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What have we discussed thus far in class?
Look at your family and begin to take notes about these topics.
Basically you are asking 3 main questions for items we have discussed in class.
1. Is the family doing things right in this category
2. What are they doing wrong in this category
3. Solution to fix the problem
YOU SHOULD INCLUDE AS MANY CALCULATIONS AS POSSIBLE – SHOW ME THAT WHEN YOU MAKE A CHANGE TO A BUDGETED ITEM HOW IT AFFECTS THE OUTCOME!!!
I WANT TO SEE NUMBERS AND CALCULATIONS!!!!
If you have a family doing all the right things, attempt to make YOUR family wealthier so that they can leave an inheritance/trust.
ALL SUGGESTIONS HAVE TO BE EXPLAINED – WHY OR WHY NOT DO SUCH AND SUCH….ALL SUGGESTIONS that deal with money SHOULD HAVE A STATED OUTCOME. For example, after examining your family, you believe Mr. Smith should be taking advantage of a matching contribution from his employer. Your paragraph about this should be written similar to this:
EXAMPLE: Mr. Smith is not taking advantage of a matching contribution from his employer and he should be taking advantage of this because it is free money. He currently has $75,000 in his retirement account. If he takes the employer matching plan of 5%, he will increase his monthly retirement savings to $471.25 instead of $425. He has 16 years before retirement. Assuming a 5% ROI, his retirement is likely to increase by $14,000. If he continues as is he would only have $284,370 after 16 years. See below calculations. I used this retirement calculator.
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Final Project - Exam:
Here are some suggestions:
Chapter 12 – Evaluating Stocks. Do they own stocks? If yes, do they own the right kind? If no, should they buy/invest in some? Make suggestions on their investment strategy and risk tolerance. Also is someone doesn’t have enough money to pay their bills, should they be investing in the stock market? One should only invest if one can afford to LOSE it all.
Chapter 14 – Investing in Mutual Funds. Same as stocks…. Do they own MFs? If yes, do they own the right kind? If no, should they buy/invest in some? Make suggestions on their investment strategy and risk tolerance. Ditto for mutual funds, even though they are safer -- should they be investing in the MF if they can barely afford to live.
Chapter 15 – Retirement and Estate Planning. How much income will they need to retire? Do they own a house? Could they do a reverse mortgage? (and how will it affect their monthly budget – use numbers!) Do they have a will? Do they have enough to set up a trust for their children? Should they? Make sure all property is jointed owned? If not, what needs to be done? If they are wealthy can they use the “federal gift” tax allocation (pg 329). Should they be giving gifts of money or property to their children? How does this help?
Do they have an IRA account– traditional or Roth? If yes, are they putting in the amount they should be—remember the limits and don’t forget if they make too much they cannot put the full allotted amount. Does their Employer offer a 401(k) or 403(b). Are they investing in it? If yes or no, state the important information about it. Does their employer match funds? If so, are they taking advantage of this? How does Social Security play into their financial scheme? Military benefits? Employer pension?
TVM – Do they have enough to retire on? Use the formulas from homework worksheet. Here is a great retirement calculator. Come up with an amount that they need to have in the bank when they retire. How long will they live for – how many years? Are they are track? Another FV/PMT calculator.
Most people expect to live until 85 (83 for men, 89 for woman). How much do they need to live on per year? FOR THIS NUMBER USE 80% OF THEIR CURRENT SALARY. __________(A)__. This is the PMT that they would need for 20 years. (We will go with general understanding that most people will retire at 67 and live until 87, 20 years.) Example: $55,000 salary. 80% is $44,000 (55,000x.08)
Computer the PMT value of this using a 6.5% annual rate of return and use 20 years – the years they expect to live after retirement. This is the amount needed in their retirement account when they begin retirement. _484,814.32__(A1)__
Now using that number, computer the present value—again using 6.5% BUT how long do they have to save – will be different for all families. It is their age(s) (do an average if there they are a couple) and subtract 67. Example: my person is 35 yrs old. So I am using 32. __64,623.13_(B)__
How much does your family currently have saved for retirement? Will be different for all. My example has __$12,450_(D)__. Subtract this current saved amount (D) from (B). ___$52,173.13__
How will you suggest they get to this future amount of (B)? Using this future (B) amount at 6.5% and the number of years they have to save, _$6,954.40__(C) is the amount needed to save each year. Is this possible to save this amount? What would it be monthly? How can they attain it? If they cannot do it now or the full monthly amount, what can you suggest?
If yes, great just indicate such. If not, make suggestions how your family can save this amount each year. Make adjustments to expenses if you’d like; make adjustments to 6.5% (liking hoping for a 10% return which mean you have to put less in the account) but tell me how you would do that. How does it change the outcome?
YOU MUST USE TODAY’S NUMBERS (their salary now) to compute how much they would likely need per year to retire. If they are falling show, what can they do/need to do to get there. Set a goal for them.
REMEMBER: YOU CANNOT HAVE DIVIDENDS OR INCOME FROM THESE ACCOUNTS UNTIL YOU ARE 59 AND HALF.
Social Security payments are a big part (but shouldn’t be) of income after someone retires. You should take this into consideration when looking at their income after retirement.
Social Security retirement benefits are designed to replace part of a worker's earnings from work. The formula used to calculate these benefits takes into account lifetime earnings over 35 years. Social Security benefits replace a larger share of past earnings for low earners. While high earners receive larger benefits, their benefits replace a smaller share of what they had been making.
For example, a 65-year-old who retired in 2015 with a lifetime of “medium” earnings (about $46,290 in 2014) would receive about $18,320 a year, which would replace about 40 percent of past earnings. A “low” earner who made about $20,830 in 2014 would receive about $11,120, which would replace about 53 percent of prior earnings. A worker who always earned the “maximum” taxable amount ($112,085 in 2014) would get benefits that replace about 26 percent of prior earnings.
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Chapter 1 – Career. Is this anything that the family or members of the family need to do with regard to their career – change it, more education/skills, begin to work, try for promotion, etc. How can they reduce work related expenses, if such exist?
Chpt 6 - Pay, Benefits and Work Conditions
Do a take-home spreadsheet for your family/person. Final out what their take home pay is. Does their employer offer any benefits they are not currently taking advantage of – retirement match, helping to pay for college or skills training, day-care costs, etc.
Part time workers generally do NOT get benefits like health, 401(k), pension – etc.
20 – Making Decisions
Do they need to tweak their purchasing in any fashion; what advice can you give them (that they need) from Chapter 20????
TOTAL DEBT – What is the total of their debit (car, house, loans, credit cards, etc.). Is it more than 33% of their gross income? If so, they are in debt problems.
Chapt 22 – House Buying – Do they own a house? Can they afford their house? Remember if they are paying more than 25% of their gross income for their mortgage, if may be too much. If not, what do they need to do—sell it, downsize, rent, or move in with relative? How will it impact their budget?
Are they saving for a house or want to buy one day? If so, what can you suggest about saving for a house, interest involved, costs involved, PMI, etc.
Offer any and all advise that you can from what you learned about house buying.
If you are going to suggest a reverse mortgage, make sure you explain how this will affect their monthly budget – use numbers/calculations.
If you are going to suggest they pay off their house or if their house is paid off – remember a house owner still needs to pay property taxes each year and insurance.
Chapt 23 – Car Buying – same as house; can they afford their car or carS. If not, what do they need to do. Sell a high value one for a used vehicle they can possibly have no car payment. Can they cut their costs down at all and how!
If they don’t have a car but want one – suggest how to go about getting a car that fits in their budget.
Same goes for car – if they own it – they still have the monthly expense of insurance, gas, maintenance.
Chapter 8 – Budget
Create a budget for your family. You can use the budget that you did (Take_home Pay) and edit it with their numbers. You can do a “now” and a “edited” one that shows what you are suggesting for their budget.
IS YOUR FAMILY IN DEBT? You must figure out a way to get them to pay down their debt – always start with the biggest debt – while still paying for their necessities which is usually house payment and life/health insurance. All other categories should be down to lowest amount available to spend. For example, there should no health club, barley if any entertainment, no gifts, etc. They need all this money to pay off their debts.
Chapter 26 – House/Personal Liability and Auto Insurance
Write a paragraph as if your family had no prior information about these types of insurance. What you would tell them about such types of insurance. If you story indicates that they have these and states the amount of the policies, comment on if they are sufficient. If your story does NOT indicate, make suggestions about sufficient coverage and costs for those.
Chapter 27 - Health and Life Insurance
Basically the same what you did above, but now for health, disability and life insurance.
UNDERCLASSMAN ONLY – will do this part during exams at end of year.
Chapt 16 -19 – Was is their credit situation—remember not to include mortgage and car loan in credit debit. Remember the 20/10 rule—are they outside of this range? Do they need to change it; what needs to be paid first; make a plan for it
Chpt 10 – Saving for Future
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