SCENARIO#1
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Get Help Now!Scott and Lisa Smith recently got married and moved to your area, they are both 30 years old. Scott just finished his residency in internal medicine and has been offered a job at Memorial Hospital as a staff doctor, he will be employed by the hospital directly at a beginning salary of $250,000. He financed his medical school through a series of student loans, which total $275,000. They recently purchased a new home and signed a 30 year mortgage for $350,000. Lisa does not plan on working outside the home at this point. They are already trying to have children and are hoping to have at least two in the near future. Neither one of them has ever done any financial planning on their own, but they know they need to begin to look at the “big picture.” Memorial Hospital offers a Defined Contribution Pension in which they contribute 6% of Dr. Smith’s income. He can also take advantage of a voluntary 403(b) plan sponsored by the hospital. Both retirement plans begin after one year of employment. He will begin working next week. Memorial Hospital offers a Consumer Directed Health Plan to its employees. They have a group life insurance policy that automatically covers Dr. Smith for 2 times his annual salary, subject to the normal eligibility requirements of group plans. He has the option of purchasing additional group life insurance of up to 5 times his salary. The Hospital provides doctors with a group long term disability plan that covers 60% of his salary in the event he becomes totally disabled. Lisa has no life insurance. They have come to you to seek advice on how to get started moving in the right financial direction.
Scott does not feel good about only having 60% of his income protected in the event of a disability and asks you for advice on the subject.
What options does he have?
What sort of definition of disability would you recommend he purchase and WHY?
What elimination period would be best for Scott and WHY?
Scoot asks you whether he should purchase the additional life insurance protection offered through the hospital or whether he should do something else.
What are the benefits of purchasing the additional group insurance instead of purchasing an individual policy?
Suppose you agree that he needs approximately $2500,000 of death benefit in order to cover his debt, provide education savings and replace his lost income. What type of policy would you recommend and WHY?
What sort of considerations would you explain to him to help him find the best carrier?
Lisa asks you about life insurance for her.
Do you recommend that she purchase ant life insurance on her? If so, WHY?
What type of overage would you recommend for her and WHY?
They are eager to begin saving money and have agreed that they can save 10% of his gross income pretty easily starting immediately.
Can Scott and Lisa both open a Traditional IRA?
Can they deduct their contributions from their taxes? If so, will that change next year if Scott decides to contribute to the 403(b) plan?
Can either he or Lisa open a Roth IRA? Why or why not?
Assuming they contribute the maximum amount allowable into Traditional IRAs, what would you recommend they do with ant additional savings up tot eh 10% to which they have committed?
If you recommend an annuity contract, what type of contract would you recommend based upon their current age and expected retirement age of 65? WHY?
Tragically, shortly after Scott takes your advice and purchased his $2,500,000 life insurance policy, he is killed in an automobile accident while on his way home from work.
What options does Lisa have available as a means of setting his death claim?
Which would you recommend she do and WHY?
SCENARIO#2
Harold and Virginia Jones are long time residents of your city. Harold has worked for the same corporation for 35 years and is fully vested in his corporations Defined Benefit Pension. He also has saved faithfully in his 401k. which has a balance of $500,000. Virginia worked full time for 10 years before they had children, and then stayed home with their two children until they went to college. She never returned to the workforce. They are both 63 years old and are starting to consider retirement. Their biggest concern is how best to position and protect their assets from running out too soon. They have come to you for advice on how to prepare for retirement.
They ask you about long term care insurance and whether it is a good idea for them or a waste of money?
What triggers a benefit provided under a long term care policy?
Harold is concerned that they might not be able to pay premiums for the rest of their life. Is there a way to still maintain coverage even if premiums stop being paid? if so, how much benefit would be maintained?
If the policy is a guaranteed renewable policy, can Harold and Virginia ever be canceled by the insurance company due to declining health once the policy is in force?
Are premiums under a guaranteed renewable policy protected from ever being increased by the insurance company or can they be raised at any point in time?
They ask you about options to handle their $500,000 of retirement savings.
If they want to avoid risk and guarantee a certain income stream, what would you recommend they do with this money? WHY?
If they are okay with continuing to take risk, but want to move the assets from the corporation’s401k to their own account, what can they do with the proceeds?
Will Virginia and Harold have to pay taxes on the money as they withdraw it from their 401k? if so, at what rate?
Are there any penalties for withdrawing money at this point in their lives?
Assuming they wait to retire until age 65. They now have some questions about Medicare and what is means to them. They are enrolled in Medicare Part A&B and have Prescription under part D.
Virginia is in a terrible car accident that requires hospitalization and surgery, followed by a lengthy stay of six months in a skilled nursing facility. What would Medicare pay toward the costs of her hospital stay, surgery and skilled nursing facility care?
How would long term care help in this situation?
Harold is prescribed medication for high blood pressure and cholesterol. How much will Medicare pay toward his prescriptions in general?
Finally, they ask about their entitlement to Social Security benefits.
Are they both able to receive retirement benefits at age 65? On what basis?
Will their benefits be taxable at all? If so. How much?
If Virginia were to become totally disabled. Would she be entitled to any benefits from Social Security? Why or why not?
If Virginia were to die, would Harold received any survivorship benefits? Why or why not?
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