Assignment Solutions on 200899 Retirement and Succession Planning

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Karunesh and Asha at this time you have asked us to provide advice on:

• Superannuation

As per instructions related to will or decision of superannuation Karunesh decided to transfer to Asha and Asha decided to transfer her superannuation 100% to Josh and rest of to Karunesh. Its advice to both of them to write a proper will upon their after-death circumstances as

• Personal Insurance

Both of them require attaining personal insurance from accidental cases as Asha’s mother faces serious injuries after accident. Karunesh have superannuation but he needs to focus on at least one of insurance instead of more than one superannuation.

• Investment

Both clients are interested to get rid of mortgage loan of $450000 as soon as possible so they need to focus on paying their liability of home mortgage instead of starting any new investment plan. Even they need to pay off their additional savings of $15000 per annum in paying their debts. So, there is need to pay off firm rather than going for new investment because they have already superannuation (three for Karunesh and one for Asha).

• Retirement

Superannuation from both ends needs to use for retirement plan.

In particular, after discussing your preferences and goals, we interpret your advice needs to be in the following areas:

• Superannuation

It’s advised to maintain or reduce superannuation by Karunesh to pay off their home mortgage quickly. Even any lum sum amount of superannuation from Karunesh could be used for paying mortgage loan. One of the plans need to be implemented, there could a settlement in paying of mortgage loan against superannuation fund. It’s upon Karunesh’s choice to choose one or two superannuation from three. This could be helpful to reduce mortgage burden immediately.

• Investment

No need for further investment as both clients has reasonable superannuation and wish to pay off debts firm and fast.

• Retirement Planning

Retirement planning need to be adjusted after payment of mortgage debt, as paying off debt is first priority for both clients. One of superannuation could be linked to retirement plan by Karunesh and Asha have also superannuation.

• Personal Insurance

Personal insurance is requirement and need of both of clients and they don’t have it. Both of them need to be insured as soon as possible. First of all, they need to get it from their employer if not, and then need to invest in insurance from their salary.

• Estate Planning

Paying off mortgage is itself a biggest estate planning for both clients. They have clarified that to pay off their mortgage debt first. Estate planning could be reviewed after getting paying off debt.

It’s not only about “retired” people, but when they get older people begin to worry about it more. Unfortunately, we cannot foresee accurately how long we’re going to live, and people of all ages are suffering from sickness and injuries.

Estate planning is often not simply about “the rich,” while those who have developed some money sometimes worry more about how to maintain it. Effective maintenance of properties also means more for families with small income, so they can afford to risk the least.

Individuals put off preparation of the estate because they think they don’t own enough, they aren’t old enough, they ‘re distracted, they think they have plenty of time, they ‘re overwhelmed because they don’t know how will support.

• Debt Management

Debt management could be biggest issue if one of the partners lost his/her job. So, plan b for all type of obligations could lead towards debt management plan.

There was a period in this country when parents were more concerned with their children consuming narcotics, falling out of school, but it’s tragic to admit that the most prevalent problem in the U.S. is no longer addiction, natural disasters or even violence, but it’s the outgrowing debt crisis, whether it’s public debt or personal debt, it’s a cause for significant consideration it doesn’t seem to receive. The good news is there aren’t any mysterious, secret methods for effective handling of debt. The answer is common sense and making a plan for complete makeover of your money. Effective debt management is action of 80 per cent and experience of the head of 20 per cent. It’s not about rocket science that some debt management firms are trying to make you believe.

No other financial planning advice needs have been addressed in this Discussion Paper. This means that we have not considered your need(s) for the following:

• Asha’s superannuation as you have specifically requested that I do not review your superannuation you have access to financial advice relating to super provided by your employer.
• General Insurance as you are happy to manage your general insurances yourself.
• Gearing as after further discussions you have stated that you are not comfortable with the concept of borrowing to invest.

By not receiving advice on these matters, these potential risks may exist:

• By not receiving advice on Asha’s superannuation fund there may be the risk that this fund may not be appropriate to your needs or suit your objectives.
• By not receiving general insurance advice there may be the risk that these general insurances are not appropriate to your needs and objectives
• By not receiving gearing advice you may miss out on potential returns and an increased retirement nest egg.

Should you change your mind and wish to receive advice in these areas please let us know.

Please be aware that by not receiving advice on these matters, you may not have appropriate strategies in place to assist you in achieving your goals in these areas.

The strategies in this document are for discussion purposes only and are not intended for you to act on without further advice.

Limited information warning

As our advice is based on information you have provided, if any information you provided is incomplete or incorrect, you risk making a commitment that may not be appropriate for you. It is important that you inform us if this is the case, so we can review our recommendations.

Rania Maksoud

Where to find more information

This advice is based on and incorporates information from the documents listed below and the documents should be read in conjunction with this advice. These documents have been provided to you, either previously or with this advice, but if you require further copies they are available free of charge by contacting us.

Your personal and financial position

Personal Information

Two clients are part of this planning, Karunesh (34) and Asha (44), they living in de facto relationship; Karunesh and Asha are in employments status.

Income

Karunesh have total annual income about 135000 with $69000 expenses and Asha have $75000 with $69000 expenses

Expenses

Essential expenses included $25000 for each client with $50000 for lifestyle expenses and $19000 for loan payments annually.

Assets

Principle residence amounting $1300000, home contents up to $80000, Mazda Cx5 $25000, superannuation for Asha $100000, for Karunesh ($60000, $50000 and $50000)

Liabilities

EWES finance current debt $450000.

Superannuation

Three plans of superannuation have been registered with Karunesh and one plan registered with Asha for superannuation

Insurance

Bothe clients need solid and secure insurance policies jointly or separately. Asha does not have any personal insurance inside or outside of superannuation. Karunesh has no insurance outside

of superannuation but does have $100,000 of Life and TPD insurance and a $2,000 per month income protection policy all within his superannuation fund.

Will (yes or no)

No one have written will but decided to transfer their assets if one of them dies before.

Current position (assets – liabilities)

$1665000 – $450000 = $1215000

Assets total $1665000

($1300000, home contents up to $80000, Mazda Cx5 $25000, superannuation for Asha $100000, for Karunesh ($60000+$50000+$50000))

Liabilities (EWES finance450000)

<<requirement: Calculation of current net worth.>>

Risk profile

<<requirement: Discussion of risk profile, asset allocation and application to recommended strategy.>>

PUT PIE GRAPH HERE

Strategy discussion

Financial strategies considered

(1) Financial strategy

Karunesh, I recommend (plan A) that you rollover your superannuation to the Domingo Superannuation fund.

How it works

A full rollover of your Domingo Superannuation and Carreras Superannuation involves transferring the full balance of these funds into your coming superannuation fund.

Karunesh, I recommend one the completion of the full rollover that you switch your investment option to the lifestyle 1980’2 fund.

Benefits of this strategy

The strategy outlined above is appropriate as your goal is to have your superannuation consolidated into one fund for ease of management.

By following the recommended strategy, this will allow you to have your funds invested in line with your risk profile of 15% defensive and 85% growth assets.

By following my recommendation, you will be able to purchase insurance within your superannuation as per your preferences.

Outcomes

<<requirement: Summaries the consequences of the strategy. You may wish to demonstrate outcomes in terms of cash flow, tax payable or expected investment balances at a given point in time. Remember, this is a generic strategy.>>

Risks you need to consider

The following risks may apply to the described strategy in Financial Strategy (1).

<<requirement: Within this section you must outline the risks that accompany your advice. You should also provide additional explanations on other financial risks associated with your advice. Include the risks for each strategy, even if they are repeated>>

(2) Financial strategy

Karunesh, I recommend that you apply for the following personal insurance:

Life

Total Permanent Disability

Critical Illness

Income Protection

Calculate insurance premiums using superannuation information (state the premium for each insurance).

You will need to calculate the critical illness/trauma from the premiums in the fact find

Recommend that your life, TPD and income protection be owned by the Domingo superannuation fund

Recommend that your critical illness policy be owned in your personal name.

Asha, I recommend that you apply for the following personal insurance:

Life

Total Permanent Disability

Critical Illness

Income Protection

Recommend these insurances be held in your personal name

Calculate insurance premiums using information in the fact find

How it works

As per my recommendations, the tables below outline how your insurance needs have been calculated:

Life (insert table)

TPD (inset table)

Income Protection

Critical illness

Benefits of this strategy

<<requirement: Outline why your strategy could be appropriate and the specific benefits it produces. Why are these strategies recommended? Outline how the strategies produce outcomes to meet the clients’ objective(s). >>

Outcomes

<<requirement: Summarise the consequences of the strategy. You may wish to demonstrate outcomes in terms of cashflow, tax payable or expected investment balances at a given point in time. Remember, this is a generic strategy.>>

Risks you need to consider

The following risks may apply to the described strategy in Financial Strategy (2).

<<requirement: Within this section you must outline the risks that accompany your advice. You should also provide additional explanations on other financial risks associated with your advice. Include the risks for each strategy, even if they are repeated>>

(3) Financial strategy

Karunesh, I recommend that you make a binding death benefit nomination to Asha as per your preferences

Asha, I recommend that you have make a binding death benefit to your estate. As Josh is a non-financial dependent, there may be tax consequences under the SIS Act if he were to receive your superannuation benefit.

I recommend you update your will as a matter of priority to ensure your estate is in line with your wishes.

(4) Financial strategy

I recommend you establish an offset account and direct $7,500 per annum to this offset account. This will allow you to offset any interest payable on your home loan and also allow you to have access to these funds in case of a medical emergency or your son Josh requires financial assistance

(5) Financial strategy

Karunesh and Asha, I recommend you establish an investment account held 100% in Asha’s name. I recommend that you invest in line with your joint risk profile of 15% defensive and 85% growth. This will allow you to have your funds invested in a diversified portfolio and attempt to receive a return above the current cash rates.

<<requirement: Projected 1-5 year cash flow >>:

Income -> Karunesh $135,000 and Asha $75,000

Tax payable (paycalculator.com)

Expenses (essential, personal, loan repayments, 7500 to offset account, 7500 per investment account

(25000+$25000+$19000+$7500+$7500)

<<requirement: Calculation of net financial position in year 5>>:

You will need to do superannuation projections here, use page 33 of the fact find to look at the return on investment.

Opening balance

Plus superannuation contributions (9.5% salary)

Minus fees in the fund

Minus insurance (where needed for karunesh

Calculate the loan amount over 5 years

Calculate the investment account over 5 years

Other important information

Forward illustrations

Any forward illustrations are intended as a guide only. They are purely estimates, not guaranteed, and may vary with changing circumstances.

Tax implications of our advice

Under the Tax Agent Services Act 2009, AMP Financial Planning is authorized by the Tax Practitioners Board to provide tax (financial) advice services on matters that are directly related to the nature of the financial planning advice provided to you. We will not consider any other tax matters in our advice to you. Where tax implications are discussed they are incidental to our recommendations and only included as an illustration to help you decide whether to implement our advice.

Assumptions

<<requirement: You have been provided with a set of facts and standard assumptions.

In this section you need to clearly document any further assumptions you have made or used to formulate your strategy.>>

The cost of my advice

During our meeting, we agreed the cost of my advice was as set out below.

Financial planning fees paid directly

The table in this section shows initial advice costs. It also shows where any of these amounts are received by AMP Financial Planning (AMPFP) and the proportion that AMPFP then passes on to our firm. All amounts in the table that follow include GST where applicable.

Discussion paper preparation fee	Already paid	$3,300	$3,300	$3,300	$0
Total initial agreed fees		$3,300	$3,300	$3,300	$0
Type of fee	Payment method	Costs to you	Amount paid to AMPFP	Amount kept by AMPFP (100%)	Amount kept by our firm (0%)
		$	$	$	$
Initial agreed fees

 

How I am paid

& for details regarding how I am paid, please refer to our Financial Services Guide/Financial Services and Credit Guide.

How am I paid?

I am an employee of AMP Practice and receive a salary and/or bonus from AMP Financial Planning.

Other benefits

In addition to the fees and commissions we may receive for our advice and services, we may also receive other benefits such as financial, marketing and training assistance from AMP Financial Services Limited. These benefits may be considered to influence the service we give you or the products we recommend to you.

& for further information regarding other benefits, associations and relationships, please refer to our Financial Services Guide/Financial Services and Credit Guide.

Next steps

<<requirement: Clearly state the next steps in the advice process.>>

Financial Adviser and Authorised Representative of:

AMP Financial Planning Pty Limited ABN 89 051 208 327

Australian Financial Services Licence No. 232706

AMP Practice: 33 Herbert Street, St Leonards NSW 2065