Goals and Considerations
On December 2, 2004 you had a second meeting with your client, Sally Sosa. There have been several changes in
Sally’s life since you initially met with her two months ago. During a vacation to Spain to celebrate her late husband
Samuel’s birthday last month, Sally and Samuel decided to participate in the Running of the Bulls. Samuel, not
realizing he actually needed to run, was crushed by stampeding bulls after he hopped in front of them and blew them
kisses. Fortunately for Sally, she was the beneficiary of Samuel’s $4 million life insurance policy. She received a check
for the proceeds last week. When she was depositing the check at the Last National Bank of Mattoon, the bank teller,
Harlow Holt, suddenly realized he was in love with Sally. They are to be married next week. Harlow, age 20, has a
two year-old son, Hurricane, who will be living with Sally and Harlow after the wedding. Hurricane is blind and has
been diagnosed with acute learning disabilities.
Based on the information Sally had prepared prior to the meeting and your discussion with her, the following goals
were established by Sally. The goals are listed in order of priority from the most important to the least important.
1)
Sally would like to immediately retire, if possible. She would like for you to calculate what percent of her investment
portfolio she can withdraw each year and still leave $300,000 to the Society for the Protection of Grass Carp at
Harlow’s death.
In reviewing the initial retirement plan you prepared for her she noticed that over the span of years in the plan you assumed
her investments would return the "average” rate of return each year. She feels this is an invalid and risky assumption. She
knows investment rates vary from year to year and sometimes they vary greatly. She pointed out the following simple example:
Assumes she invests $1000.00 and expects a 10.0% average yearly return on her investments. In two years the investment will
be worth $1210.00 under the method you used.
Now assume the same $1000.00 returns -10.00% the first year and +30.00% the second. Her investments after those two
years are worth only $1170.00 even though her investment returned "on average" 10.0%.
She feels the above example demonstrates the need to account for the volatility of investment return rates. She suggests you
use historical return analysis. For each asset class (stocks, bonds and treasury bills) she would like to use the returns beginning
in 1940 until the end of Harlow’s life expectancy, forty years from now in 2044. She wants you to use the returns for 1940 for
your 2005 returns, for 1941 for 2006 returns, etc. She feels this is a much more realistic method of calculating her expected
investment returns each year.
To assist you, she has provided a Microsoft Excel file with historic returns beginning in 1928 that you can download:
http://www.eiu.edu/~dmcgrady/fin4300/exam/historic.xls
2)
3)
Sally would like to leave $300,000 to the Society for the Protection of Grass Carp at Harlow’s death.
Sally has been told she might need to “do some estate planning”. She would like for you to prepare your recommendations
for estate planning.
Summarized below is the data Sally prepared to assist you in preparing a financial plan.
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The Client Profile
Clients
Sally Sosa
Date of Birth: 4/12/1962
State of Residence: Illinois
Citizenship: USA
Health Status: Excellent health
Employer: Society for the Protection of Grass Carp
Occupation: Counselor
Annual salary: $60,000
Harlow Holt
Date of Birth:. 10/16/1984
State of Residence: Illinois
Citizenship: USA
Health Status: Below average health. Has been diagnosed with high blood pressure and has a family history of heart diease.
Employer: Last National Bank of Mattoon
Occupation: Bank teller
Annual salary: $14,000
Home Address:
9176 Old Hog Farm Rd.
Mattoon, IL 61938
Children (Sally):
Hopalong Sosa
Date of Birth: 8/12/1980
Health Status: Healthy
Children (Harlow):
Hurricane Holt
Date of Birth: 8/10/2002
Health Status: Visually impaired
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CLIENT HISTORY
Sally is an only child. Her mother passed away three years ago and left Sally a large
inheritance. She used this to purchase the couple’s new home, an H2, a bond mutual fund and
pet llamas. She recently sold the bond mutual fund and invested in an S&P 500 index fund.
Her father passed away five years ago of natural causes at the age of fifty seven.
Sally has a simple will that was drafted while she was married to her first husband, Boohoo Alou.
The probate process has just begun for Sally’s late husband, Samuel.
Harlow is an orphan and a recovering alcoholic. He began work two months ago as a bank teller.
He plans to retire in 30 years. He has a child, Hurricane, from a prior marriage which ended last
year. Harlow has full custody of Hurricane.
Harlow’s only asset is a 1972 AMC Gremlin valued at $375. He has no debt.
Harlow does not have a will.
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ASSUMPTIONS
Sally has agreed to the following assumptions:
Overall Assumptions:
• The inflation rate is two percent.

Federal income tax marginal rate is 25%, capital gains tax rate is 15% and Illinois state income
taxes are 3%.
• Harlow’s salary will increase two percent per year and Sally’s will increase by seven percent.
• Life expectancy for Sally is age 70 and for Harlow is age 60.

Sally wants to assume they will receive no social security benefits as they are concerned about the
solvency of the social security system.
Goal Assumptions: These were agreed upon with the client.
Retirement

Living expenses, including debt payments and taxes, equal 100% of the Harlow’s income and
withdrawals from their investment portfolio.

After Sally’s death, Harlow’s living expenses will be 60% of the prior year’s living expenses.

Living expenses will increase at the rate of inflation. Consequently, annual withdrawals from the
investment portfolio will need to increase at the rate of inflation.

Sally has a Conservative Risk Tolerance during retirement and desires a portfolio of 10% equities,
40% Treasury bonds and 50% Treasury bills.

Harlow does not have any plans to save for retirement. Sally feels they can live off her investment
income and his salary.
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PERSONAL INFORMATION
Fixed Income Assets
Merrill Lynch S&P 500 Index
Fund: 1,000 shares (MASRX)
(Equitymutual fund)
Treasury Bills
Current
Value/Purpose*
Owner
Sally
Sally
$14,800/Any
$4,000,000/Retirement
Cost
$11,000
$4,000,000
Retirement Assets:
Description
Samuel's 401(k)- 100 shares of
Vanguard 500 Index (VFINX)
Sally's Traditional IRA: 2,000 shares
of Krispy Kreme (KKD)
Owner
Current Value/Purpose*
Estate of Samuel Sosa
$10,000 / In Probate
Sally
$24,000 / Retirement
*Specific purpose for dollars where indicated. Otherwise dollars can be
used for any goal.
Retirement Plan Contributions: Sally and Harlow’s employers do not offer
a retirement plan.
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Requirements for the Sosa’s Financial Plan
The plan should be placed in a three-ring binder with tabs labeling the sections of the plan. The
plan should contain the following documents in this order:
The Statement of Representation contained on the next page.
Retirement Planning
A retirement planning summary discussing your recommendations for Sally’s retirement. This should
include:
A summary of your recommendations for Sally’s retirement including the percent of her investment
portfolio she can withdraw and spend each year. This should be a written summary. Include as
support for your conclusions the following schedules:
1. Calculation of the Holt’s annual living expenses until their anticipated deaths.
2. Calculation of the annual distributions from the couple’s investment accounts until their
expected deaths.
3. Calculation of the amount of funds available to fund the desired gift to charity at Harlow’s
death.
4. Calculation of the amount of funds remaining at Harlow’s death.
Estate Planning
Prepare a written summary of the estate planning recommendations you have for the Holts.
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Eastern Illinois University
FIN 4300
Final Exam Case
Statement of Representation
I certify I prepared this document without assistance from faculty members, other students, or
financial services professionals. I represent this document to be the result of only my work on this
case.
_________________________________________
Name
7
______________________
Date