Required:
A. Calculate the Cheung's combined annual after-tax income. (Assume they are exempt from the Medicare levy surcharge because they have private health insurance in Alan's name).
B. Will the Cheung's be able to meet their objective of saving at least 25% of their combined after tax income until retirement? Discuss.
C. Calculate the amount of combined savings Alan and Sarah will accumulate in their insurance bond for their retirement using two investment options.
Option 1) they invest into a fixed interest insurance bond paying 2.3 % p.a.
Option 2) they invest into a managed fund paying5.5% p.a. Use an excel spread sheet or financial formulae provided below to show calculations and assume that savings are made at the end of each year.
D. Analyze two other issues the Cheung's need to consider in planning for their retirement.
Personal details, income and savings:
|
Name
|
Age
|
Gross annual salary
|
Insurance Bond
|
Superannuation
|
|
Alan Cheung
|
50
|
$85,500
|
$45,000
|
$125,000
|
|
Sarah Cheung
|
52
|
$101,500
|
$50,000
|
$180,000
|
|
The Cheung's have one 16 year old daughter who attends a State Secondary College.
|
Additional Information
• Alan plans to retire at age 60 and Sarah plans to retire at age 62.
• Alan and Sarah have decided to save additional money for their retirement using insurance bonds, which they opened at the beginning of year. At the end of each year, they will transfer any surplus money into the insurance bonds with 60% invested into Sarah's and 40% invested into Alan's insurance bonds.
• Alan and Sarah have set an objective that will save at least 25% of their combined after tax income until their retirement.
• Assume their income will remain constant in dollar terms and that the 2015/16 tax rate will stay constant until their respective retirements.
• Assume that the school fees and related education expenses will be incurred for the next years while their daughter completes secondary school and an undergraduate business degree.
• Assume that all expense amounts have been adjusted for inflation and will stay constant in dollar terms until the Cheung's respective retirements.
• Assume that both Alan and Sarah have 9.5% employer superannuation contributions until their retirement. This is paid in addition to their salary and they do not salary sacrifice into their superannuation.
Annual Budget Sheet
Regular Commitments
House repayments (5 year term)................ 32,500
Rates ....................................................... 960
Electricity/Water/Gas ................................. 840
Telephone/Mobile ..................................... 6,200
Pay television/Intemet ............................... 1450
Insurance - home/contents ....................... 1250
School fees and related expenses ............. 10,000
Insurance - car .......................................... 875
Health Insurance ...................................... 3,235
Credit cards p.a ...................................... 6,000
Loans (10 year term) ................................ 8,000
Petrol/maintenance ................................... 6,500
Car registration .......................................... 720
Public transport ........................................ 2,800
Other expenses
Food .......................................................13,500
Clothing/Haircuts/Beauty ............................. 4,500
House maintenance ................................... 3,800
Medical/Dental .......................................... 2,500
Entertainment/Dinners ................................ 2,500
Prof. Memberships (Sarah) ........................... 1,000
Gifts - Birthdays/Christmas .......................... 5,000
Total .....................................................114,130