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Financial Plan Project The objective of this exercise is to get you thinking about the financial plan for your own life. Develop a multiyear spreadsheet covering your working years and retirement...

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Financial Plan Project
The objective of this exercise is to get you thinking about the financial plan for your own life.
Develop a multiyear spreadsheet covering your working years and retirement years, allowing you to
analyze different scenarios for life expenses, rates of return and asset allocations, retirement needs,
types of accounts, inflation rates, etc. Chapter 4 and 20 have some background info, but please do it
from scratch on your own. Keep it simple; too much detail only obfuscates the plan. Make reasonable
assumptions about your rates of return. To develop a good plan, you should:
A) Project your income and
oad categories of expenses annually throughout your working years:
ent/home payment, cars/insurance, children, food, recreation/other discretionary. The objective will be
eventually to integrate this spreadsheet with those in B) and C). Please do not spend most of your time
on this part. This is just a starting point.
B) Research online asset allocation tools and recommendations for individuals like you. Research
specific mutual funds you will invest in, banks/
okerage firms where you will have your savings. Think
of risk and return, taxable and tax-sheltered allocations, and how your allocations will change over time.
C) Project your retirement needs. Think what it would take in today’s dollars to live well in retirement
including housing/medical, estate and pensions. Assume an inflation rate and project into future dollars.
Combine A), B) and C) into one comprehensive spreadsheet that will allow you to run scenarios by
varying the key drivers of your plan. These could be rates of return, savings rates, inflation, life events.
Spend time analyzing the scenarios.
Prepare a 9-10 page financial plan report. Page 1 is an executive summary, then a 3-4 page description
of the plan, followed by the printouts of the most important tables and graphs (not to exceed 5 pages).
Be prepared to present to your classmates.
Your 3-4-page write-up (1.5-spaced) should include:
 the basic description of you
your family situation, list of assumptions about your life changes
(husband, kids, houses, job changes), expense growth, income and career progression
 short description of your model drivers (inflation, expense growth, return on investments,
etirement withdrawal rate, tax management)
 summary of your results (what you need to save, how you need to allocate investment- and tax-
wise, what income will you have in retirement), risk factors, and discussion of sensitivity analysis
(what if I save less? What if I don’t earn that? etc. )
You will be graded on:
 Completeness of the analysis: scope to include working years and retirement years
 Basic reasonableness of the results (do not end up with millions on a $20,000 income)
 Depth of supporting calculations/graphs
Answered 15 days After Feb 28, 2023

Solution

Nitish Lath answered on Mar 15 2023
37 Votes
Executive summary
The report has been prepared with an objective of providing detailed budget analysis for an individual. The budget covers mainly two cycle i.e. one earnings phase and second retirement phase. Further, the report also analyse the assets allocation ratio over life cycle and detailed assumptions have also been discussed in the report. The report has been prepared based on inflation rate and tax has been considered as an integral part of household expenses.
Basic description about situation and list of assumptions
In the case, Mr. X is doing job in a MNC as a professional accountant and has just started his job. There are total 4 family members in the family out of which Mr X is self, his spouse and 2 children. The major source of revenue for the family are salary from MNC and interest and dividend income from investment. The major list of assumptions are as below:
· The year 1 to year 10 have been considered as earning years and year 11 to year 20 as retirement years.
· The annual inflation rate has been considered @7.87% for next 20 years based on cu
ent inflation rate in USA.
· The increase in expenses have been considered at cu
ent inflation rate throughout 20 years.
· The increase in salary expenses have been considered @10% annually and there will be no earnings post 10 years except dividend and interest income.
· The dividend and interest income increase has been considered at cu
ent inflation rate.
Short description of model drivers and budget chart
The short description about budget model and drivers are as below
· The total inflows during year 1 are $65,700 which is expected to reach $152,748 per year in year 10.
· Mr. X has taken house on rent in upto year 5 on yearly rental of $5000 which will be increased by 7.87% YOY basis. Further, the home loan repayment will start from year 6 onwards and he will start withdrawn the money from assets from Y11 onwards.
Income and expenses during earning years
    Particulars
    Earning years
    
    Y1
    Y2
    Y3
    Y4
    Y5
    Y6
    Y7
    Y8
    Y9
    Y10
    Inflows
    
    
    
    
    
    
    
    
    
    
    Salary income
     60,000
     66,000
     72,600
     79,860
     87,846
     96,631
     1,06,294
     1,16,923
     1,28,615
     1,41,477
    Interest income
    2200
     2,373
     2,560
     2,761
     2,979
     3,213
     3,466
     3,739
     4,033
     4,350
    Dividend income
    3500
     3,775
     4,073
     4,393
     4,739
     5,112
     5,514
     5,948
     6,416
     6,921
    Total inflows
     65,700
     72,149
     79,232
     87,014
     95,564
     1,04,955
     1,15,274
     1,26,610
     1,39,064
     1,52,748
     
     
     
     
     
     
     
     
     
     
     
    Outflows
     
     
     
     
     
     
     
     
     
     
    Rent payment
     5,000
     5,394
     5,818
     6,276
     6,770
     
     
     
     
     
    Home loan payment
     
     
     
     
     
    4500
    4500
    4500
    4500
    4500
    Car Loan payment
    2000
    2000
    2000
    2000
    2000
    2000
    2000
    2000
    2000
    2000
    CC 1
    3200
     3,452
     3,723
     4,017
     4,333
     4,674
     5,041
     5,438
     5,866
     6,328
    CC 2
    6400
     6,904
     7,447
     8,033
     8,665
     9,347
     10,083
     10,876
     11,732
     12,656
    Insurance
    1200
     1,294
     1,396
     1,506
     1,625
     1,753
     1,891...
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