Accounting

Final Case Study Summer 2013

Sam and Linda Fleming are asking you for a comprehensive retirement plan. Since Sam just turned 50 years old he thinks it is time to start taking a more serious look at his finances. Sam has a free spirit and likes to make more radical shifts in his asset allocation. His wife Linda is also 50 years old. She grew up with a very conservative background and she is adamant that their funds be placed in all bonds and CDs. Because of their disagreement, they recently decided to sell all of their holdings and are sitting entirely in cash. Linda works part-time as a nurse assistant and brings home $20,000 annually. Sam works as a sole practitioner of his own consulting company, Sam Advice, LLC. Sam only made $45,000 last year, all of which he categorized as wages.

Katie and John are the two children, ages 14 and 12. Last year, Sam and Linda bought a brand new house valued at $280,000. They were able to put 20% down and financed the remainder for a 30 year note at 4.75%. Since they recently bought a home, their itemized deductions are somewhat higher at $21,000. Since Sam quit his job 2 years ago, he has not bought any new life insurance to replace that at his old job. Last year their portfolio did well and made $950 in interest, they realized capital gains of $27,000 and Sam will have to pay $1500 in self-employment tax.

Other things you should know:

· They are currently living on $52,000 per year. In retirement they expect to only spend $45,000.

· Credit Card balance due is $280 payable by the end of 2013

· Sam just bought a motorcycle – he financed the $18,000 bike at 8.9% for 3 years

· Sam has an IRA rollover valued at $198,000

· Linda has a Roth IRA valued at $18,000

· Sam has a Roth IRA valued at $46,000

· They have $20,000 in checking/savings accounts

· They want to plan to live to age 100 (just to be on the safe side)

· Inflation is expected to be 3%

· Nominal Rate of return based on your recommendations will be 8%

· Social Security for Sam will be $1900/month and Linda will draw based on his benefit

· They want to plan for funeral costs of $10,000 in the event that either was to pass away

· For ratio analysis only, use an after-tax income of $55,000