Presentation to the Griffins FINANCIAL PLAN RECOMMENDATIONS Agenda Review current financial situation based upon information gathered in our previous meetings to assess strengths and weaknesses. Discuss our recommendations going forward in order to achieve your stated long-term goals. Discuss timeline for implementation should you choose to and determine process and frequency for monitoring progress over time. Family Life Cycle Data Ages John Griffin 37, Jackie Griffin 37 Marital Status Married Filing Jointly Occupation John – Geologist, Jackie – Homemaker Children Jack 6, Jill 3, Jane 1 Income John – $85,000, Jackie $0 Net Worth $244,861 Your Financial Planning Goals Saving for 4-year college education for Jack, Jill, & Jane Reduce Debt Retirement at age 62 with 70% wage replacement (excluding SS) ideally but would accept retirement at age 65 with 80% wage replacement. Appropriate risk management strategy for investment portfolio and estate plan Current Financial Situation Reports Your current balance sheet Your current income statement Statement and pie chart Statement and Pie chart Be sure to review these documents and let us know if you have questions or concerns. Method of Analysis We compiled and analyzed these reports using Money Education Financial Statements. Included in your packet will be: Ratios Analysis Report Three Panel Approach Report PASS Asset allocation Analysis These reports helped to guide our recommendations and where the most impact in your long-term plan may be made. Issues that Need Attention Debt Reduction Debt service payments are hindering ability to create cashflow and thus increase savings to meet short and long term needs. Risk Management Issues Estate Planning Documents Long Term Goal Issues Retirement & College Education SWOT Debt Reduction/Free Cash Flow According to our tax analysis, it seems John’s withholding is too high and should be lowered from $15,000 to $4,863. Potential Annual savings of $10,137. Sell Assets (Gifted stock, ATV) in order to pay off debt and free up annual cash-flow in the amount of $21,901. Mortgage Refinance would reduce interest rate to 4% from 6.25%, creating $7,145 in annual savings. These changes will provide an increasing monthly/annual savings opportunity which will increase every year. (See 1, 3, 5 year income statements and balance sheets) Risk Management Recommend adding a Term life policy for John with a face amount of 1 million. Additional cost of $1,200 annually. Increase disability insurance for John. Additional cost of $600 annually. Increase Homeowners Insurance. Additional cost of $875 annually. Increase Auto insurance. Little to no additional cost. Estate Planning Will (including naming guardian for children Advanced Medical Directives Durable Power of Attorney Possibly Trust for children We estimate this one-time cost to be ~$2,500 Long Term Goals – Retirement & Education Recommend planning to retire under the alternative scenario at age 65 with 80% wage replacement including SS. Use portion of sold assets to open and lump sum fund 529 accounts for children (Jack $4000, Jill $3238, Jane $1000). Continue to fund these accounts using the free cashflow created. Will have the ability to significantly increase contributions after debt is reduced. Let Grandparents know how to contribute to these accounts if they would like. Implementing recommendations to reduce debt and using the resulting cashflow for retirement and education contributions will significantly improve probability of achieving these goals. Present Value of All Goals Retire at 62 with 70% wage replacement, Adequate Insurance and risk management strategy, fully funding college education for 4 years for all children. With current financial situation these goals combine to equate to needing an additional $23,398 in savings annually. (See PV of all goals report) Please carefully consider these recommendations as we believe they will achieve a much healthier financial position. Summary of Recommendations Sell gifted stock and ATV & pay off all debt outside of mortgage. Reduce tax withholding to ~$4,900 Refinance mortgage. Increase auto, disability, & homeowner insurance. Establish 30 year term life insurance policy for John with $1 million face amount. Establish estate planning documents. Establish 529 college savings plan for each child and lump sum fund with cash left over from sale of assets above. Contribute to these on monthly or annual basis. Begin contributing to money market account to shore up emergency fund Increase John’s annual 401k contributions to $12,750. Summary of Cashflow Adjustments Annual Basis Description Additional Cost Savings Debt Reduction $33,829 Tax Withholding Reduction $10,137 Mortgage Refinance $7,145 John Term Life $1,200 Jackie Term Life $280 Home Insurance Increase $875 Disability Insurance Increase $600 Savings (Retirement, Ed., Emer) $23,195 Future Assumptions We made assumption that John would receive increases in income each year to at least keep up with our inflation assumptions. Discretionary income will increase each year according to our income statement forecast with debt retirement. This can be used to increase 529 and retirement account contributions each year. Net worth will grow from $244,861 to $461,095 by year 5, and will continue to grow each year. Next Steps Meet again in two weeks after you have carefully considered these recommendations. Feel free to contact us if anything changes with your current information or if you have questions as you review. Additional Assumptions, Reports and Statements Risk tolerance and rate of return requirement dictate rate of return assumption of 8.5%. Life Expectancy of John and Jackie is 91 years. Inflation rate of 3%, Education inflation rate of 5%. Pass Score Pass Score 6-12 13-18 19-24 25-30 Cash & Money Market Fund 5% 5% 3% 2% Treasury Bonds/Bond Funds 30% 20% 12% 0% Corporate Bonds/Bond Funds 15% 10% 10% 4% International Bond Funds 0% 5% 5% 4% Index Fund 20% 20% 20% 25% Large Cap Funds/Stocks 25% 20% 15% 10% Mid/Small Funds/Stocks 0% 5% 10% 20% International Stock Funds 0% 5% 10% 15% Real Estate Funds 5% 10% 15% 20% Total 100% 100% 100% 100% Expected Return 6.93% 7.73% 8.51% 9.77% Expected Standard Deviation 7.75% 8.94% 10.12% 12.20% Tax Analysis Item Amount John Salary $85,000 401k Deduction $5,882 AGI $79,118 Standard Deduction $24,800 Taxable Income $54,318 Calculated Tax $10,863 Child Credits $6,000 Total Liability $4,863 Attached Reports & Statements The reports included will detail exactly how these recommendations will affect your financial picture and forecast progress toward achieving goals. Current year Income Statement & Balance Sheet with recommendations 1& 5 year Income and Balance sheet Statements with recommendations to show the immediate impact of changes as well as how financial picture will improve over time. Three Panel Approach and Ratio Reports with recommendations.
