Question

You are a graduate financial planner and have been sitting on client interviews with a more Senior Financial Planner. As part of this process you have been recording notes and collaborating on any strategy development with the Senior Financial Planner. David & Karen Rubble are new clients and have come to you early in the financial year seeking your advice in regards to their pending retirement. After a fact-finding session you uncover that David is 61 years old and is married to Karen who is also 61 years old. They are both employed. Karen works as a Nurse and earns a gross salary of $80,000 per annum. David is an engineer and earns a gross salary of $180,000 per annum. Their goal is to both retire within the next twelve months. They would like to receive a combined income of $80,000 in retirement to meet their living expenses. They wish to minimise tax both now and along the way and want to ensure their capital lasts throughout retirement and keeps pace with inflation. To some degree they would like to pass on some capital to their children and grandchildren. Their assets are as follows: Assets & Liabilities Amount Owner Family Home $900,000 David Car- Mazda 3 (One year old) $40,000 Karen Car- 2002 Toyota Corolla $1,000 David Rental investment property, 101 Quarry Road Bedrock Town. Purchased in 2015 for $600,000 $500,000 Joint ownership Wilson Asset Managers Leaders Fund (Managed Fund) - Purchased in 2016 for $50,000 $100,000 Joint ownership Cash Funds in Bank, earning 1.5% p.a. $145,000 Joint Nurses Super Fund of Australia (Balanced fund) $200,000 Karen XYZ Superannuation fund (Balanced Fund) $250,000 Karen ABC Superannuation fund (Balanced Fund) $700,000 David Total assets $2,836,000 Their liabilities debts are: Home Mortgage debt- HSBC Bank charging 4.0% p.a. Originally borrowed $560,000 $10,000 still owing- loan repayments are $3,333 per month being $40,000 p.a. Joint Investment Loan for Wilson Asset Managers Fund at 5% interest rate- Interest Only $40,000 Joint Rental property debt $300,000 interest only at 5% p.a. Joint Other information obtained: They receive rent from the property of $18,000, have $4,000 a year in associated running costs and $3,200 in fully franked dividends from the Managed Fund. They are open to your investment advice and are considering selling the investment property and/or shares in order to clear their debt. They have indicated a preference for clearing the debt and maintaining the majority of their superannuation funds. Required David and Karen asked some specific questions in the interview process and you have asked for more time to consider them. Their questions are as follows: 1) What additional questions will you need to ask of David and Karen, in order to provide comprehensive advice to them? A maximum of up to five questions can be asked. State their relevance as to why you're asking them. In this scenario, you're welcome to answer your own questions on behalf of David & Karen in order to complete the rest of the assignment.

Answer 1

Answer

After going through the above article/assignment, Karen and David has advised that there debt need to be cleared wherein they are ready to sell their investment made in shared/bonds although they have to maintain their superannuation funds. In reference to this I will ask them below question to have them provide the best financial advice I can. Also I have answered them which I believe I should receive from them.

Question 1

What is the difference between the rates of return they receive from there manage and balance funds and the interest they pay towards their Rental property debt?

Answer - We see that the difference between both is likely to the (percentage value of their difference).

Question 2

Will you like to keep your cash in bank as it is or do you need to use it for your debt repayment?

Answer - We would like to keep the cash as it is for emergency needs.

Question 3)

We see that your today debt of HSBC and rental property is for $860,000 if we can sell your balance and manage funds we can clear both of this debts?

Answer - Agreed we are ready to sell both funds and clear the debts

Question 4)

As advised by you are ready to sell shares to clear the debts and you need fixed income of $80,000 after your retirement what type of investment are you searching for?

Answer - As we will retire we want our investment risk free with zero debt hence we have decided to sell the shares and clear debts.