Retirement planning and insurance

Personal Finance FNBK 301

Final Exam

Student: ___________________________________

Regina and Stanley Lane are 40- and 45-years-old, respectively. They are parents of twenty-one-year-old twin daughters, both of whom are in their junior year at Iowa. Lana and Lyra Lane are both majoring in biology with the hope of attending U of I College of Medicine to become doctors like their grandmother and father. Regina currently works as an architect in her own firm and Stanley is an orthopedic surgeon. Regina makes approximately $100,000 gross from her firm and Stanley makes $500,000 per year gross as a surgeon. Stanley has a whole life insurance policy with a cash value of approximately $2000 that has a $100,000 face value plus $25,000 group life insurance from the hospital; Regina has $10,000 group life insurance that her firm provides. Their daughters have $10,000 whole life policies each that the Lanes bought when they were born.

Stanley’s parents have passed away, but Regina’s parents, Jacqueline and Reggie Smith, age 70 and 78 live just down the block from Regina and Stan. Jacki is a retired pediatrician and Reggie is a retired hospital administrator. Jacki has 25-year term life insurance policy that pays $500,000 of death benefit that she took out in 1990; Reggie has a 25-year term life insurance policy that pays $1,000,000 of death benefit that he also took out in 1990. Both Jacki and Reggie enjoy good health. Stanley’s parents have a net worth of approximately $8,000,000 exclusive of their home which is worth another $1.5 million.

Lyra and Lana rent an apartment in Iowa City for $1050 per month plus utilities. The Lanes are considering purchasing a house for them to live in since they are planning on staying in Iowa City for the next five years. In addition, since they are big Hawkeye football fans, it would give them someplace to stay on football weekends.

Knowing that you recently took personal finance, the Lanes ask you to review their balance sheets and give them some advice on what steps they should take in regard to estate planning, life insurance, purchasing a house in Iowa City and other financial matters. Since they are curious about the effects of Stanley’s parents’ situation, they also ask you to see what issues you think there may be with their finances.

They would like you to identify what problems or issues you see with their finances plan and a suggestion for resolution of the problem or issue. Since they are not familiar with life insurance, please describe the various types of policies and then suggest a policy for them…make sure you identify how you arrived at the face value.

Describe the Lanes’ retirement situation, any issues you see with their retirement and what suggestions do you have?

What other issues do you see that the Lanes are facing?

Regina and Stanley Lane

Personal Balance Sheet as of November 30, 2010

 Assets

 Liquid Assets

Checking Account balance……………………………………………..                                $     2500.00

Savings…………………………………………………………………………..                      25,000.00

Money Market………………………………………………………………                     15,000.00

Cash value of life insurance…………………………………………..                       2,000.00

Total Liquid Assets                                                                                                                           $ 44,500.00

 

Real Estate

Current Market Value of Home……………………………………..                                                                              $500,000.00

 

Personal Possessions

Market value of automobile………………………………………….                 $ 80,000.00

Furniture and appliances……………………………………………….                    50,000.00

Stereo and video equipment………………………………………..                    10,000.00

Home computer……………………………………………………………                     10,000.00

Jewelry…………………………………………………………………………                   110,000.00

Total Household Assets                                                                                                                 $260,000.00

 

Investment Assets

Retirement Accounts….Regina’s 401(k)…$400,000                             $2,000,000.00

Stanley’s 401(k)…$900,000

Regina’s Roth IRA… $8000[i]

Stanley’s annuity… $692,000

Mutual Funds                                                                                                         140,000.00

Total Investment Assets                                                                                                                               $2,140,000.00

Total Assets                                                                                                                                       $2,944,500.00

 

Liabilities

 

Current Liabilities

Medical Bills…………………………………………………………………… $       500.00

Charge accounts and credit card balances…………………….                    30,000.00

Balance due on auto loan………………………………………………                    75,000.00

Total Current Liabilities                                                                                                                  $ 105,500.00

 

Long-Term Liabilities

Mortgage…………………………………………………………………….                    $ 450,000.00

Student Loans……………………………………………………………..                       310,000.00

Total Long-term liabilities                                                                                                                760,000.00

Total Liabilities                                                                                                                                 $865,000.00

 

Net Worth                                                                                                                                                          $2,079,000.00

 

[i] This was a rollover from a retirement plan that Regina had with a former employer; due to their income, they are not eligible to participate in Roth IRAs at this point in time.