Calculate the cheungs combined annual aftertax income

Assignment Help Financial Accounting

Reference no: EM131183416

Required:

A. Calculate the Cheung's combined annual after-tax income. (Assume they are exempt from the Medicare levy surcharge because they have private health insurance in Alan's name).

B. Will the Cheung's be able to meet their objective of saving at least 25% of their combined after tax income until retirement? Discuss.

C. Calculate the amount of combined savings Alan and Sarah will accumulate in their insurance bond for their retirement using two investment options.

Option 1) they invest into a fixed interest insurance bond paying 2.3 % p.a.

Option 2) they invest into a managed fund paying5.5% p.a. Use an excel spread sheet or financial formulae provided below to show calculations and assume that savings are made at the end of each year.

D. Analyze two other issues the Cheung's need to consider in planning for their retirement.

Personal details, income and savings:

Name	Age	Gross annual salary	Insurance Bond	Superannuation
Alan Cheung	50	$85,500	$45,000	$125,000
Sarah Cheung	52	$101,500	$50,000	$180,000
The Cheung's have one 16 year old daughter who attends a State Secondary College.

Additional Information
• Alan plans to retire at age 60 and Sarah plans to retire at age 62.

• Alan and Sarah have decided to save additional money for their retirement using insurance bonds, which they opened at the beginning of year. At the end of each year, they will transfer any surplus money into the insurance bonds with 60% invested into Sarah's and 40% invested into Alan's insurance bonds.

• Alan and Sarah have set an objective that will save at least 25% of their combined after tax income until their retirement.

• Assume their income will remain constant in dollar terms and that the 2015/16 tax rate will stay constant until their respective retirements.

• Assume that the school fees and related education expenses will be incurred for the next years while their daughter completes secondary school and an undergraduate business degree.

• Assume that all expense amounts have been adjusted for inflation and will stay constant in dollar terms until the Cheung's respective retirements.

• Assume that both Alan and Sarah have 9.5% employer superannuation contributions until their retirement. This is paid in addition to their salary and they do not salary sacrifice into their superannuation.

Annual Budget Sheet
Regular Commitments

House repayments (5 year term)................ 32,500

Rates ....................................................... 960

Electricity/Water/Gas ................................. 840

Telephone/Mobile ..................................... 6,200

Pay television/Intemet ............................... 1450

Insurance - home/contents ....................... 1250

School fees and related expenses ............. 10,000

Insurance - car .......................................... 875

Health Insurance ...................................... 3,235

Credit cards p.a ...................................... 6,000

Loans (10 year term) ................................ 8,000

Petrol/maintenance ................................... 6,500

Car registration .......................................... 720

Public transport ........................................ 2,800

Other expenses

Food .......................................................13,500

Clothing/Haircuts/Beauty ............................. 4,500

House maintenance ................................... 3,800

Medical/Dental .......................................... 2,500

Entertainment/Dinners ................................ 2,500

Prof. Memberships (Sarah) ........................... 1,000

Gifts - Birthdays/Christmas .......................... 5,000

Total .....................................................114,130

Reference no: EM131183416

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