Financial Snapshot
Kevin and Jane Floyd
Ages: 49 48
Salaries: $61,700 $38,000
Assets
Home: $370,000
Superannuation: $80,000 (Kevin), $58,000 (Jane)
Shares: 2000 Telstra Instalment Receipts (Kevin’s name)
Cash in Bank: $20,000
Liabilities
Mortgage: $180,000
Credit Card debt: $1,000
Expenses
Home Loan: $300 per week
Living Expenses: $450 per week
Other: $290 per week
Total: $1040 per week
Introduction
In the earlier days of the year 2000, (2000) summarised the human capital predicament into several parts. He noted initially that the labour force is getting old. In this context, he meant that a considerable number of the most important skills and experience will be in the retirement age in the coming five years. Secondly, he noted that the government is not aggressive in the existing job markets. In this manner, there will be an increasing trouble in the acquisition, employment, and retaining of talented new employees. Thirdly he noted that the retrenchment in the whole decade of the 1990s have significantly dawdled the integration of new employees in the contemporary technological and other required skills into the workforce and similarly diminished the training investments by other companies (, 2002).
The pressures in the workforce issues will subsist until the coming years. Although it may not be as grave as the issues experienced in current times, but it will be different in circumstance and structure. Contemporary approaches and methodologies will be planned and executed reliant on the impediments they will be tackling. Society is constantly getting older while people are lining in a much protracted state. The figure in which the workforce is increasing smaller at the same time as the public requires the availability of jobs become increasingly higher as time passes. Superior service form public and private sector is anticipated as the development in a considerable number of factors is ongoing. Urbanisation and a number of different predicaments connected with it will definitely take place in the coming years (, 2000). Actually, the issue of ageing in workforce is also the similar issue in the case of Kevin and Jane since they are really conscious to the possible development brought by ageing and retirement.
Analysis
Ageing, as a stage in the life cycle, and retirement, as the act of withdrawing from active (or at least paid) employment, have always been linked. Beyond this traditional linkage, there is little agreement on matters such as 'the right age' to retire, or the desirability of continuing in employment beyond the conventional or statutory retiring ages. Since the writer of Psalm 90 declared that the days of our years were three score and ten, different societies have adopted a wide range of criteria to denote ageing. Daniel Defoe, author of Robinson Crusoe, thought that a man was 'over the hill' at 50 and was entitled to a pension (, 1976).
Statutory retirement and national old-age pension schemes were introduced gradually in a number of countries from the middle of the nineteenth century onwards, with age 65 as the most common criterion for retirement/pensionability (, 1978). In Australia, 65 was also adopted as the pension age for men, but women became eligible at 60, and the same distinction was introduced in Britain in 1940. Actually, Jane and Kevin need to consider these variables to have a prepared future. Additionally, not only are retirement and health benefits promised to a rapidly growing proportion of the population, but the real benefits per person also rise significantly. In the public sector alone, there are large unfunded commitments for Social Security, Medicare, and Medicaid benefits covering long-term care, as well as for other programs such as Supplemental Security Income for the elderly. In part because of these public benefits, individuals privately save only modest amounts for their retirement. Private employers, in turn, face the prospect of rising costs for defined benefit pension plans and largely unfunded retiree health benefits, as well as requirements to pay expensive health insurance costs of older workers in lieu of Medicare if they offer any health care to younger workers. Moreover, increases in life expectancy threaten the retirement security of even those who have saved on their own by forcing them to stretch their retirement savings over a longer period of time.
This is in lieu with the costs of medical care rising dramatically due to a shift in national demographics in which more people are living longer, fewer births are occurring, and the portion of the population known as the "baby boomers" are aging (, . 2000). Additionally, the elderly are high consumers of costly acute and long-term care services. As more of the nation’s population needs elderly health services and a declining proportion of the population will be contributing taxes to finance the program, Medicare's fiscal health will remain in jeopardy if programmatic changes are not initiated (, . 2000).
Based on the information provided, if the Floyd continues making minimum payments on their outstanding debts, the left over for all other expenses may help to their future. To determine how much money will they have left over for all other expenses, we have to compute first the total annual income of Floyd minus outstanding debts and annual expenses, thus we have:
Total Annual Salary of Floyd= $80,000 (Kevin) + $58,000 (Jane) = $138,000
Debts:
Credit Cards: $1000
Expenses:
Home Loan: $300 per week or 14,400 per annum
Living Expenses: $450 per week or 21,300 per annum
Other: $290 per week or 13,920 per annum
Total: $1040 per week or 49,920 per annum
Then the total left over excluding the home loan and other expenses is:
Left over= $138,000 – ($14,400 + $21,300 + $13,920) - $1000
= $87,080
Since the couple recently borrowed $180,000 to buy a new home for $380,000 leaving them with a weekly mortgage repayment of $300, then it would be beneficial to calculate the number of years to settle down this mortgage with this minimum payment.
Since the annual payment for this mortgage is 300 x 48 = $14, 400, then will give you 19.4 or let say 19 years of payment. Based on this number of years, 19 years is quite a long period to settle the mortgage, thus it is advised that the Floyd should increase their weekly payment to complete the remaining balance in small number of years since Jane is scared that she couldn’t meet those repayments if something happens to her partner. Basically, aging and death are the things that most Australian couple thinks when they reach their silver wedding anniversaries. Actually, the tremendous growth in numbers of older Australians has crop up from remarkable changes in the population’s health status. In the early days of population ageing, health developments led to augmented survival rates, particularly in childhood. These changes were due more to improvements in housing, hygiene, nutrition, immunisation and education than to advances in medical treatments. In more recent years the health system itself had to change to accommodate the changed demands for services that have arisen from an ageing population. Thus developments in population ageing and health are intimately intertwined, being both antecedents and consequents of one another. Since ageing and health is the key issue in Jane and Kevin’s future plans, then they should carefully assess the steps and financial strategies they will use to attain better future.
With regards to the issue of superannuation, Jane and Kevin can still enjoy the years after their retirement since they will have a good pension as regulated by Superannuation Industry (Supervision) Act 1993 and the Financial Services Reform Act 2002.
Based on the information, Jane would like to be able to reduce her working hours in about five years’ time to spend more time with her grandchildren. But Kevin, who works in warehouse sales, is not planning to retire early. And since this would be the case, it is suggested that to pay the mortgage for 2 to 5 years time. Actually, retirement is a phenomenon of growing importance in economic life. Longevity has been increasing, and retirement ages have been declining. As a result, retired people represent a growing proportion of the population. When the baby boom generation retires, starting around 2005, this proportion will rise sharply. Trends in retirement have raised important questions about the financial soundness of some of the main institutions that provide income to retirees and their families: social security, other public and private pension plans, and medicare. In the case of Jane and Kevin, they should accomplish first their financial liabilities before retirement in order to enjoy the succeeding years. Thus, planning to meet the daily needs and payment of debt should be considered.
Actually, public concern about the future of social security and public and private pensions has stimulated a growing body of research on retirement, aging, and the problems of the elderly.
Breakdown of payments for 2 years time
1st year = $90,000
2nd year = $90,000
From this scenario, here’s the summary of Floyd financial details.
Total Annual Salary of Floyd= $80,000 (Kevin) + $58,000 (Jane) = $138,000
Debts:
Credit Cards: $1000
Expenses:
Home Loan: $1,875 per week or 90,000 per annum
Living Expenses: $450 per week or 21,300 per annum
Other: $290 per week or 13,920 per annum
Total: $2,615 per week or 125,520 per annum
Then the total left over excluding the home loan and other expenses is:
Annual Left over= $138,000 – ($90,000 + $21,300 + $13,920) - $1000
= $11,480
In this scenario, the amount of left over money is not enough for the Floyd’s plan to travel and visit Thailand and they also have to consider the six children with her daughter Pink from a previous marriage who are still living at their home on a part-time basis.
If the Floyd considers the 5-year payment, the summary of Floyd’s financial details would be:
Breakdown of payments for 5 years time
1st year = $56,000
2nd year = $56,000
3rd year = $56,000
4th year = $56,000
5th year = $56,000
Total Annual Salary of Floyd= $80,000 (Kevin) + $58,000 (Jane) = $138,000
Debts:
Credit Cards: $1000
Expenses:
Home Loan: $1,166.67 per week or 56,000 per annum
Living Expenses: $450 per week or 21,300 per annum
Other: $290 per week or 13,920 per annum
Total: $1,906.67 per week or 91,520 per annum
Then the total left over excluding the home loan and other expenses is:
Annual Left over= $138,000 – ($56,000 + $21,300 + $13,920) - $1000
= $45,480
From the 5th year plan of mortgage payment, the Floyd would have an extra $45,480 that can be used for overseas trip or they can also put it on their saving account for retirement preparation.
Based on the 5-year plan of mortgage paying, the Floyd could still enjoy and go to their planned overseas trip in Thailand with no worries. Using this set-up, they can still have enough money for their retirement preparation and unexpected expenses since they have grand children and a daughter leaving with them. In addition, the Floyd is not suggested to borrow more money because they still have plenty of resources i.e. shares of 2000 Telstra Instalment Receipts and Cash in Bank of $20,000.
Synthesis
An employee must save and prepare for his future in case the time has come that he could no longer work as in the case of Jane and Kevin Floyd. This time is also known as retirement. To be able to prepare for that time, an appropriate retirement plan should be considered depending on one’s personal situation and on his plans on what to do with the money he saved. There are types of retirement plan and each one requires certain qualifications that must be met. The two most popular retirement plan today are the IRA and the 401k. IRA or Individual Retirement Account is a plan that allows a person to make contributions each year if they meet the contribution requirements such as earning income for the year at least equal to the amount of the contribution (, 2006) which is also similar to the superannuation scheme in Australia. IRA has many types such as Roth IRA; spousal IRA, Rollover, and the traditional IRA. Generally, all accumulated interest, dividends and capital gains on a traditional IRA are tax-deferred until the money is withdrawn while in Roth IRA.
Another popular retirement plan is the 401k, a trust in which employees are allowed to contribute money before taxes are assessed. Those whose employers offer a retirement plan that qualifies under 401k laws and who are full-time employees are eligible for 401k retirement plan. When joining this plan, employee should select specific investment option. Payments of up to 15% of one’s salary or $10,000 each year are auto-deducted directly from the employee’s paycheck to his retirement account and invested in the specified investment option. The money in here like IRA is not taxed until withdrawn so when the employee retired, he will be likely to belong in the lower tax bracket thus lower tax deducted from his money.
The difference of 401k from IRA is that 401k is a pension plan that is offered though the work place that involves one’s contributions from his salary and contributions from his employer while IRA is a private investment funded by one’s own money. So in the case of Jane and Kevin, they should be interested in IRA but for those who are employed in a company, they should take advantage of the 401k in which an employee can make matching contributions, that some companies contribute 33.3 cents to 50 cents for every $1 the employee contribution (, 1999). However, you can not withdraw your investment until you retire or there will be a 10% penalty and liabilities in deferred income taxes (, 2006).
With regards to the case of Kevin and Jane Floyd, a 5-year plan of mortgage paying is suggested in order enjoy and go to their planned overseas trip in Thailand with no worries. From this set-up, The Floyd can still have enough money for their retirement preparation and unexpected expenses since they have grand children and a daughter leaving with them. With regards to borrowing of money, the Floyd is not suggested to do it because they still have plenty of resources i.e. shares of 2000 Telstra Instalment Receipts and Cash in Bank of $20,000.
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