Planit:Personal Financial Strategy Exercise Answer Key

From Planipedia

Question One:

Your client has given you all necessary information to complete a full life goals analysis and is meeting with you today to discuss her current situation and financial strategy. She wants the PFS document to take with her and review later, but she want the focus of the presentation to be the major differences and resulting shortfall/surplus of the current and modeled scenario.

Using the Personal Financial Strategy, answer the questions below:

• How soon will she run out of money in the current situation analysis, and how much would she need to save to correct this shortfall?
• What are the major changes she has to make in order to follow the model strategy?
• What is the resulting estate surplus from the modeled scenario?

Answer:

Under the Documents and Reports section, click on the link to Your Working Documents.

1. In the Your Working Documents screen, click on the title called Preparing Reports – Life Planning.
2. Click on the Radio button beside Personal Financial Strategy.
3. Click on the Generate Document link. The PFS will usually take two minutes to generate. Hit the Refresh button periodically until the completed document is ready for you to download.
4. When the document has completed calculating and is ready to view, click the Download button.

Scroll down to the Life Goals Analysis – Your Current Situation section where the capital shortfall will be identified at the beginning of the second paragraph. This shortfall value assumes that the client will maintain her current financial behaviour and have additional life goals cutting into her funds.

Scroll down further to the page called Life Goals Retirement Strategy. Under the Variance column, the main differences between the current situation and model strategy will be listed.

1. The first change that is made using AutoModel is the new rate of return using the target portfolio. Under the Portfolio Returns section, you’ll see the variance in rates of return applied to investments.
2. The second change is made to any additional annual savings. In the Savings section, you can identify them by noting any Variances greater than $0.
3. Next, AutoModel will reduce any goals ranked lower than the retirement lifestyle in increments of 20% to try and eliminate the remaining capital shortfall.
4. If your client did not want to adjust age before income on the AutoModel Assumptions screen, if their was still a shortfall the next step would be to lower the retirement lifestyle in 4% increments. The variance would show by how much the retirement lifestyle was reduced by each year.
5. If the client reached their minimum retirement lifestyle, and still had a shortfall, the AutoModel would to increase the client’s retirement age by one year at a time. Their new age for retirement in the modeled scenario would be seen in the Retirement Objectives section under Variance.
6. If your client wanted to adjust their age before income, the same steps would apply, except the last two steps would be done in the reverse order.

Finally, on the same page, the bottom paragraph will identify the new estate surplus generated by this model strategy.