FPC003 - Assistance on Viola and Julius Tennon Case Study

Case study B: Viola and Julius Tennon

Your clients are Viola, aged 55, and her husband, Julius Tennon, aged 61. Julius has been married before and has two adult children, Aaron, aged 40 and Gabriel, aged 38. Together they have a daughter,

Eve, aged 16, who has two more years until she finishes high school. Julius and Viola want to completely retire in five years when Viola turns age 60 and their daughter is age 21.

Viola has just turned 55 and Viola and Julius have finally cleared their mortgage, which prompted them to come and seek advice. Their financial goals and objectives at the moment are as follows:

  • They wish to reduce tax and increase long-term
  • They will prepare to retire in five years’ time by maximising their
  • Julius wishes to cut his work days to four days per week from his current five days per week immediately if
  • Julius wants to retire fully when he turns 66 with a combined income of $67,000 per annum after tax. Viola would also like to retire then but would consider working two days a week until she is
  • Julius would like to reduce potential tax on his superannuation death benefits to provide equally for his wife and all his children.
  • Viola intends to bequeath her superannuation equally to Julius and Eve but assumes the tax will be
  • They would consider moving to a smaller home once Eve leaves home, maybe when she is around

Assets, liabilities and cash flow

Table 4 sets out Viola and Julius’ current cash flow and their net position. Table 5 shows their assets and liabilities of relevance, and Table 6 shows their current superannuation.

Table 4          Income, tax and expenses

Item Julius Viola Combined
Salary $118,000 $82,000 $200,000
Salary sacrifice/deductible contributions to super $0 $0 $0
Allowable deductions $550 $1,699 $2,249
Taxable income $117,450 $80,301 $197,751
Tax payable (including LITO and Medicare) $30,987 $18,171 $49,158
After-tax income $87,013 $63,829 $150,842
Accountant annual tax return –$145 –$145 –$290
Charity –$405 –$405 –$810
Income protection –$0 –$1,149 –$1,149
School expenses –$12,500 –$12,500 –$25,000
Living expenses –$36,156 –$36,156 –$72,312
Total expenses $49,206 $50,355 $99,561
Net income after tax and expenses $37,807 $13,474 $51,281

Viola works four days a week as a careers adviser for a private school. If she had to, she could continue to work two days a week from age 60 to 65. Julius is interested in reducing his work hours now and was wondering about options. He is a psychologist working full-time at a private medical centre. He would like to reduce his workload to four days a week this year so he and Viola can spend more time together.

However, he does not want to compromise their retirement so he will only reduce hours if it makes sense with the bigger picture.

After discussing their current spending in detail, you have discovered that they would be comfortable with

$67,000 per annum in retirement based on their current spending, and the anticipated reduction in expenses once they clear the car loan and Eve finishes her education.

Table 5          Assets and liabilities

Item Value Loans Net value
Principal residence: 3A Glenview Street, Gordon NSW $2,500,000 $0 $2,500,000
Contents $120,000 $0 $120,000
Motor vehicles $62,500 $20,000 $42,500
Cash in bank $10,000 $0 $10,000
Superannuation $579,870 $0 $579,870
Total $3,272,370 $20,000 $3,252,370

Viola and Julius just cleared their mortgage and are almost debt free. They have one car that is financed and the cost is included in their current living expenses. The car loan is for five years, at 6.7% fixed interest. Once the loan is cleared, they anticipate maybe selling the car and replacing with a smaller, cheaper, newer car at some stage.

Table 6          Superannuation

Superannuation balance Julius:HESTA Balanced Growth Viola: Australian EthicalConservative Combined
Start date 1/08/1988 1/01/1998 n.a.
Superannuation balance $359,870 $220,000 $579,870
Tax-free $5,000 $11,000 $16,000
Taxable taxed $354,870 $209,000 $563,870
Taxable untaxed $0 $0 $0
Total account balance $359,870 $220,000 $579,870

Neither Julius nor Viola has made any additional contributions to superannuation above the superannuation guarantee as they were paying off their mortgage. They have completed a risk profile analysis and both have been identified as balanced investors. They are both happy with their current providers and would rather not switch funds unless it was really necessary. They do not have any insurance in their funds having cancelled it once they cleared their mortgage.

Question 1         (25 marks | Word limit: 1,500 words)

Refer to Case study B: Viola and Julius Tennon and prepare a strategy paper for the clients regarding their superannuation and retirement only. A strategy paper is used to set out and explain what options are available for a client and what is the best option(s) for them based on their needs, wants, goals, constraints and limitations.

Your strategy paper must address the following:

  • Summarise the clients’ current position:
    • key goals and objectives (3 marks)
    • current financial situation and outcomes based on this present position (4 marks)
    • constraints and limitations in meeting these goals (3 marks)
  • Develop and outline an appropriate superannuation strategy for your clients, showing how it meets the clients’ goals, with supporting calculations/data where

Explain your strategy with supporting arguments and relevant data (tables, charts, graphs),

and outline the pros and cons of your strategy with an evaluation of trade-offs where necessary to lead the clients through a structured decision-making process. (15 marks)

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