Planit:Entering and Analyzing the Impact of Life Goals Case Study

One of the main differences between a Single Needs Analysis and a full Life Goals Analysis is the ability to include multiple goals that will all encroach on savings and potentially affect your client’s ability to achieve their desired retirement lifestyle. By incorporating multiple life goals into the analysis, you can produce a more accurate projection and your clients can plan for multiple objectives.

Example Problem One: Cruise:

Donna and Harold Woodhaven want to take a cruise when they retire, which will cost about $15,000. They want you to include this goal in their life goals planning.

Solution using Detailed Objectives:

After selecting the Woodhavens from the Client Search screen, use the navigation panel to proceed directly to the Objectives screen. Some objectives may have already populated the screen, such as a child’s education and retirement lifestyle.

1. To add a new objective, click on the Add button above the existing entries.
2. In the Description field, enter an appropriate name, such as Retirement Cruise.
3. In the drop- down menu beside Need For, choose Joint, as both Donna and Harold want to take this cruise.
4. In the Amount Per Year field simply enter the cost of the cruise, which is $15,000.
5. The From Year and To Year will both be the year that Donna and Harold plan to retire, since the cruise is a one-time expenditure.
6. The Index Rate can be set to the same inflation assumption that is shown on the Personal Information screen, or another amount reflecting how the cost of the cruise will increase over time.
7. The Need on Death field can be changed to 50%, since if either Donna or Harold die, only one of them would go on the cruise, for half the cost.
8. The Need on Disability field can be changed to 0%, since if either Donna or Harold become disabled it is likely that both would stay home.
9. Select the Defer with Retirement option under the drop-down list beside Model As, since if their retirement goal is pushed back, they will also want to move the start and end date of their cruise back.
10. Click Save to return to the summary Objectives screen.

Example Problem Two: Gift to Parents:

Donna Woodhaven wants to give her parents a 6-month trip to Europe for their 50th anniversary, at Donna’s age 48. They expect the tour will cost $30,000 in today’s dollars.

Solution using Detailed Objectives:

1. Add a new objective by clicking on the Add button above the existing entries.
2. In the Description field, enter an appropriate name, such as Gift to Parents
3. In the drop-down menu beside Need For, choose Joint, as Harold would still give the gift in the event of Donna’s death.
4. In the Amount Per Year field simply enter the cost of the gift, which is $30,000.
5. The From Year and To Year will both be the year that Donna is age 48.
6. The Index Rate should be set to the same inflation assumption that is shown on the Personal Information screen.
7. The Need on Death field can be changed to 100%, since if Donna died, Harold would still give the gift.
8. The Need on Disability would also be 100%.
9. Select the Fixed Period option under the drop-down list beside Model As, since Donna and Harold’s retirement age will not affect the parent’s 50th anniversary.
10. Click Save to return to the summary Objectives screen.

Example Problem Three: Emergency Fund:

Donna and Harold Woodhaven want to have an emergency fund available for the event that either Harold or Donna die or become disabled. They want to have a reserve of $25,000 available to pay off any immediate debt, outstanding expenses etc.

Solution using Detailed Objectives:

1. Add a new objective by clicking on the Add button above the existing entries.
2. In the Description field, enter a suitable name, such as Emergency Fund
3. In the drop-down menu beside Need For, choose Joint, as they both want to have this emergency fund available.
4. In the Amount Per Year field enter $0, since this special objective will only be required on death or disability, and not under regular circumstances.
5. The From Year and To Year will both be the current year, because the needs on death and disability analyses are done assuming that the event occurs today. And this emergency fund is not required every year, only once.
6. The Index Rate is irrelevant, since the fund will only need to be available for this year. It can either remain at the default inflation rate, or be set to 0%.
7. The Radio button by the need on death and disability fields can be changed to Amount
8. Set the Need on Death field to $25,000: the amount the clients want available for this event.
9. The Need on Disability would also be set to $25,000.
10. Select the Fixed Period option under the drop-down list beside Model As, since Donna and Harold want this fund available now, regardless of when they retire.
11. Click Save to return to the summary Objectives screen.

Example Problem Four: Haj

Nidal Dhakir and Rasha Nadhir want to complete their compulsory Islamic pilgrimage – Haj – at age 45. They expect the trip will cost RM 30,000 in today’s dollars.

Solution using Detailed Objectives:

Use the drop menu to continue to the Objectives screen.

1. Add a new objective by clicking on the Add button above the existing entries.
2. In the Description field, enter an appropriate name
3. In the drop-down menu beside Need For, choose Joint.
4. In the Amount Per Year field simply enter the cost of the trip, which is $30,000.
5. The From Year and To Year will both be the year they are age 45.
6. The Index Rate can be set to the same inflation assumption that is shown on the Personal Information screen.
7. The Need on Death field can be changed to 50%, since if either die, the other would still go.
8. The Need on Disability would also be 100%.
9. Select Defer with Retirement under the drop-down list beside Model As, since they will delay the start and end date of the goal until they retire.
10. Click Save to return to the summary Objectives screen.

Example Problem Five: Family Holiday:

Nidal and Rasha want to go on a family vacation before Hamal gets too old. So at age 48, they plan to spend RM 30,000 and travel to the Middle East or Europe.

Solution using Detailed Objectives:

1. Add a new objective by clicking on the Add button above the existing entries.
2. In the Description field, enter an appropriate name, such as Family Trip
3. In the drop-down menu beside Need For, choose Joint.
4. In the Amount Per Year field simply enter the cost of the trip, which is $30,000.
5. The From Year and To Year will both be the year that Nidal is age 48.
6. The Index Rate can be set to the same inflation assumption that is shown on the Personal Information screen.
7. The Need on Death field can be changed to 70%, since if either die, the trip would cost less.
8. The Need on Disability would be 0%, since it is unlikely they would be able to go.
9. Select Fixed Period under the drop-down list beside Model As, since their retirement will not affect the date of their trip.
10. Click Save to return to the summary Objectives screen.

Example Problem Six: Setting up a Waqf:

Abdul Haqq wants to establish a Waqf worth RM 60,000 by making annual savings over the next 5 years. After discussing Waqf’s with a professional, you are going to assume there is a 6.0% return on Abdul’s savings for the next five years. Once the RM 60,000 goal has been reached, the dividend from the continue 6.0% return will be donated each year to an orphanage.

Solution using Detailed Objectives:

First, Abdul needs to know how much he will have to save per annum to reach this RM 60,000 goal in five years. From the Home screen, click on the Calculators drop-down menu and go to Present and Future Values calculator.

1. Since we are calculating for the annual savings, or Periodic Payment, this field can be left blank.
2. The Frequency of the payments should be set to Annual with the drop-down menu.
3. The Number of Payments can be set to five – since Abdul is making annual payments over five years.
4. The Interest Per Year was indicated to be 6.0%
5. Abdul did not indicate he was increasing his payments, so the Index Payments Per Year can be left at the default of 0%.
6. Finally we want the Future Value of the Waqf to be RM 60,000.
7. Click Calculate beside the Periodic Payment field.

The result should be $10,643.78. Go back to the Home screen, and then continue to the Objectives screen, to enter this information.

1. Add a new objective by clicking on the Add button above the existing entries.
2. In the Description field, enter an appropriate name, such as Waqf
3. In the drop-down menu beside Need For, choose Client.
4. In the Amount Per Year field enter the periodic payment calculated by the Present and Future Values Calculator: $10,643.78.
5. The From Year should be set to the current year since these extra planned outflows will start now.
6. The To Year will be five years from now.
7. The Index Rate should be set to 0%, since he is not indexing payments.
8. The Need on Death field can be changed to 0%, the amount will then be subject to a maximum of 1/3 of the estate.
9. The Need on Disability would be 100%.
10. Select Fixed Period under the drop-down list beside Model As, since their retirement will not affect the date for setting up the waqf.
11. Click Save to return to the summary Objectives screen.

Go to the exercise to test your knowledge on Entering and Analyzing the Impact of Life Goals