Financial Planning Case Study

Mei Ling may not have enough money to cover her later years expenses; •She had been a fairly aggressive investor, but she may not want to take very risky investment since she cannot afford to lose at her age. Goals and objectives: •Cash-flow management; •Pay off the property investment loan; •Superannuation adequacy and savings programs; •Personal investing. Assumptions: •Taxation and other legislative conditions will remian stable; •Income will incerease by 1% over the rate of inflation; •The current dividend yield for direct share is 7%; The expected return for the investment of balanced managed fund is 7%; •Income from rental property is $30,000 per year; •Investment in account-based income stream, guaranted investment and high interest at-call deposit account all charge 2% ongoing management fees; •Investment earnings from account-based income stream and guaranted investment are tax-free, and income stream payments are also tax-free; •Superannuation and pension plan 1 is from a taxed source. Risk profile: More likely to be ‘Balanced’ than ‘Aggressive’

On this basis, I think an appropriate asset mix for her is: •about 40% in inocme assets (such as, deposit products), and •about 60% in growth assets (such as, some managed funds) Strategies: •Develop a workable budget and a savings plan (current expenses seem a little high at nearly $2,083 per week before tax); •Spread investments across a number of differnet classes of assets, invest parts of asset in retirement income stream and parts in balanced managed fund; •Use superannuation to pay off the property investment loan $400,000; •The rest uperannuation ($413,000-$400,000=$13,000), cash savings, and income from direct share portfolio could be put into a cash management account for emergencies and daliy expenses; •Transfer SMSF to a low-fee, account-based income stream, she can withdraw the minimum 4% per year, while the rest of her money can grow tax-free in the ‘balanced’ investment option until she withdraws larger payments later. •Invest the pension plan 1 in a balanced managed fund; Arrange the pension plan 2 to a guaranteed invetment of at least 4% payment per year. •Invest the income from rental property in a high interest at-call deposit account which she can access to extra cash if she needs without any withdrawal costs.

Outcome: Before taxAfter tax superannuation$455,000$413,000 SMSF$622,000$554,950 Pension plan 1$360,000$332,250 Pension plan 2$375,000$375,000 Rental property income$30,000$27,758 Mei Ling will receive $413,000 for superannuation after tax payment, use that fund to pay off the property loan of $400,000, and there is still $13,000 in hand; •Investment in direct shares at $320,000, Mei Ling will be able to receive $22,400 before tax and $14,686 after tax; •Put the rest of superannuation $13,000 with cash $60,000 and income from direct shares $14,686 into cash management account at total $87,686; •Investment in account-based income stream at $554,950, less 2% management fee for $11,099, Mei Ling will be able to withdraw $21,754. 4 per year for 25 years; •Invetment in balanced managed fund at $332,250, less 2% management fee for $6,645, she would receive $22,792. 35 before tax, and $21,920 after tax; •Investment in the guaranteed investment at $375,000, less 2% management fee for $7,500, she will be able to withdraw $14,700 per year for 25 years; •Income from rental property invest in high interest at-call deposit ccount at $27,758 (after tax) per year; •Thus, in this case, Mei Ling could expect to receive $100,818. 04 per year to achieve her goals; amount of $87,686 in cash management account for daliy expenses or emergencies; whereas she can also access the high interest at-call deposit account for extra cash if she needs for changes or unforeseen expenses.


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