W4 Planning Exercise: Complete List Of Items
W4 Planning Exercisehere Is The Complete List Of Items That Brandy Wan
W4 Planning Exercisehere Is The Complete List Of Items That Brandy Wan
W4 Planning Exercise Here is the complete list of items that Brandy wants in place if she suddenly is raising the twins on her own:
• An annual income of $45,000 for a period of 10 years
• The twins’ college educations fully funded right now
• The mortgage and all other debts paid off in full
Instructions: Using the financial information in the attachment, determine if the life insurance Tom owns is enough to accomplish Brandy’s 3 financial goals. Consider the following data:
- Income without Tom’s earnings:
- Brandy’s annual earnings: $15,000
- Current debts:
- Mortgage balance: $150,000
- Credit card debt: $3,000
- Car loan balance: $10,000
- Savings, investments, insurance:
- Savings/mutual funds: $50,000
- Retirement savings: $35,000
- Current life insurance coverage: $135,000
- Future income needs:
- Brandy and the kids would need $45,000 annually
- Additional amount needed per year (if Brandy’s income is insufficient): $30,000 ($45,000 - $15,000)
- Total need over 10 years: multiply the annual shortfall by the factor from Table A (8.82)
- Expenses:
- Funeral & other final expenses: $6,500
- Current debts: sum of mortgage, credit card, and car loan = $163,000
- College cost in 10 years: current cost $158,072 multiplied by the factor from Table B (1.61)
- Calculations:
1. Total family’s income and cash needs (A–D)
2. Total income-producing assets, including insurance
3. Determine which is greater, and if income needs exceed assets, the additional life insurance needed
4. Calculate the multiple of Tom’s current annual income represented by his existing life insurance
5. After adding the required additional coverage, determine the new multiple of his annual income
Use Tables:
- Table A: Factors for future income needs
- Table B: Factors for college costs
Assess whether current life insurance coverage is sufficient to meet the outlined goals, considering the family's financial situation, debts, and future expenses.
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Paper For Above instruction
The scenario posed by Brandy Wan’s financial planning exercise requires a comprehensive evaluation of her and Tom’s current financial resources against her outlined future needs. The primary goal is to determine whether Tom’s existing life insurance coverage is adequate to support Brandy and her twins should Tom pass away unexpectedly, and her in case she needs to raise their twins alone. This involves calculating the present value of future expenses, assessing current assets, and comparing these values to the existing insurance coverage.
First, understanding Brandy’s projected future expenses is essential. She desires an annual income of $45,000 for her children over ten years, which equates to a total future obligation of $450,000, considering inflation and discount factors. Using Table A, which accounts for an assumed rate of return of 6%, inflation at 3%, and a 10-year horizon, this total is adjusted to reflect the present value necessary to fund this income.
Similarly, her current debts sum up to $163,000, including her mortgage of $150,000, credit card debt of $3,000, and a car loan of $10,000. These debts would need immediate settlement in the event of her partner’s death. Additionally, the funeral expenses are estimated at $6,500, which must also be covered by the insurance proceeds.
A significant future expense is college funding for the twins. With current tuition costs at $158,072 for a four-year private college, future costs are projected by applying the college cost factor from Table B, which, over ten years, is 1.61. Multiplying the current cost by this factor adjusts for inflation and expected increases in college expenses. The total estimated college cost in ten years is approximately $254,634. Funding this expense now ensures financial security without parental borrowing or reliance on future income.
Next, the assessment involves summing the present value of future income needs, college expenses, and current debts, then comparing that total to the family’s available assets, which include existing savings, retirement funds, and life insurance coverage.
Brandy’s present assets include $50,000 in savings, $35,000 in retirement savings, and $135,000 in current life insurance, totaling $220,000. The total of future needs, including the targeted annual income for ten years, debts, funeral expenses, and college costs, likely exceeds this combined amount if only current insurance is considered.
Calculating whether Tom’s current life insurance—$135,000—is sufficient involves multiplying his current coverage by the factor representing his income multiple. If it falls short of the required amount, additional coverage must be purchased. The calculation of the necessary extra coverage involves subtracting current assets from the total projected expenses and then determining the additional insurance needed.
Finally, expressing Tom’s current and projected insurance as a multiple of his annual income offers insight into the adequacy of his coverage relative to his earning capacity. Standard recommendations suggest that a multiple of 5–10 times annual income provides adequate protection for most families, especially in cases of sole income earners with significant dependents.
In conclusion, a thorough financial analysis based on present values, future obligations, and current assets suggests whether Tom’s existing life insurance is sufficient. If not, an appropriate increase in coverage is recommended to meet Brandy’s goals of paying off debts, funding college education, and maintaining income stability for her and her children.
References
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