FPC003 Case Study: Tom Blake

Case study A: Tom Blake

You have just had a meeting with a new client, Tom Blake, aged 47. Tom has recently divorced, and has one child, Will, aged 7. He is determined to stay single and wants to plan for his future and eventual retirement. He has come to see you because he recently read that his super fund, AMG MySuper, was in the news because it had failed some test twice and was now closed to new members. He joined the fund about four years ago when he started his current job, because a friend recommended it. He has a second super fund that he has not contributed to in a few years which he kept because he had insurance cover through the fund and he couldn’t be bothered changing it at the time. Now he wants to know what fund would actually suit him best. On further discussion with him about his goals, he nominated 60 as his preferred retirement age and $45,000 as an income he thought should be enough to provide him with a decent lifestyle, although more would be nice.

He has just had a pay increase and felt that he should look more closely at what he is doing with the extra money. You have discussed his financial goals with him and have agreed that his objectives at the moment are to:

  • choose the best superannuation fund for the long term to maximise growth
  • find a fund that offers decent returns for decent fees
  • get financially back on track after the divorce
  • reduce tax and increase long-term savings
  • make his financial arrangements less complex
  • clear his home loan before he turns 60 when he hopes to retire or reduce his work hours
  • financially protect himself and his son Will in the event that he passes away prematurely or suffers a serious illness or accident
  • retire at age 60 with $45,000 in after tax-income that lasts for

Assets, liabilities and cash flow

This section sets out Tom’s relevant assets and liabilities, as well as his current cash flow.

Table 1 shows his assets and liabilities of relevance and Table 2 details his current superannuation.

Table 1          Assets and liabilities

Item Value Loans Net value
Principal residence: 32 Small Street, Teneriffe QLD $1,255,000 $300,000 $955,000
Contents (insured value) $60,000 $0 $60,000
Motor vehicle: 2020 Kia Seltos Sport $35,000 $0 $35,000
Cash in bank $6,000 $0 $6,000
Superannuation (combined balance) $189,650 $0 $189,650
Total $1,545,650 $300,000 $1,245,650

After the divorce last year, Tom downsized and bought a smaller home with a outstanding mortgage of

$300,000. He has a P&I loan with Suncorp, variable interest at 3.74%, and is currently on track to clear this mortgage in 13 years based on his current repayments. Although this is important to him, he is also keen to start increasing retirement savings as he feels it is a good way of putting money away where he won’t be tempted to use it.

Table 2          Superannuation account details

Item AMG MySuper Australian Super MySuper Balanced
Start date 1/08/2017 1/01/1998
Account balance $67,150 $122,500
Tax-free $0 $7,500
Taxable taxed $67,150 $115,000
Taxable untaxed $0 $0
Death cover $0 $107,000
Premium (monthly) $0 $174
TPD cover $0 $23,000
Premium (monthly) $0 $80
Income protection cover $0 $3,000 per month
Premium (monthly) $0 $273
Average 10-year return 5.14% 9.31%
Nominated beneficiary No nomination No nomination

Tom has made no voluntary contributions to superannuation in the last six years. He has no particular knowledge of the funds he is invested in and has simply gone with the default options. He is open to consider other funds. He has completed a risk profile analysis with you and he has been identified as a growth investor. However, he has been somewhat contradictory in his statements as he wants as much

growth as possible but also doesn’t want anything too risky as he needs to build wealth after the divorce.

Table 3 shows Tom’s income and cash flow.

Table 3          Income and expenses

Item Value
Salary $135,000
Deductible expenses $350
Taxable income $134,650
Tax payable (including LITO and Medicare) –$37,581
After-tax income $97,420
Mortgage –$29,560
Living expenses –$48,000
Total expenses $77,560
Net income after tax and expenses $19,859

Tom is making repayments to clear his loan within 13 years. He has some tax deductions from charities and work-related expenses. His employer allows salary sacrifice. He has custody of Will every second week and his expenses reflect this. He is not in a serious relationship and doesn’t expect to be in the near future.

He and his ex-wife share custody of their son in a 50/50 arrangement and have similar incomes, so there is no child maintenance, and what needs to be covered is included in his living expenses. The property settlement from their divorce has been finalised and is reflected in the details provided above.

Question 1

Prepare a strategy paper for the clients                    (40 marks | Word limit: 2,000 words)

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

Your strategy paper must address the following:

  • Summarise the client’s current position:
    • key goals and objectives (3 marks)
    • current financial situation and outcomes based on Tom’s current situation (4 marks)
    • constraints and limitations in being able to meet goals. (3 marks) (10 marks)
  • Identify and consider two (2) different accumulation strategies, showing how they meet the client’s

goals, with supporting calculations/data where relevant. (10 marks for each strategy — total 20 marks)

  • Given the two (2) different strategies you have outlined in part (b) above, provide a statement outlining which strategy you would recommend that meet Tom’s needs and objectives. You should explain why you prefer one strategy over the (10 marks)

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