Dr. Maria G. Habanero
Personal Data
Age 43
College professor
Recent widow
Children: Consuelo, age 14, Guzman, age 9
Financial Data
Assets at fair market value
Cash (TIC) $ 150,000
Stock- Los Manos Corporation (Cali, Colombia) (husband) 50,000
Current State Retirement Plan balance 17,025
IRA's
Ricardo (Maria as beneficiary) 50,000
Maria 20,000
Residence(JTWROS) 350,000
Mortgage 320,000
Auto (2009 BMW)(corporate asset) 35,000
Annual income and expense
Salary $ 70,000
Mortgage payment 23,000
Income taxes 11,500
FICA 5,700
Property taxes 2,400
Auto 6,000
Health insurance 3,000
Homeowner's insurance 1,200
Groceries 10,000
Utilities 2,400
Repairs/Maintenance 1,200
Credit card payments- Entertainment and travel 3,600
Total $ 70,000
Maria has come to you for financial planning advice. She has identified three goals she wishes to accomplish:
1. Provide for the education of her two children.
2. Ensure that she will be able to maintain her lifestyle at retirement age (67)
3. Purchase a summer home in Colombia in 12 years. She plans to reside there full time after retirement as a US expatriate.
She provides you with the following information
- Currently she is contributing the minimum before tax contribution of 2% to the state employee retirement plan. The cap on allowed
contributions is 5% of salary. The university contributes a dollar for dollar match up to 5% of employee salary. She chose for her account
to be invested 50% in cash and 50% in bonds. She will be entitled to whatever balance is in her account at her retirement. The
University also offers a 403 (b) plan and a 457 plan for employees to contribute to. Investment choices range from money market
accounts to mutual funds investing in various stocks and bonds. Returns for all retirement plans are .5% for money market, 4.5% for
bonds and 10% for stocks.
- Her and her husband purchased the current residence three years ago for $ 450,000 with a $ 100,000 down payment. The balance
was financed at 6% for 30 years. She prefers to keep her current residence until the children are out of college.
- Because she lived in Cali for 10 years and has not adjusted very well to the move to the US, Consuelo wants to attend university in
Colombia. Currently, the annual cost of tuition, room and board for a foreign student averages $ 35,000 (US). The cost of college is
rising at the same rate as for US colleges and universities. The breakdown of the total cost is the same as the US averages. Guzman
will likely attend a US institution.
- Her husband died of a capsicum pepper overdose last month while judging a chili contest. His estate is still open. However, no estate
tax will be due.
- She has been teaching at the university for 3 years having returned to the workforce after an extended period of study to get her
PhD. She teaches only during the regular 9 month school year, preferring to have her summers off to relax and do research. Her annual
raises have been in the range of 3.5% annually. She is expecting to make full professor with tenure in another 5 years. This will yield a
one time raise in her annual salary of 15% after which her annual raises will return to 3.5% annually.
- Summer homes in Colombia similar to what she wants currently are in the $ 125,000 to $ 150,000 price range.
- Maria is not involved with the management of the corporation. The company pays no dividends now and does not anticipate that
dividends will be paid. Her deceased husband's shares represent a minority position in the ownership of the company. Colombia's
corporate statutes have no provisions for minority rights.
Given the above information, do the following:
1. Place Maria's goals in the proper order.
2. Calculate her income needs for retirement.
4. Calculate the additional annual retirement contributions she needs to make to accomplish her goal of maintaining her current lifestyle
in retirement.
5. Offer suggestions concerning sources of funds for the additional retirement contributions