Question

My assignment is to create a roadmap to and for retirement for the people in the following case study. I am looking for some ideas of how to tackle this one, not expecting you to write it for me. Thank you so much!

Case Study:

Bruce and Faith Johnston, 64 and 58, are preparing for retirement within two years. Other

short-term financial goals of theirs are to pay off almost $12,000 of outstanding debt on

credit cards and spend $5,000 on an engaged daughter's wedding. They'd also like to pay

off their $75,000 mortgage, which has 9 years remaining. Within the next 3 to 10 years,

they'd like to buy a new car, travel, and make several home improvements. Bruce stated

their long-term goal as follows: "to be alive and enjoy life with sufficient funds to

survive."

Both spouses are employed and, together, earn $68,000 annually or gross monthly

earnings of $5,666. They estimate their monthly household expenses to be $3,500,

including $850 for mortgage principal and interest, $400 for property taxes, $300 for

utilities, $250 for insurance, and $278 for a brand new car loan with 48 payments

remaining. They had a "late parenthood" and are currently subsidizing living expenses for

two children in their 20s. The monthly cost of these expenses is estimated at about

$1,000.

The couple's net worth (assets minus debts) is $456,990. On the asset side, the Johnstons

have no cash assets whatsoever, such as a bank savings account or money market mutual

funds. What they do have are their $230,000 house, $235,000 in Bruce's company profitsharing

plan, two cars worth $22,000, and $73,000 of personal property. On the debt side,

they owe $75,000 on their mortgage, $13,344 for the car loan, $11,666 on credit cards,

and $3,000 on a PLUS loan for a child's college expenses.

Bruce's employer provides health insurance for the couple for a premium payment of

$108 per month. He will soon become eligible for Medicare at age 65, so the employer

coverage will become a secondary payor for him. The employer will also continue to

provide health benefits for Faith, but for an increased premium of $352 (current price)

once Bruce retires. Neither spouse has disability insurance, nor does the couple carry an

umbrella liability policy. Their home and car have coverage with $300,000 liability

limits.

Both spouses have wills that were last reviewed five years ago. They have recently been

told by their attorney to get a living will and power of attorney. There is the potential for

the couple to receive an inheritance of about $150,000 from Faith's 88-year old father. As

for other sources of retirement savings, neither spouse has an individual retirement

account (IRA) or any type of tax-deferred retirement savings plan, although Faith's employer offers a 401(k).

Answer 1

The objective of couple is to live long and have sufficient fund to survive & enjoy, hence, the retirement plan should ideally focus on proper health insurance so that they are assured to live long a healthy life and also to invest in retiment plan where they would have sufficient recurring payment to live and enjoy. We can assume that their current savings is what they wish to continue at minimum.

Strategy should be to pay off short term pay, credit card, wedding expense, student loan & home loan with $150K, they are going to receive from faith;s father & invest remaing for retiment and health plan of Faith. Health insurance for Bruce may not be required as he will get medicare after 1 yr; Calculate current savings through annual income and expense provided (home loan monthly may be excluded since loan would be paid off) .