Retirement Planning for Mr. Bo Eng
Added on 2020-02-23
12 Pages1973 Words97 Views
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Running head: MANAGING PERSONAL FINANCEManaging personal financeName of the studentName of the universityAuthor note
1MANAGING PERSONAL FINANCE Table of ContentsQuestion 1 – Wealth grounding.................................................................................................2(a)Debt to asset ratio of Chin Eng....................................................................................2(b)Liquid asset to net worth ratio.....................................................................................2(c)Total interest calculation.............................................................................................3(d)Consequences of increase interest rate on the home buyers........................................5Question 2 – Wealth accumulation............................................................................................6Question 3..................................................................................................................................8(a)(i) Methods of determining retirement income..................................................................8(b)Non-financial factors to be considered while advising on retirement planning..........9(c)Consideration of available retirement saving plan......................................................9(d)Factors affecting the withdrawal rate under retirement.............................................10Reference..................................................................................................................................11
2MANAGING PERSONAL FINANCE Question 1 – Wealth grounding(a)Debt to asset ratio of Chin EngParticular AmountAssetValue of Thomson Condominium $ 1,350,000.00 Car $ 75,000.00 Current account balance $ 3,000.00 Fixed deposit balance $ 4,000.00 Growth stock portfolio $ 40,000.00 Misc. personal property $ 70,000.00 Total asset $ 1,542,000.00 LiabilitiesLoan on Thomson condominium $ 650,000.00 Car loan balance $ 20,000.00 Credit card balance $ 30,000.00 CPF OA balance $ 80,000.00 Total debt $ 780,000.00 Debt to asset ratio Total debt/Total asset 0.51Usage of debt to asset ratio for evaluation of financial healthThe debt to asset ratio can be used to analyse the financial health of a person as itindicates whether the asset of the person is sufficient to cover up his debt. It is recognizedfrom the above calculation that the net asset of Mr. Chin Eng is approximately twice hisdebts. Therefore, his assets are sufficient to pay off his debts (Huang, Ritter & Zhang, 2016). (b)Liquid asset to net worth ratioThe liquid asset to net worth ratio of Mr. Chin Eng is as follows –Liquid assetCurrent account balance $ 3,000.00 Net worth $ 762,000.00
3MANAGING PERSONAL FINANCE Liquid asset to net worth ratioLiquid asset/net worth0.39%Liquid asset to net worth ratio analyse the financial condition of an individual withregard to his asset’s health. Generally, the liquid asset represents the liquid part of the asset.The liquid asset can be used quickly to fulfil the obligation. At least 15% of liquid assetrepresent healthy financial condition of the individual. However, from the above calculationit is recognized that the liquid asset percentage to net worth is only 0.39% which issignificantly low (Cui & Radde, 2016).If Ching Eng wants to purchase new asset through debt finance, it will increase thetotal liabilities of the company and it will have an impact on the liquid asset to net worth ratioof the individual. For example, let’s assume that the new watch will cost $ 10000, then amount of long-term finance will be ($ 10,000*90%) = $ 9,000. Therefore, the amount of liabilities will be ($780,000 + $ 9,000) = $ 789,000 and the amount of net worth will be ($ 15,42,000 - $780,000) = $ 753,000.Therefore, the liquid asset to net worth ratio will be = $ 3,000 / $ 753,000 = 0.40%.Therefore, it can be identified that raising further finance through long-term debt willincrease the liabilities, which in turn will improve the liquid assets to net worth ratio,provided that the amount of liquid asset remain constant.(c)Total interest calculation(i)Printout of calculation
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