Question

Ann, 49, and Amos 51, are married and both work. Ann earns $57,500 and Amos earns $60,500. They have annual investment income of $2,500. Their children are grown and out of the house. The couple have saved a total of $300,000 in 401k accounts and $50,000 total in traditional IRA accounts. Their investment income terminates at age 64. They plan to retire at age 65. Their expenses, including deferred retirement contributions, taxes, and household expenses total $102,000 annually.

They plan to continue to each defer $18,500 into their 401k account and a total of $10,000 in their traditional IRA accounts. They are moderately conservative in investment style/risk tolerance. They are not interested in aggressive investments.   The stock market is expected to generate an approximate 7% pre-tax return on a long-term basis. Bonds yield 4.00 % long-term and money market funds yield 2.0%.

They insure each other for $100,000 using term life insurance policies.

They have come to you specifically for retirement planning. Their goal is to have about $2,500,000 in retirement assets at age 65.

Answer the following:

3. Prepare a brief IPS using the form available in Canvas.

4. Indicate a percentage mix of stocks, bonds, and money market instruments they should attempt to develop to meet their long term retirement goal.

Answer 1

3. Ann and Amos are in Accumulation phase of their life. At this stage couples have accumulated $300,000 in 401k account and $50,000 in traditional IRA accounts. Their children are not dependent upon them anymore which is why all they have to care about their current expenses and saving for retirement. They are moderately conservative in investing so most of their assets would go to safe fixed income instruments. They have accumulated wealth passively and steadily through their employment without taking any risk. This shows they have low risk tolerance.

4.Their current savings = $350,000

They will continue to put $28,500 towards the retirement accounts. Amos has 14 years to retirement. They are able to save $399,000 towards these accounts. Total accumulation in these accounts will be = 350000+399000 = $749,000

their total income = 57,500 + 60,500 + 2,500 = 120,500

Total expenses = $102,000 Remaining capital = 120,500 - 102,000 = $18,500

They need to accumulate $2,500,000 - $ 749,000 = $1,751,000 from investments in stocks, bonds and money market instruments.