Question

5. For each of the following, provide and explain which 3 elements of financial planning might be most important to each couple, and explain why each of your chosen elements would be important to each of them.

• A young married couple with two children and both spouses work.

• A couple approaching retirement, one of whom works and whose two children are both working and living outside the home.

Your answer should be between 1.5 and 2 pages in length.

Marking Grid:

• Important elements for young married couple. 3.3 pts each = 10 pts.

• Important elements for couple approaching retirement. 3.3 pts each = 10 pts.

Answer 1

A young working couple with two children will have children's education, life safety (life + health insurance), contingency fund, savings for house purhase, vehicle purchase etc as their main imeediate goals for which they need to take decisive and systematic steps for planning their budget today to achiev certain life objectives in the future.

1. Super Strong, Meaningful Goals: What’s the point of even having a financial plan if you don’t have any goals? There isn’t one. If you want to make headway financially you need goals that are strong enough to inspire you to action. Goals are what allow you to practice delayed gratification.

Strong goals are what keep me in check. Once I am committed to a particular goal, short term sacrifices are pretty easy to make. Start with strong goals. It’s near impossible to map out a personal financial plan if you don’t have a strong goal to begin with.

2. An Awareness of Income and Expenses (The Budget): Next comes either the fun, or horrid part, depending on your personality. I’ll go ahead and be the first to admit: I don’t like strict budgeting. However, I am very aware of what I spend my money on. There’s no right or wrong way to budget. You need to find what works the best for you.

3. Large Emergency Fund (10% of your annual income): You need a decent emergency fund before starting on other goals like accelerating your debt payoff, saving for a house, or saving for retirement. Emergency funds come in handy and will prevent you from living on the borderline. Most financial experts recommend that you have at least 3-6 months’ worth of cash set aside for emergencies. When saving an emergency fund you can also factor that if you did lose your income your expenses would probably be a lot lower.

4. Savings/Investing/Debt Payoff Plan – The Order Depends on Your Specific Situation: After you’ve reached your desired emergency fund amount it’s time to really accelerate your financial goals. If you have high interest debt, like credit card debt, paying that off should be your main focus. Once that’s done you can choose to pay off lower interest rate debt or move onto saving and investing. We all live different lives and have different mind sets. I can’t tell you what you should be working on. You need to figure out what means the most to you and then go all in on it. However, one thing you need to be aware of, is retirement savings and investment plans for children’s expensive private education. You should have a retirement savings plan as one of your goals.

You can take all that cash you’ve been funnelling toward your emergency fund and spread it between your financial goals.

5. The Right Kinds of Insurance: Insurance is often overlooked in a strong financial plan. The truth is, without the right type of insurance all of your hard work could go down the drain with one accident. Don’t skimp on insurance!

Some insurances that you absolutely need:

Health Insurance – A major health problem could bankrupt you. This is one insurance that you do not want to be without. If you’re without health insurance I’d recommend that you look into getting an inexpensive, high deductible plan. You’ll pay a lot upfront with a high deductible health plan but in the event of a major medical issue your insurance will save you from financial catastrophe. A family health insurance plan with critical ailments coverage and a good sum assured is a must.

Life Insurance – For some reason, it seems that life insurance is the most skipped over insurance out there. If you have a family that you want to protect then you absolutely need life insurance.

Children Protection plan: Here the regular saving are also guarded by the life insurance feature of the parents. It is a must for parents with small children which will help accumulate sufficient corpus for the children education and other major events of their lives when they grow into youngsters.

Auto Insurance – Obviously, if you have a car you shouldn’t go without auto insurance. If you have a lot of assets make sure that you have high liability limits on your auto policy. This comes intrinsically with the vehicle.

Homeowner’s Insurance – If you own a home you already know how important homeowner’s insurance is. Once again, your liability limits need to be high enough to protect you should someone get injured on your property. This is a must to safeguard your families best interests for future contingencies.

6. Increase Your Income Strategy: Last, but certainly not least, is a strategy for increasing your income. For a lot of people, expenses aren’t the problem – its income. If you’re making $20,000 per year you’re never going to get ahead. You need to get creative and actively look to increase your income. It takes hard work and hustle but anyone can do it. You just have to have the right attitude.

Review Your Financial Plan Often: As time goes by your financial goals and insurance needs will change. Review your financial plan often and readjust whenever necessary.

(2) This is a list of suggested financial planning steps couples should take as they approach retirement, to prepare for a more secure financial future.

(a)Define your lifestyle. Determine what you both want from retirement. Will you continue to work, and live your current lifestyle? Do you dream of traveling the world? Where will you live?

(b) Choose your target date for retirement. Discuss with one another what age you would like to retire. Are you working toward an early retirement?

(c)Assess the risks. Before you can put a realistic retirement plan in place, it is important to understand the financial risks that can impact your retirement: longer lifespan, inflation, conservative investing, aggressive withdrawals, and health care expenses.

(d) Work as a Team: Couples shuld be jointly involved in financial decision-making Be an active partner and joint decision-maker when it comes to financial planning, don’t leave it all to one spouse.

(e) Create a Plan: work on a detailed retirement income plan to ensure they do not outlive their savings. Acquaint yourself with the key components of a successful retirement income plan (e.g., budget, asset allocation strategy, withdrawal strategy) and what makes them successful. Develop your own plan particular to your individual retirement time horizon, risk tolerances and goals.

(f) Take Inventory and Know the Details. Both spouses should know providers and account information for all savings and investment vehicles including bank accounts, workplace savings plans, pensions IRAs, brokerage accounts, life insurance, and annuities. This becomes particularly important in the event one of the two spouses experiences a sudden illness, catastrophic event or death.

(g) Know your number. Determine if your savings strategy has gaps by estimating your income and expenses according to the number of years you expect to live off your savings.

(h) Catch up on savings: Increase your savings by investing the maximum into your 401(k) before leaving the workplace, and into IRAs. Annuities can be an additional source of income in retirement, supplementing a pension and Social Security by providing a guaranteed income payment1 to cover essential fixed expenses. Converting up to 30 percent of retirement savings into an annuity can provide individuals with a guaranteed income stream without risking liquidity needs and long-term growth. Or, if you’re still saving for retirement and have made maximum contributions to your IRA, an annuity should be considered to enable continued tax-deferred investment growth and to generate income in retirement.