FINANCIAL REPORT FOR MATTHEW AND MEGAN JOHNSON (Case Study Sample)

FINANCIAL REPORT FOR MATTHEW AND MEGAN JOHNSON {Name of Student} {University and Department} {Course} {Instructor Name} {Date} Table of Contents TOC \o "1-3" \h \z \u 1.Introduction PAGEREF _Toc182708045 \h 42.Assumptions PAGEREF _Toc182708046 \h 42.1.Life Expectancy and Retirement Ages PAGEREF _Toc182708047 \h 42.2.Financial Market Trends and Tax Rates PAGEREF _Toc182708048 \h 53.Objectives and Timeline PAGEREF _Toc182708049 \h 53.1.Short-Term Goals (0–2 Years) PAGEREF _Toc182708050 \h 53.2.Mid-Term Goals (3–5 Years) PAGEREF _Toc182708051 \h 63.3.Long-Term Goals (6+ Years) PAGEREF _Toc182708052 \h 64.Current Financial Position PAGEREF _Toc182708053 \h 74.1.Overview of Assets and Liabilities PAGEREF _Toc182708054 \h 74.2.Income and Expenditure Analysis PAGEREF _Toc182708055 \h 94.3.Projected Changes in Assets and Liabilities PAGEREF _Toc182708056 \h 125.Retirement Planning PAGEREF _Toc182708057 \h 135.1.Scenario 1: Megan Retires at 60 PAGEREF _Toc182708058 \h 135.2.Scenario 2: Megan Retires at 67 PAGEREF _Toc182708059 \h 155.3.Advice on Pension Reforms and Options PAGEREF _Toc182708060 \h 15a.Matthew’s Defined Benefit Pension Scheme PAGEREF _Toc182708061 \h 15b.Megan’s Pension and Lump Sum Choices PAGEREF _Toc182708062 \h 156.Taxation and Estate Planning PAGEREF _Toc182708063 \h 166.1.Capital Gains Tax (CGT) Analysis PAGEREF _Toc182708064 \h 16a)Holiday Property Sale Calculation PAGEREF _Toc182708065 \h 16b)Antique Table Sale Calculation PAGEREF _Toc182708066 \h 16c)Strategies to Mitigate CGT PAGEREF _Toc182708067 \h 176.2.Inheritance Tax (IHT) Analysis PAGEREF _Toc182708068 \h 17a)Matthew’s Mother’s Estate PAGEREF _Toc182708069 \h 17b)Megan’s Parents’ Estate PAGEREF _Toc182708070 \h 18c)Strategies to Minimize IHT PAGEREF _Toc182708071 \h 187.Investment Recommendations PAGEREF _Toc182708072 \h 187.1.Matthew’s Portfolio: Conservative Approach PAGEREF _Toc182708073 \h 187.2.Megan’s Portfolio: Moderate Growth Approach PAGEREF _Toc182708074 \h 197.3.Assumptions and Projected Performance PAGEREF _Toc182708075 \h 198.Care Planning for Matthew’s Mother PAGEREF _Toc182708076 \h 208.1.Residential Care Costs and Funding Options PAGEREF _Toc182708077 \h 208.2.Recommendations for Managing Care Costs PAGEREF _Toc182708078 \h 209.Mortgage Advice for Sofia and Rod PAGEREF _Toc182708079 \h 219.1.Affordability Analysis Based on Joint Income PAGEREF _Toc182708080 \h 219.2.Recommended Mortgage Products PAGEREF _Toc182708081 \h 229.3.One-Off and Ongoing Costs of Homeownership PAGEREF _Toc182708082 \h 2210.Conclusion PAGEREF _Toc182708083 \h 23References PAGEREF _Toc182708084 \h 24Appendices PAGEREF _Toc182708085 \h 25A.Pension Calculations and Projections PAGEREF _Toc182708086 \h 25B.Capital Gains Tax Calculations PAGEREF _Toc182708087 \h 28C.Inheritance Tax Calculations PAGEREF _Toc182708088 \h 28D.Investment Portfolio Projections PAGEREF _Toc182708089 \h 29E.Residential Care Cost Estimates PAGEREF _Toc182708090 \h 30F.Mortgage Affordability Calculations PAGEREF _Toc182708091 \h 31 1 Introduction The objective of the current report is to provide financial advice to Mathew and Megan considering their assets and liabilities. In addition, the ongoing report explores how the assets and liabilities are expected to change over time and after retirement. The current report also presents a forecast of the annual income and expenditure of Mathew and Megan for the period up to retirement. Notably, there are two scenarios considered in the forecast. In both cases Mathew is assumed to retire at 60 while in the first scenario Megan retires at 60 and at 67 years respectively. Further, the current report presents advice and recommendations to the Johnsons in light of the 2015 Pension reforms. The report further explores how capital gains tax liability of Megan assuming she dispose of her assets on the current tax year and how it can be mitigated. The report also attempts to estimate the inheritance tax liability of the Johnson’s parents and proposes strategies that can be deployed to mitigate it. The report also proposes investment portfolios unique to the risk profiles of both Mathew and Megan alongside their assumptions, calculations, and performance projections. In addition, the report presents insights into the potential financial implications of admitting Mathew’s mother to residential care. Lastly, the report presents advice concerning mortgages for Sofia and Rod. 2 Assumptions 1 Life Expectancy and Retirement Ages According to the Office for National Statistics (2024), the average life expectancy of men and women was 78.6 and 82.6 years respectively during the period between 2020 and 2022. Therefore, the current report considers these values in the ensuing calculations presented herein. There are two alternative retirement ages for Megan which are considered in the current report. It is assumed she will retire either at 60 or 67 years old while Mathew will retire at 60 years old. Considering the retirement ages and life expectancies, Mathew is expected to live 18.6 years after retirement while Megan is expected to live either 22.6 years or 15.6 years depending on the age she retires. 2 Financial Market Trends and Tax Rates According to the Office for National Statistics (2023), the prices of property and houses in the UK grew by approximately 1.7% in the last 12 months. Thus, 1.7 is considered as the property appreciation rate in ensuing calculations. The Capital Gains Tax (CGT) is currently at 10% for residential property for individuals in the basic income band and 24% for individuals above the average basic income band (Gov.UK, 2022). For carried interests the CGT rises to 18% and 28% respectively (Gov.UK, 2022). The Inheritance Tax Threshold(IHT) in the UK is £325,000 as published by GOV.UK, (2012). Markedly, the amount assets exceeding the above threshold are taxed at 40% (GOV.UK, 2012). These values are assumed for the calculations in the following sections. The tax deductible assumed for this report is 20% since the annual income 20% for Mathew and 40% for Megan since they fall into two different taxable income bands (GOV.UK, 2024). Consequently, the spending on utilities is assumed to be approximately £567.70 per week as published by the Family Spending team (2024) of the Office for National Statistics. 3 Objectives and Timeline 3 Short-Term Goals (0–2 Years) The following are the objectives that the Johnson’s seek to meet within 2 years of the current tax year: * Draft and finalize wills to enable effective estate planning and clear distribution of assets to beneficiaries. * Plan carefully the sale by Megan of her holiday home and antique table in order to optimize annual allowances and minimize taxes. * Create a budget to cut out 10% of discretionary spending, which will save approximately £300/month to go toward repaying credit card debt. 4 Mid-Term Goals (3–5 Years) The following are the objectives that the Johnson’s seek to meet within 3-5 years of the current tax year: * Megan's parents should set up trusts and make annual gifts to minimize the total taxable estate. * Establish a designated financial reserve to address anticipated caregiving expenses for Matthew’s mother, estimated at £35,000 annually for a duration of up to five years. 5 Long-Term Goals (6+ Years) The following are the objectives that the Johnson’s seek to meet 6 years and above of the current tax year: * Design and manage bespoke investment portfolios for both Matthew and Megan, balancing the risk tolerance with growth expectations. * Invest £20,000 in a fund for nephew Harry's university education, aiming at capital growth through low-risk investment. 4 Current Financial Position 6 Overview of Assets and Liabilities The assets of Mathew and Megan comprises of their family home, holiday home, and savings. The current report considers a property appreciation rate of 1.7% as mentioned in an earlier section. Table 1 below presents an overview of the assets of Mathew and Megan. The total liabilities amount to £783,000.00. Table SEQ Table \* ARABIC 1. Overview of Assets of Mathew and Megan; (source: Author) Asset Value (£) Ownership Additional Notes Family home £ 460,000.00 Joint The home value is expected to grow by 1.7% every year Holiday home £ 305,000.00 Megan This is the market value but it is subject to Capital Gains Tax upon sale. Savings (ISAs & cash) £ 18,000.00 Joint This amount incorporates funds in savings accounts and Individual Savings Accounts(ISAs). Pension funds (DB/DC) To be detailed in Section 5 Both Will be projected depending on the retirement assumptions The liabilities of Mathew and Megan comprise primarily of a meagre mortgage balance, credit cards the couple holds, and a loan linked to their car. The total liabilities amount to £27,500.00. Table 2 below presents a breakdown of the liabilities of Mathew and Megan. Table SEQ Table \* ARABIC 2. Overview of liabilities of Mathew and Megan; (source: Author) Liability Value (£) Ownership Repayment Terms Mortgage £ 10,000.00 Joint It involves a £1,000 repayment every month and expected to be fully repaid in 1 year. Credit card debt £ 12,000.00 Megan it involves a £300 repayment every month and expected to be fully repaid in 2 years. Car loan £ 5,500.00 Joint It involves an estimated £275 repayment every month and expected to be fully repaid in 2 years 7 Income and Expenditure Analysis The current section presents the income and expenditure of Mathew of Megan. Notably, Megan falls in a higher income bracket than Mathew. Their income is mainly derived from their gross salaries. The income tax is 20% after the first £ 12570 as specified by (GOV.UK, 2024). Therefore, the taxable income of Mathew is £26,180 taxed a...