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FIN328

Retirement and Estate Planning

Wollongong

Assessment 5 - Exam

Autumn 2023

QUESTION 1.                                                                                                                         Total 10 Marks

William and Kate, a married couple, are reviewing their estate planning needs; they are both aged 67 and supply the following information:

· They jointly own their home worth $1,800,000 and have no debt.  

· They jointly own a car ($40,000), home contents ($60,000) and savings ($30,000).

· William’s allocated pension has $530,000 (tax-free $130,000, balance from a taxed source).

· Kate’s allocated pension has $350,000 (tax-free $50,000, balance from a taxed source).

· They have two financially independent adult children; one is experiencing marital difficulties.

· They would like to leave their estate to their children equally.

Required:

a) Discuss the estate planning issues associated with this scenario.          (5 marks)

b) Explain compliance requirements for providing financial planning advice in this case.    (5 marks)

QUESTION 2.                          Total 10 Marks

Jim is single, aged 67, has just retired and wants financial planning guidance.  His assets are listed as follows:

Required:

a) Explain Jim’s options for Centrelink and calculate level of entitlements. (3 marks) 

b) Assess affordability of retirement based on spending needs of $40,000 net per annum,
and investment objective: inflation +2%, where inflation 3% per annum. (3 marks)

c) Explain the potential future aged care living options for Jim. (4 marks)

QUESTION 3.                 Total 10 Marks

Mary is single, aged 70, and has heard that tax may be payable if her daughter Amy receives her allocated pension funds in the event of her death.  Mary has $500,000 in her allocated pension account: $50,000 tax free, balance from a taxed source.  Amy is aged 40 and non-dependent.

Required:

a) Calculate the tax payable if Amy was to receive Mary’s funds as a death benefit.     (3 marks)

b) Explain to Mary the options for a recontribution strategy; include in your answer
information on Mary’s eligibility for withdrawing and contributing to super, the impact on
her pension account.      (3 marks) 

c) Calculate the potential tax savings for Amy if Mary withdraws and recontributes $110,000.  (4 marks)

QUESTION 4.                      Total 10 Marks

Manuel and Evie, a married couple, are considering retirement; they are both aged 67 and supply the following information:

· They jointly own their home worth $3,500,000 and have no debt.  

· They have a car ($90,000), home contents ($100,000) and savings ($50,000).

· Manuel’s superannuation is $560,000 (tax-free $150,000, balance from a taxed source).

· Evie’s superannuation is $480,000 (tax-free $48,000, balance from a taxed source).

· As ‘high growth’ investors, expected return on investments is 4.0% p.a. above the inflation rate (currently 3.0% p.a.).

· They would like to receive $70,000 per annum after tax to meet their living costs.

Required:

Discuss adequacy of capital for retirement and show calculations.   (3 marks) 

Discuss Manuel and Evie’s risk tolerance relative to the ‘draw-down’ phase.            (3 marks)

Briefly explain how Australia’s retirement income policy is associated with this scenario.
In your answer include details of how theory, politics, and legislation influence outcomes.   (4 marks)

QUESTION 5.                                                                                                                             Total 10 Marks

Elisa, 60, works full-time and receives a salary of $80,000 gross per annum.  She has $340,000 (all taxable-taxed component) in her superannuation fund and is considering using a transition to retirement strategy (TTR), so that she can work part-time. Her part-time wages will reduce to $48,000 gross per annum.  Elisa needs a net cash flow of at least $60,000 per annum to live on if she was to move to part-time.     

Required:

a) Explain to Elisa how a transition to retirement (TTR) strategy can be of benefit.   (1 mark)

b) Show Elisa the financial outcome of her current situation compared with commencing
a TTR strategy – drawing $25,000 gross per annum as a pension from her super.   (4 marks)

c) Explain the differing results.   (2 marks)

d) If Elisa has a home loan of $150,000, at 3% per annum, should she draw more to

reduce her mortgage? Include a discussion explaining your recommendation. (3 marks)