Question

You are doing a financial plan for an incorporated business owner and his family (Max, Maxine and kids). Max and Maxine are both 45. He currently pays himself $125,000 per year from the business as a salary. After all expenses, taxes, and salaries are paid from the business, the business has $55,000 left over each year. His wife has a salary of $85,000 per year. Net, he takes home $87,000, and she takes home $66,000. Their home is worth $900,000 and they have a mortgage balance of $175,000. Their monthly expenses are $4,500/month. They would like to retire as early as possible with a monthly income of $6000/month. They are unsure of what age that will be and are looking to you for guidance. They expect to die at age 90.

They have 2 children aged 18 who are currently in university. They have saved enough for their education. The couple are more worried about the soaring home prices and would like to be able to help their 2 kids each buy a home when the kids turn 25. They estimate the townhouses at that time will cost 800,000 and they would like to provide at least a 10% down payment to help each child.

They have always had a dream of owning a yacht and sailing around the world for half a year at a time. If they are able to purchase a yacht, their retirement income will only need to be $4000/month, however, the yacht is $3,000,000 and they would need a minimum down payment of $1,200,000. If they are able to purchase the yacht, they would like to do so by age 58 so they are young enough to enjoy sailing and traveling.

They don’t have much savings as they have put most of their funds into paying down their current home and back into the business. They have a medium risk tolerance (6%) and inflation is 2%. In retirement, they have a lower risk tolerance and expect to make 5% of their investments during retirement. They want to make sure all the capital will be untouched and passed on to their children upon death. They only want to live off their investment gains.

Follow all the steps and put together a financial plan for the couple in the most efficient manner allowing them to achieve their goals.

Answer 1

No. of years before Max and Maine die = 90-45 = 45 years

Annual Income of Max and Maine = 87000+66000+55000 = 208,000/year = 17,333/month

Their monthly expenses are 4500 = 54000/year, thie leaves them with (208,000-54000) = 154,000 per year surplus which can be used to repay mortgage on the house in ~ 1 year.

Their annual free cashflow from age of 46 years is 208,000 per year.

Their funding requirements are as under:

• Scenario 1: No yacht
  • Annual living expenses = (4500*12) = 54,000 every year
  • Downpayment of house for children = (800,000 * 10% * 2) = 160,000 in 25 year's time
• Scenario 2: Yacht (Retirement at age of 58 years)
  • Annual living expenses = (4500*12) = 54,000 every year for 13 years
  • Annual living expenses = (4000*12) = 48,000 every years for 32 years post retirement
  • Downpayment of house for children = (800,000 * 10% * 2) = 160,000 in 25 year's time
  • Yacht = 1,200,000 in 13 years