance. Bemmer has $14,000 of life insurance. His former employer pays all but $24 a month toward the cost of major medical health coverage and he has $500.000 of auto and homeowner's liability. He has never had disability coverage and wonders if he should buy a long-term care insurance policy since he will have nobody to care for him when he gets older. Bemmer has a will that was last reviewed in 1994.