Annuities In Retirement Planning For Joe and June.
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Transcript of Annuities In Retirement Planning For Joe and June.
Annuities
In Retirement Planning
For
Joe and June
My Mission
As a ChFC is to help people to do better in insurance, retirement and investment planning
Present Situation
Joe(Mid. 40s)
I.T. ManagerSalary at $35,000/m
June(Mid. 40s)Accountant
Salary at $30,000/m
Bob age 18 Bill age 14
Summary of Present Situation
1. Joe is an IT Manager at Salary of HK$35,000/m
2. June is an Accountant at Salary of HK$30,000/m
3. They own a resident in joint tenancy with $2,450,000 outstanding mortgage at floating rate of 2.5% and monthly repayment at $12,983
4. Joe has two mutual funds invested at current market value of $236,000
5. June has $100,000 fix deposit for interest accumulation
6. Their parents were passed away
7. The whole family have their own insurance policies
8. Education fund has been reserved
Basic Monthly Expenditures for the Lee’s Family in 2008/2009 - currentHousing Cost Monthly
Mortgage 12,983
Property (Rent & Rates) 1,300
Insurance 130
Utilities 1,500
Food, Household, etc
Food 3,000
Household 2,500
Telephone 400
Personal Care 1,000
Clothing 1,000
Child Expenses
Bob (Tuition fee & Traffic) 3,280
Bill (-ditto-) 5,400
Personal Expenses Monthly
Joe (Including Transportation) 3,500
June (-ditto-) 3,000
Public Discretionary
Entertainment 1,500
Gifts 200
Fees, books, etc 600
Vacations 2,500
Insurance
Life & Disability Insurance 5,645
Health Insurance 714
Mortgage Insurance 1,274
Education Fund 2,031
Basic Monthly Expenditures for the Lee’s Family in 2008/2009 - Current
Total Monthly Expense : HK$53,456
Monthly Surplus: HK$11,544
Basic Assumptions Agreed to Use in Planning
1. Checking A/C at $5,000
2. Joint Savings A/C with balance of $20,000 at 3% interest annually
3. Salary increments for both are expected 3% in annual increase
4. Expected 1% annual increase for rate, rent, utilities and maintenance on personal residence
5. Expected inflation rate of living expenses to be 3% per annum
6. Expected average annual return on MPF to be 6%
7. Expected average annual return on mutual funds to be 13%
8. Fixed deposit with current interest rate at 1.45% per annum
Client Objectives-To retire at Age 65
-To stay at the current house
-To remain the basic lifestyle after retirement
-Joe has no preference on investment tools
-June wants an product for providing guaranteed income during retirement years
Facts to Compute Lifestyle Expenses for Retirement
1. Desired retirement age at 65
2. Expense method to be used for retirement income need
3. Expense of food and household to be reduced by 50%
4. Personal expense to be reduced by 40% after retired
5. Personal expenses of Bob & Bill to be vanished
6. Expense of vacation to be reduced by 40% after the children’s grown up
7. Premium for Life and Critical Illness Benefit to be paid up by Age 65; Disability Insurance and Accidental Benefit to be expired at Age 65
8. Payment for Mortgage Insurance to be paid up by age 65
9. Premium for education funds for Bob & Bill to be paid up by their Age 18
10. Future retirement monthly income to be needed $28,649 at Age 65
Basic Monthly Expenditures for the Lee’s Family in 2028/2029- Onset of Retirement JourneyHousing Cost Monthly
Mortgage 0
Property Taxes 1,586
Insurance 130
Utilities 1,830
Food, Household, etc
Food 2,709
Household 2,258
Telephone 722
Personal Care 1,806
Clothing 1,806
Personal Expenses Monthly
Joe (Including Transportation) 3,793
June (-ditto-) 3,251
Public Discretionary
Entertainment 2,709
Gifts 361
Fees, books, etc 1,084
Vacations 2,709
Insurance
Life & Disability Insurance 0
Health Insurance 1,895
Mortgage Insurance 0
Education Fund 0
Basic Monthly Expenditures for the Lee’s Family in 2028/2029 – Onset of Retirement Journey
Total Monthly Expense : HK$28,649
Life Expectancy
For male at Age 79.5 and female at Age 85.6 according to 2006 statistic from Hong Kong Government
In reality, outlive of the table is very common
MPF
Funds Investment Surplus of Monthly Income
Sources of Income – MPF
MPF (@ 6% Growth) for Joe and June at Age 65
Joe HK$1,557,872
Jun HK$1,557,872
Total HK$3,115,744
Sources of Income – Funds Investment
Projected Amount :
HK$236,000 @ 13% annual return for 20 Years
(i.e. Up to Your age 65)
HK$2,719,449
Insurance to be kept in retirement Period
Joe & June
Permanent Life Protection (Estimated) Joe : HK$2,000,000
June : HK$1,000,000 Others Coverage benefit: Hospitalization & Surgical Benefit, Critical Illness Benefit
Choice of Annuity Products in Accumulation Period
1. Flexible Premium Deferred Fix Annuity
2. Flexible Premium Deferred Indexed Annuity
3. Flexible Premium Deferred Variable Annuity
Choice of Annuity Products in Accumulation Period
Flexible Premium Deferred Fix Annuity Features:
1) Guaranteed interest rate
2) Lowest risk out of others
3) Capital Guaranteed.
4) Life payment with 15/20/25 Years certain
Choice of Annuity Products in Accumulation Period
Flexible Premium Deferred Indexed Annuity Features:
Earning ties to outside index, expect higher return than fixed annuity.
Complicated products, not easy to understand
Choice of Annuity Products in Accumulation Period
Flexible Premium Deferred Variable Annuity
features:
1) Owner with choice of annuity fund
2) Owner assume the investment risks which is the highest out of the others
3) No Capital guaranteed.
Options available:
Under Fixed Annuity (1)1.1 Finance the full income with the fixed annuity1.2 Finance partial income with the fixed annuity1.3 Finance a minimum portion of income with the fixed annuityUnder Variable Annuity (3)3.1 Finance the full income with variable annuity3.2 Finance partial income variable annuity
Recommendation:
It is recommended to adopt 1.2
1. 50% of monthly retirement income sponsored by Fixed annuity with HK$10,000 per month contribution as from today
2. 50% of monthly retirement income sponsored by the lump sum fixed annuity whereas the amount generated from MPF account
Recommendation:
3) Addition of COLA to tackle the inflation risk by using the balance of fund amounted to HK$2,652,183 in the account.