Linda Calloway and Meredith Perdue are neighbors in Charleston. Linda works as a software engineer for Progressive Apps Corporation, while Sherry works as an executive for Industrial Container Company. Both are married, have two children, and are well paid. Linda and Meredith are interested in better understanding their pension and retirement plans. Progressive Apps Corporation, the company where Linda works, has a contributory plan in which 5 percent of the employees’ annual wages is deducted to meet the cost of the benefits. The firm contributes an amount equal to the employee contribution. The plan uses a five-year graded vesting procedure; it has a normal retirement age of 60 for all employees, and the benefits at retirement are paid according to a defined contribution plan. Industrial container, where Sherry works, has a minimum retirement age of 60. Employees (fulltime, hourly, or salaried) must meet participation requirements. Further, in contrast to the Progressive Apps plan, the Industrial Container program has a noncontributory feature. Annual retirement benefits are computed according to the following formula: 2 percent of the employee’s final annual salary for each year of service with the company is paid upon retirement. The plan vests immediately. Required: 1. Discuss and contrast the features of the retirement plans offered by Progressive Apps and Industrial Container. 2. Which plan do you think is more desirable? Consider the features, retirement age, and benefit computations just described. Which plan do you think could be subject to a conversion to a cash balance plan sometime in the future? Explain. Include in your answer the implications for the employee’s future retirement benefits. 3. Explain how you would use each of these plans in developing your own retirement program. 4. What role, if any, could annuities play in these retirement programs? Discuss the pros and cons of using annuities as a part of retirement planning.
> What type of bank serves your needs best? Visit the Web sites of the following institutions and prepare a chart comparing the services offered, such as traditional and online banking, investment services, and personal financial advice. Which one would yo
> Your parents are retired and have expressed concern about the really low interest rates they’re earning on their savings. They’ve been approached by an advisor who says he has a “sure-fire” way to get them higher returns. What would you tell your parents
> Shauna and Conan O’Farrell have been notified that they are being audited. What should they do to prepare for the audit?
> Steve and Beth Compton are married and have one child. Steve is putting together some figures so that he can prepare the Compton’s.0 joint 2014 tax return. He can claim three personal exemptions (including himself). So far, heâ
> What is a progressive tax structure and the economic rationale for it?
> Use Worksheets 3.1 and 3.2. Qiang Gao graduated from college in 2014 and began work as a systems analyst in July 2014. He is preparing to file his income tax return for 2014 and has collected the following financial information for calendar year 2014: T
> If Amy Phillips is single and in the 28 percent tax bracket, calculate the tax associated with each of the following transactions. (Use the IRS regulations for capital gains in effect in 2014.) a. She sold stock for $1,200 that she purchased for $1,000
> Debra Ferguson received the following items and amounts of income during 2014. Help her calculate (a) her gross income and (b) that portion (dollar amount) of her income that is tax exempt. Salary ……………………………………………….$33,500 Dividends …………………………………………….
> Prepare a record of your income and expenses for the last 30 days; then prepare a personal cash budget for the next three months. (Use the format in Worksheet 2.3, but fill out only three months and the Total column.) Use the cash budget to control and r
> Here is a portion of Chuck Schwartz’s budget record for April 2016. Fill in the blanks in columns 5 and 6. Note the answers are included. They may be deleted if you wish to use in classroom. Amount Item Budgeted Amount Spent (2) Be
> Richard and Elizabeth Walker are preparing their 2017 cash budget. Help the Walkers reconcile the following differences, giving reasons to support your answers. a. Their only source of income is Richard’s salary, which amounts to $5,000 a month before t
> Use Worksheet 2.2. Bill and Nancy Ballinger are about to construct their income and expense statement for the year ending December 31, 2016. They have put together the following income and expense information for 2016: Using the information provided, p
> Use Worksheet 2.1. Denise Fisher’s banker has asked her to submit a personal balance sheet as of June 30, 2016, in support of an application for a $6,000 home improvement loan. She comes to you for help in preparing it. So far, she has
> Put yourself 10 years into the future. Construct a fairly detailed and realistic balance sheet and income and expense statement reflecting what you would like to achieve by that time.
> Chad Livingston is preparing his balance sheet and income and expense statement for the year ending June 30, 2016. He is having difficulty classifying six items and asks for your help. Which, if any, of the following transactions are assets, liabilities,
> Saul Schwab’s, of Knoxville, Tennessee, was 65 when he retired in 2010. Camille, his wife of 40 years, passed away the next year. Her will left everything to Saul. Although Camille’s estate was valued at $2,250,000, th
> Jessica Wright has always been interested in stocks. She has decided to invest $2,000 once every year into an equity mutual fund that is expected to produce a return of 6 percent a year for the foreseeable future. Jessica is really curious how much money
> Dan Weaver wants to set up a fund to pay for his daughter’s education. In order to pay her expenses, he will need $23,000 in four years, $24,300 in five years, $26,000 in six years, and $28,000 in seven years. If he can put money into a fund that pays 4
> Chris Jones wishes to have $800,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today. a. If he can earn 6 percent on his investments, how much must Chris deposit today to create the retir
> Over the past several years, Catherine Lee has been able to save regularly. As a result, she has $54,188 in savings and investments today. She wants to establish her own business in five years and feels she will need $100,000 to do so. a. If she can earn
> Use future or present value techniques to solve the following problems. a. Starting with $15,000, how much will you have in 10 years if you can earn 6 percent on your money? If you can earn only 4 percent? b. If you inherited $45,000 today and invested a
> Assume that you graduated from college with a major in marketing and took a job with a large consumer products company. After three years, you are laid off when the company downsizes. Describe the steps you’d take to “repackage” yourself for another fiel
> Alice Reynolds and Tricia Bostwick, both freshman and friends at a major university, are interested in going into a health sciences career. While they're not just interested in the money they can make, they do want to have a sense of the compensation in
> Summarize current and projected trends in the economy with regard to GDP growth, unemployment, and inflation. How should you use this information to make personal financial and career planning decisions?
> Ben Saunders and Ashley Tinsdale are planning to get married in six months. Both are 30 years old have been out of college for several years. Ben uses three credit cards and has a bank account balance of $7,500 while Ashely only uses one credit card and
> What is a standard of living? What factors affect the quality of life?
> In the late 1980s, Carsten Richter, from Germany, migrated to the United States, where he is now a citizen. A man of many talents and deep foresight, he has built a large fleet of oceangoing oil tankers during his stay in the United States. Now a wealthy
> Terry and Evelyn Becker are a married couple in their mid-20s. Terry has a good start as an electrical engineer and Evelyn works as a sales representative. Since their marriage four years ago, Terry and Evelyn have been living comfortably. Their income h
> Is it possible to have a cash deficit on an income and expense statement? If so, how?
> Explain what cash basis means in this statement: “An income and expense statement should be prepared on a cash basis.” How and where are credit purchases shown when statements are prepared on a cash basis?
> Explain two ways in which net worth could increase (or decrease) from one period to the next.
> When might you use future value? Present value? Give specific examples.
> What is compounding? Explain the rule of 72.
> Why is it important to use time value of money concepts in setting personal financial goals?
> Why is it important to analyze actual budget surpluses or deficits at the end of each month?
> The Gonzales family has prepared their annual cash budget for 2016. They have divided it into 12 monthly budgets. Although only 1 monthly budget balances, they have managed to balance the overall budget for the year. What remedies are available to the Go
> Describe the cash budget and its three parts. How does a budget deficit differ from a budget surplus?
> Describe some of the areas or items you would consider when evaluating your balance sheet and income and expense statement. Cite several ratios that could help in this effort.
> Maria Sepulveda is 57 years old and has been widowed for 13 years. Never remarried, she has worked full-time since her husband died 13 years ago—in addition to raising her two children, the youngest of whom is now finishing college. After being forced to
> What are the two types of personal financial statements? What is a budget, and how does it differ from personal financial statements? What role do these reports play in a financial plan?
> Discuss the need for career planning throughout the life cycle and its relationship to financial planning. What are some of your own personal career goals?
> All people who have equivalent formal education earn similar incomes.” Do you agree or disagree with this statement? Explain your position.
> What is inflation, and why should it be a concern in financial planning?
> What are the stages of an economic cycle? Explain their significance for your personal finances.
> Discuss the following statement: “The interactions among government, business, and consumers determine the environment in which personal financial plans must be made.”
> What is a professional financial planner? Does it make any difference whether the financial planner earns money from commissions made on products sold as opposed to the fees he or she charges?
> Discuss briefly how the following situations affect personal financial planning: a. Being part of a dual-income couple b. Major life changes, such as marriage or divorce c. Death of a spouse
> There’s no sense in worrying about retirement until you reach middle age.” Discuss this point of view.
> Describe employee benefit and tax planning. How do they fit into the financial planning framework?
> Chad Jackson’s investments over the past several years have not lived up to his full return expectations. He is not particularly concerned, however, because his return is only about 2 percentage points below his expectations. Do you have any advice for C
> Discuss the relationship of life-cycle considerations to personal financial planning. What are some factors to consider when revising financial plans to reflect changes in the life cycle?
> What types of financial planning concerns does a complete set of financial plans cover?
> Distinguish between long-term, intermediate, and short-term financial goals. Give examples of each.
> Explain why it is important to set realistically attainable financial goals. Select one of your personal financial goals and develop a brief financial plan for achieving it.
> Explain why financial plans must be psychologically as well as economically sound. What is the best way to resolve money disputes in a relationship?
> What is the role of money in setting financial goals? What is the relationship of money to utility?
> Discuss the various forms in which wealth can be accumulated.
> What is average propensity to consume? Is it possible for two people with very different incomes to have the same average propensity to consume? Why?
> Describe the balance sheet, its components, and how you would use it in personal financial planning. Differentiate between investments and real and personal property.
> Nichole Whiting is the director of a major charitable organization in Charlotte, North Carolina. A single mother of one young child, she earns what could best be described as a modest income. Because charitable organizations aren’t known for their genero
> Define and differentiate between joint tenancy and tenancy by the entirety. Discuss the advantages and disadvantages of joint ownership. How does tenancy in common differ from joint tenancy?
> Describe briefly the importance of these documents in estate planning: (a) power of attorney, (b) living will, (c) durable power of attorney for health care, and (d) ethical will.
> What is meant by the probate process? Who is an executor, and what is the executor’s role in estate settlement?
> Explain these terms: (a) intestacy, (b) testator, (c) codicil, (d) letter of last instructions.
> How can changes in the provisions of a will be made legally? In what four ways can a will be revoked?
> Describe the basic clauses normally included in a will and the requirements regarding who may make a valid will.
> What is a will? Why is it important? Describe the consequences of dying intestate.
> Briefly describe the steps involved in the estate planning process.
> Describe and discuss each of the techniques used in estate planning.
> Explain the general nature of the federal estate tax. How does the unified tax credit affect the amount of estate tax owed? What is the portability concept?
> Damon Bellamy has worked in the management services division of Niche Consultants for the past five years. He currently earns an annual salary of about $120,000. At 33, he’s still a bachelor and has accumulated about $100,000 in savings over the past few
> Discuss the reasons estate planners cite for making lifetime gifts. How can gift giving be used to reduce estate shrinkage?
> What is a gift, and when is a gift made? Describe the following terms as they relate to the federal gift taxes: (a) annual exclusion, (b) gift splitting, (c) charitable deduction, and (d) marital deduction.
> Explain each of these terms: (a) grantor, (b) trustee, (c) beneficiary, (d) pour-over will, testamentary trust, and (f) irrevocable life insurance trust.
> What is a living (inter vivos) trust? Distinguish between a revocable living trust and in irrevocable living trust.
> What is the right of survivorship? What is community property and how does it differ from joint tenancy with regard to the right of survivorship?
> Discuss the importance and goals of estate planning. Explain why estates often break up. Distinguish between the probate estate and the gross estate.
> Under which procedure will you become fully vested most quickly—cliff or graded vesting?
> Which basic features of employer-sponsored pension plans should you be familiar with?
> What is the earnings test, and how does it affect Social Security retirement benefits?
> Natasha Cormier is a 28-year-old management trainee at a large chemical company. She is single, has an annual salary of $34,000 (placing her in the 15 percent tax bracket), and her monthly expenditures come to approximately $1,500. During the past year o
> What benefits are provided under the Social Security Act, and who is covered?
> How do income needs fit into the retirement planning process?
> Identify and briefly discuss the three biggest mistakes people tend to make when setting up retirement programs.
> How do variable annuity returns generally compare to mutual fund returns? Can you explain why there would be any difference in returns?
> What is a fixed-rate annuity, and how does it differ from a variable annuity?
> What is an annuity? Briefly explain how an annuity works and how it differs from a life insurance policy.
> Under what circumstances would it make sense to convert your traditional IRA to a Roth IRA?
> Describe and differentiate between Keogh plans and individual retirement arrangements. What’s the difference between a nondeductible IRA and a Roth IRA?
> Briefly describe the tax provisions of 401(k) plans and Keogh plans.
> Why is it important to evaluate and become familiar with the pension plans and retirement benefits offered by your employer?
> A couple in their early 30s, Rodney and Carly Madsen recently inherited $90,000 from a relative. Charles earns a comfortable income as a sales manager for System Analytics, Inc., and Carly does equally well as an attorney with a major law firm. Because t
> What is the difference between a profit-sharing plan and a salary reduction, or 401(k), plan?
> Discuss the relationship of retirement planning to financial planning. Do investment and tax planning have a role in retirement planning?
> What’s an international fund, and how does it differ from a global fund?
> What’s the difference between a growth fund and a balanced fund?
> Briefly describe a back-end load, a low load, and a hidden load. How can you tell what kind of fees and charges a mutual fund has?
> What is a 12b-1 fund? Can such a fund operate as a no-load fund?
> What’s the difference between a load fund and a no-load fund?
> What types of ETFs are available to investors?
