Distance Education Personal Financial Planning

Instructions:Read your assignment thoroughly.
Handwritten answers will not be accepted.

Jordan and James Jovanosky recently visited you, a financial planner, to get advice on their financial affairs. They booked the meeting as they are very concerned about their financial state given the downturn in the economy in 2008 and the slow recovery since. During your visit you obtained all the following information outlined in the case study.
Using this information, answer the questions at the end of the case study. This will provide students the opportunity to blend all elements learned to date into a comprehensive financial plan for this household.
You met with this couple on January 5th. They wanted to start the year off with a fresh start. Jordan feels like they are living from day to day, paycheque to paycheque, and not planning enough for their future. James, however, is not concerned and feels they have a great life; in fact, better than most couples their age. He is earning above average money, they are putting money away for retirement, they have been fortunate to have parents provide them with so much financial help, and he feels they are pretty much on top of things financially. He believes in living life to its fullest and does not understand Jordan’s concerns. The couple seldom discusses their finances with each another, knowing they disagree. “Better to leave well enough alone.”
• James, age 35.
• Jordan, age 30.
The couple was married six years in an elaborate wedding ceremony after James proposed the year before on a trip to Italy. He gave Jordan a $10,000 diamond engagement ring. This adds to the jewelry she inherited from her family of an additional $20,000.
Two children:
• Brady, age 4.
• Brandy, age 1.
Pets:
• Jordan’s dog Biscuit (10- year old chocolate lab).
• One cat (Peanut – 2-years old).
• Two hamsters (Jack and Jill).
James was married previously to Donna and was divorced after four years of marriage. Donna has not remarried. She is a marketing manager, earning $70,000 per year. She receives no alimony.
They had a son from that marriage: Terry, who is now age nine.
James must pay $800 a month in child support payments, plus additional incidentals such as school fees, sports fees, etc.
James is an oil and gas consultant working for Alpaca Oil Company. He joined the company two years ago and earns a gross income of $90,000 per year. He received a $40,000 signing bonus to come work for this company. He spends approximately six months each year working in the Middle East consulting for the company in their overseas operations. He usually spends one month overseas and one month back home. When he is home, he goes into the office occasionally. He will receive a minimum bonus of approximately $25,000 per year.
James also holds some oil and gas royalties from oil wells his Dad transferred into his name. They generate $3,600 a year in revenue.
Jordan works part-time as an interior designer for J&S Interior Design. She is able to work from home most days and earns $40,000 a year. On those days she works in the office, her parents take care of the children, saving her child care expenses. Her parents are not interested in babysitting the children during evenings or weekends as they have a active lifestyle volunteering for several non-profit groups such as the Cancer Society, as her mother is an actual cancer survivor.
James has a full benefits package with his company including:
• Dental and medical benefits covering 80% of expenses.
• Life insurance two times his base salary.
• Disability insurance covering 66% of his regular salary, which is nontaxable.
His company does have a defined benefit pension plan. If he works until age 60, he is expected to draw a pension of approximately $4,700 a month in today’s dollars or $9,840 a month adjusted for inflation 25 years from now. Inflation based on 3% per year.
Jordan has no benefits or pension plan at the company she works for.
James and Jordan both carry term life insurance policies of $50,000 each. James has made Terry the beneficiary of this life insurance plan and Jordan the beneficiary on his life insurance plan at work. Jordan has made James the beneficiary of her life insurance policy.
The couple does not have a will. In fact, the last time James had a will, he was still married to Donna. They have not found time to get one prepared.
James’ hobbies include piloting small planes, racing dirt bikes, road trips on his motorcycle with a couple of good friends, and downhill skiing. He also loves to drink fine wines and brandies and smoke good cigars. He loves to live life on the edge, seek out new adventures, and enjoy it all he can.
Jordan prefers hiking, gourmet cooking, art history, and painting. She also likes downhill skiing. She loves to cook and entertain friends and business associates when James is actually in town. Her dinner parties are the envy of their friends.
The couple has a house in a lake community in Calgary valued at $700,000. Their mortgage has a current balance of $250,000. The house was purchased for $400,000, thanks in part to a $100,000 gift from James’ parents. His parents are well set financially and believe in helping their son get established. The mortgage payments on the house are $1,650 per month. Taxes are an additional $325 per month. There are 20 years left to pay on the mortgage. The house and the mortgage are registered in joint names with right of survivorship. The mortgage is life insured.
James has a 6 year old pickup truck worth $4,000. He also has a vintage Corvette worth $65,000. It has a loan of $30,000 outstanding with a monthly payment of $550. He bought it by putting money down from the signing bonus he received when he started with the new company. Buying the car was a long-time dream of his and he only drives the car in the summer. Vehicles and loans are in his name alone and are not life insured. They also have a one year old Yukon worth $40,000 that they have leased. Payments are $475 per month. The lease is in joint names and, like the other loans, does not have life or disability insurance coverage.James has a Harley Davidson motorcycle worth $12,000. Jordan has computer equipment worth $20,000 at home. They also have approximately $50,000 worth of antiques inherited from Jordan’s grandmother. They also have a boat they can use on the lake worth $10,000 – a gift from James’ parents.
The couple travels to Europe each summer. James is able to use his airline points to get them there, but the trip still costs approximately $6,000, as they stay only at high-end hotels. His parents take care of the children for those two weeks. They also hit the ski slopes seven or eight weekends every winter. They estimate that cost to be $3,000 a year.
They also spend lots of time at James’ parent’s cabin at Sylvan Lake. James’ father wants to subdivide the lot and have James and Jordan build a cabin there. This would cost the couple another $150,000, of which James’ Dad is willing to cover 50%. That would still leave the couple with a payment of $525 per month for 25 years if they were to do this.
Jordan really wants the kids to go to a private school when they start their education. That cost is estimated at $400/month for each child. She is a firm believer in education. She sees both of her children going to post-secondary school and has just started putting $100 month for each of them into RESPs. Jordan’s parents have purchased strip bonds for each child that will be worth $25,000 when each of the children turns 18.
Jordan has Brady enrolled in a special playschool two days a week that is very educationally-focused. It costs $100 a month.
James is thinking he should be putting money away for Terry’s education, as there is no doubt he will be responsible for some of these costs. Jordan strongly feels the current support payments seem high to her, and that Donna should be taking care of that education savings program and James should be focused on their own kids. However, James can see Donna going back to court to demand additional support for Terry’s education in the future. This was not a pleasant divorce.
Jordan wants to go back to school full-time for two years and upgrade her skills as an artist when the kids reach school age. The cost of going back to school will be about $8,000 for the two years. She could still work part-time and likely keep her salary at about $20,000 per year. But once she is finished, she sees herself earning approximately $65,000 per year.
Jordan has RRSPs of $10,000 in GICs. She is not much of a risk taker. James is her beneficiary on the RRSPs.
James on the other hand has $30,000 in his RRSPs, all invested in oil and gas mutual funds as he is so familiar with this industry. There is no beneficiary named on these RRSPs, meaning they would transfer over to the estate and be taxed if he were to die.
James contributes 5% of his salary to purchasing shares in his company. The company matches 50% of his contribution. This amounts to approximately $562.50 a month in total from him and his company. This amount is automatically deducted from his paycheque. Currently, his stocks are worth $30,000 in the company. James has a high risk tolerance, both in investing and in his approach to life. He really believes in living for today, especially after his father had a serious heart attack last year, giving the family quite a scare.
James would like to retire at age 60. He would want Jordan to retire at the same time and then travel the world more. They would like an income of $8,000 per month in today’s dollars to retire on – $4,700 of this will be funded by James’ pension. That means they still need to fund an additional $3,300 a month in today’s dollars for 25 years of planned retirement.
James is contributing $200/month to his RRSP. Jordan is not contributing anything at this time.
The couple has $9,000 in joint credit card debt on various cards, with interest rates ranging from 18% to 28%. They make the minimum payment of $450 a month on these cards. They also have a joint line of credit of $50,000 – with $30,000 owing – most of that from renovating the kitchen to accommodate Jordan’s culinary talents and a new pool table for James. The rest just seems to have accumulated from day-to-day use. They are making interest payments only of approximately $150 per month. The line of credit is unsecured and the rate is Prime + 2%. The line of credit is not life insured. They are thinking of spending another $15,000 to add a wine cellar and cigar smoking room for James.
The couple has no savings and their chequing account is usually close to zero soon after they get paid.
Some of the other financial information for this couple include:
James’ monthly take home pay (after all deductions including stock plan) $5,100
James’ annual bonuses after tax 16,200
Jordan’s monthly take home pay 2,300
Annual oil and gas royalties 3,600

The couple provided the following estimates for their other monthly living expenses. They are not certain of the exact amounts as they are too busy to really maintain any sort of record keeping system or to organize their financial paperwork. If there is no money in the chequing account, they simply charge things on the credit card or line of credit.
Utilities $500
Groceries (she does two major grocery shops per month) 850
Insurances (on vehicles) 450
Life insurance premiums 50
Entertainment (eating out, movies, etc.) 250
Clothing 300
Gasoline (on main vehicles) 200
Gifts 250
Hobbies (does not include skiing) 100
Life insurance on mortgage 50
Misc/household items 300
Personal allowances 400
Dry cleaning 100

Complete the following (be sure to number each section):
1. Prepare a net worth statement for this couple. (5 marks)
2. Prepare an income statement/budget for this couple.(10 marks)
a. Is there a deficit or a surplus? Note: Remember to include the costs/expenses of other items outlined in the rest of the case study.
b. Do you think they have accounted for everything in this budget? If not, what other costs may they have missed?
3. List their future financial goals, both explicit and implicit. (10 marks)
a. Include both stated goals and goals you think they should be including.
b. Break goals into short-term, medium-term, and long-term. Do this in point form.
c. Do you believe they are in a position financially at this point to achieve these goals? Explain.
4. Do you believe the savings in RESPs are going to be enough to finance their children’s education, if it is estimated each child will need approximately $100,000 when they turn 18 to go to school? (5 marks)
a. Show calculations as to what their current contributions of $100 a month will be worth when each child reaches the age of 18. Do not forget to include the 20% the government will pay in bonuses. (Assume a simple payment of $20 per $100.) Assume a rate of return of 8% on investing the money and also remember each child will have $25,000 from their grandparents at age 18.
b. What will James and Jordan likely have to save extra to reach this goal?
c. What other suggestions do you have to cover these educational costs in the future?
5. In regards to their retirement portfolio, do you think it is appropriately diversified? Why or why not? What risks do each of them face? (10 marks)
a. What changes might you suggest?
b. What portion do you think should be held in safety, income, and growth categories? Be as specific as you can based on your understanding of this family and their goals.
c. Should James consider putting his monthly RSP contributions into a spousal RRSP? Why or why not?
6. This couple is going to need $3,300 more a month in today’s dollars to finance their retirement at age 60 for 25 years. Considering they have $70,000 already in RRSPs and investments and with what they are contributing into RRSPs at present and the money in his stock portfolio plus what he and his company put in monthly, will they have enough or do they need to increase the amount going into RRSPs? (15 marks)
a. Assume a rate of return on the funds invested from age 60 to 85 of 4%. Assume an inflation rate of 3%.
b. Assume a rate of return on RRSPs and stocks of 8% from age 35 to 60. (Hint: Calculate the value of $3,000, 25 years from now. What future amount of money will it take to generate that monthly income for 25 years at a rate of 4%?)
c. Deduct what their RSP and stock monthly contributions and existing investment portfolios will be worth in 25 years from now at 8% and see if there is a shortfall.
d. Could they put this additional savings off for a few years?
e. What are the implications of this and how might they make up for the difference?
f. Do you think they will have any other sources of income or money to cover their retirements?
7. What suggestions do you have regarding their debt, payments, and expenses? (10 marks)
a. How might they restructure it differently or what changes might this couple consider to lower these debt payments to save money?
b. Is there any opportunity to pay this debt down quicker?
8. Do you think this couple is adequately covered in terms of life, disability, and other insurance? (15 marks)
a. Explain your answer fully.
b. How much insurance should they have?
c. What types of insurance should they be looking at?
d. What factors in their current situation will impact their insurance requirements?
e. What suggestions or recommendations do you have in this regard?
9. What concerns and possible suggestions do you have regarding their estate plan? (10 marks)
a. What are some of the implications of not having a will if either or both were to die tomorrow?
b. Does this couple need to consider powers of attorney? Why or why not? If why, what type?
c. What about personal directives?
10. Overall, do you think this couple has a realistic approach to their finances? Why or why not? (10 marks)
a. What suggestions, as their financial planner, would you make to this couple? (Especially since they think things are fine.)
b. How are you going to approach this couple?
c. What steps do you believe they need to take to get their financial situation in order?
Do as much in point form as possible to make it easier to read. You are expected to proofread your submission for accuracy in grammar and spelling and marks are deducted for errors.
While completing this case study, participate in Case Study #2 Discussion in the Discussions area. You can share your ideas with other students in this class, but you must submit your own assignment and work to avoid any plagiarism. Be sure to reference any outside sources you use – see the Getting Started> Citing Sources Using APA Format page in the Content area.
Note: Be sure the cover page at the start of this document is the first page of your case study and that the Name, Student ID No., and Instructor lines have been filled in.
Note: If you choose to use Microsoft Excel to create the net worth statement and income statement/budget, submit your assignment as a .zip file containing all of your case study files.
If you have questions regarding the assignment, please contact the instructor.
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