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MAA719 Superannuation And Retirement Planning

Question

Answered

Questions:

Part A - Video Presentation:
This portion of the assessment is worth 40% of your final grade.
Scenario: Joe and Lorraine Stone – interview 20 May 2020.
Joe and Lorraine are a married couple and are starting to plan their retirement. Joe is aged 65 (date of birth 10 July 1954) and is looking to retire this year whilst Lorraine is aged 56 (date of birth 5 May 1964) and is intending to work up to the age of 60.
 
The couple has sought advice from your financial planning practice regarding their retirement plans and how best to fund their retirement. They realise that they have not accumulated a lot of funds to date and are therefore likely to have to rely upon the government aged pension to some extent, although they don’t know what amount of money they might be entitled to. The couple provide you with the following information.
Assets – expected closing balance at 30 June
 
Income
Joe and Lorraine run a coffee shop. Joe and Lorraine each share equally (50/50 split) in the net profit of the coffee shop operating as a partnership. The couple’s eldest daughter will assist her mother to run the coffee shop when Joe retires at the end of June this year. Lorraine and her daughter will share the net profit of the business equally and expect to earn the same average net profit.
 
Item Ownership Estimated market value
Annual return
Home Joint $600,000
Contents Joint $50,000
Caravan Joe $35,000
Cars Both $25,000
Bank account – NAB Joint $20,000 0.5% p.a.
Term deposit – NAB (3 month rolling)
Lorraine $70,000 1.8%. p.a. (Interest taken as cash)
 
Coffee shop business
-owned 50/50 partnership
-commenced in 2012
Joint $120,000 Earns an annual average net profit before tax of $100,000 p.a.
Shop building – cost $320,000 in 2012
Joe $360,000 Rental charge to business of 4.0% p.a. of market value
SMSF Both See below See below
Liabilities – expected closing balance at 30 June Item Amount owning Interest rate Repayments Loan on caravan -5 years $20,000 6.6% p.a. $4,826
 
Income
Joe and Lorraine run a coffee shop. Joe and Lorraine each share equally (50/50 split) in the net profit of the coffee shop operating as a partnership. The couple’s eldest daughter will assist her mother to run the coffee shop when Joe retires at the end of June this year. Lorraine and her daughter will share the net profit of the business equally and expect to earn the same average net profit.
Expenses – expected annual expenses to 30 June Item Amount
Living expenses $60,000
Travel and entertainment expenses $12,000
Work-related expenses – Lorraine and Joe $600 each
 
Donations to charities
-Joe
-Lorraine
$400
$500
Subscriptions to football club $1,000 Joe and Lorraine have each contributed an amount of $6,000 over the past 5 years into their superannuation fund as a concessional contribution. Lorraine is hoping to be able to continue paying the contribution going forward until her retirement.
 
Superannuation
Five years ago the couple decided to establish a SMSF. The couple have been running the fund since that time and are reasonably happy to retain the SMSF over the next few years. Item Market value Pre-tax 5 year average return
Bank account $42,500
Term deposit (3 month rolling) $106,250
Managed funds – international shares $63,750
Managed funds – alternative
investments
$37,500
Australian share portfolio $150,000
Total $400,000 5.35% p.a. weighted
average
 
Assumptions:
• The couple has a balanced risk profile
• Joe and Lorraine each have the same account balances within their SMSF. Their super balance each includes a 15% tax-free component
• The couple wish to retain their SMSF at least for the next few years
• The couple wish to retain the investments currently held in their super fund. You are not required to provide investment advice
• Any additional cash contributed to SMSF will earn the pre-tax weighted average return detailed in table
• Loan repayments remain constant
• You can assume that the 5 year average returns will continue in the future in both accumulation and retirement phases
• All expenses will continue and increase in pace with the inflation rate
• Net profit of the business and the value of the shop to increase in value in line with inflation rate for income purposes.
• Inflation rate is 2% p.a.
• For Centrelink calculations, use current pension rates and thresholds and current values of income and assets to ensure consistency
 
Goals and objectives:
• Maximise wealth for their retirement
• Maximise wealth held within their SMSF
• Maintain a surplus income of at least $5,000 p.a.
• Maximise the couple’s entitlement to the government age pension
• Lorraine to retire at age 60
 
Required
You are required to prepare a strategy paper to present to the client prior to preparation of the Statement of Advice. Given the virus isolation restrictions in place, you will provide your strategies by way of a video to the client.
The client requires you to provide them with strategies to help them maximise their accumulated funds held in their SMSF which will include maximising their entitlements to the government aged pension as soon as Joe reaches aged pension age.
 
As part of your work for this presentation, you are required to prepare the following:
• financial projections for the couple’s retirement position (superannuation and pension accounts) over the next 10 years:
• cash flow statement for the couple for both the current year (2019/2020) and the year after incorporating your strategies (2020/2021).
Some guidance and advice to ensure the successful completion of your seminar video presentation:
1. Your video presentation should be approximately 15 – 20 minutes in length. After 22 minutes, the video will be tuned off.
2. You may use a video recording application of your choice, but please note that the evaluation of your submission will also take into consideration the framing, image, and audio quality of your video presentation. Please take this into consideration when determining an appropriate application. It is highly recommended that you use Kaltura Capture to record your video presentation although you are able to use other formats that you have some expertise in. Below is a couple of links on firstly how to set up Kaltura Capture and secondly user guides on how to use Kaltura and to upload your videos into Deakin Air.
 
DeakinAir User Guides
3. Always do a small test recording first! It will not be ideal for you to have to record the presentation again if something does not turn out as you expect.
4. You will need to upload your recorded video presentation to DeakinAir For instructions on working with DeakinAir, please refer to the following user guides:
DeakinAir User Guides Uploading a Video to DeakinAir
Once in DeakinAir, please ensure that you publish your video file as ‘Unlisted’, otherwise unit staff will not be able to view the submission for marking when you
transfer to the assignment dropbox. To submit your video presentation, paste the URL for your DeakinAir video in the comments section of the assessment dropbox.
5. Please note that the time required for rendering of your video presentation and subsequent upload to DeakinAir can be quite lengthy, depending on the speed of your computer and internet connection. You are strongly encouraged to allow sufficient time for this process, prior to the submission deadline.
 
Part B - Written Policy Report:
This portion of the assessment is worth 20% of your final grade. Public Policy Issue in Superannuation The retirement income system is fundamentally important to the Australian community. However, the settings for the system and its underlying principles have historically been a source of significant public debate. As part of its work, the Panel responsible for the Retirement Income Review will undertake a holistic assessment of how the retirement income system is functioning
and the interaction between the various components of the system.
 
The Australian retirement income system has evolved over the past 110 years from a system which was largely focused on poverty alleviation via the Age Pension. The system now consists of three pillars which ensure all Australians have some income support in old age, and encourage individuals to make provisions during their working lives to support their retirement needs.
Retirement Income Review – Consultation Paper November 2019, Australian Government
 
Required:
A range of demographic, labour market, and financial trends are currently impacting upon the operation of Australia’s retirement income system and are likely to have an even greater impact going forward. Discuss the main trends and their impact on Australia’s retirement income policy in terms of the ability of the system to adequately provide for the future income needs of retirees.
Your discussion should be provided in an essay format including:
• An introduction
• The body
• Conclusion
• A list of references

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