Planit:Entering and Analyzing the Impact of Life Goals Exercise Answer Key

Question One:

Walter and Alice Black want to see if they can successfully afford all of their life goals. They want to include trip to Holland in 2 years at a cost of $30,000, and a gift to their children in 10 years, of $50,000. They also indicated they only use $75,000 of income annually during their retirement.

Answer:

Click the link to the Objectives screen, where some goals have already populated the screen, such as 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 Trip to Holland
3. In the drop-down menu beside Need For, choose Joint, as both Walter and Alice want this goal.
4. In the Amount Per Year field simply enter the cost of the trip: $30,000.
5. The From Year and To Year will both be two (2) years from the current year, since the trip is a one-time expenditure.
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 50%, since in this event only one of the Blacks would be going on the trip.
8. The Need on Disability field can be changed to 0% since they would most likely stay at home.
9. Select the Fixed Period option under the drop-down list beside Model As, since they want this goal in two years regardless of retirement.

To add the gift to their children, click on the Add button above the existing entries.

1. In the Description field, enter an appropriate name
2. In the drop-down menu beside Need For, choose Joint.
3. In the Amount Per Year field simply enter $50,000.
4. The From Year and To Year will both be 10 years from the current year.
5. The Index Rate can be set to the same inflation assumption that is shown on the Personal Information screen.
6. The Need on Death field can be changed to 50%.
7. The Need on Disability field can be changed to 100% since this goal will not change in the event of disability.
8. Select the Fixed Period option under the drop-down list beside Model As, since they want this goal in ten years regardless of retirement.

Click Save to return to the summary Objectives screen.

The Blacks also wanted to change their retirement goal to $75,000.

1. Click Edit beside the Retirement Lifestyle
2. Set the Amount per Year to $75,000
3. Click Save to return to the summary level screen.

Question Two:

Karim and Tasnim want to set up a Waqf in ten years with a value of RM 100,000. So over the next year, they will make monthly payments with a return of 6.0%.

Answer:

Before you can enter their Waqf goal, you need to know how much they will have to save per month to reach this RM 100,000 goal in ten 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 monthly payments, or Periodic Payment, this field can be left blank.
2. The Frequency of the payments should be set to Monthly with the drop-down menu.
3. The Number of Payments can be set to 120, 12 payments/year x 10 years.
4. The Interest Per Year was indicated to be 6.0%
5. They 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 100,000.
7. Click Calculate beside the Periodic Payment field.

The result should be $610.21. 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 Joint.
4. In the Amount Per Year field enter the periodic payment calculated by the Present and Future Values Calculator multiplied by twelve for the annual requirement: (610.21 x 12) = $7,322.52.
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 ten 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.