AFA 3: Advice Strategy Paper: Post-retirement Case Study Analysis

This document presents a comprehensive analysis of a financial advice strategy paper, focusing on a post-retirement case study. The assignment, completed for the AFA 3 course, addresses the financial situation of a 75-year-old widow, Ida, who is dealing with inheritance, superannuation, and age pension implications. The paper outlines the client's financial goals, including maintaining her lifestyle, managing inheritance, and ensuring a tax-effective estate plan for her children and grandchildren. The analysis covers various aspects of financial planning, such as managing living expenses, insurance, investments, and the impact of superannuation and age pension on the client's financial well-being. The assignment also explores strategies to minimize tax liabilities and protect assets, particularly for the client's daughter. The document provides detailed calculations and addresses key considerations for providing sound financial advice in a post-retirement scenario, including inheritance and estate planning.

AFA 3 Advanced Advice Solutions
Assessment 2: Advice Strategy Paper
Assessment marks: 45 | Presentation marks: 5
Total marks: 50
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Name: <Type here>
Student number: <Type here>
Grade
Grade Abbreviation Mark range (%) Mark (%)
High Distinction HD 85–100 <Mark here>
Distinction D 75–84 <Mark here>
Credit CR 65–74 <Mark here>
Pass P 50–64 <Mark here>
Fail F 0–49 <Mark here>
Assessment feedback
For marker use only.
1

Instructions to students
• This assessment covers Topics 5 to 8 and accounts for 50% of your final grade.
• There are two (2) short-answer questions and one (1) extended response in this assessment.
You should answer all questions.
• The overall word limit for the assessment is 3200 words. Headings, quotes and references within the
body of the answer are included in the word count. Numerical tables, calculations, and reference lists
are not included.
• Refer to the Criteria-based Marking Guide for guidelines on what is expected for each question.
• The ‘General assessment information’ section in KapLearn contains information about format and
presentation, word limits, citations and referencing, collusion, plagiarism and other policies,
useful resources, submitting your assessment and accessing your results.
• Full workings must be shown for all calculations. Show all calculations in the text of your assessment
and NOT attached as an additional document. Additional documents will NOT be considered in the
marking.
• Answers are to be in your own words. Reference and cite all your sources (within the text of your
answer) when quoting or using material from external sources. Include a reference list at the end of
your assessment. Refer to the ‘Referencing and Citations Guide’ available from the ‘Library Learning
Hub’ in KapLearn for further information on referencing.
• Indicative weightings are noted beside each question. Use these weightings to assist you with your
allocation of time and resources. The weightings indicate the relative importance of each question.
• State all assumptions used in providing your answer.
• Requests for special consideration or information pertaining to special consideration written in the
body of the assessment will not be considered by the marker. Refer to the ‘special consideration’
section of the Assessment Policy on Kaplan’s website for more information.
2

Assessment presentation and referencing (5 marks)
Your answers are expected to be presented in a manner that would be befitting a real client
scenario. You may be required to research beyond the subject notes in answering the questions in
this assessment. Reference and cite all your sources when quoting or using material from external
sources. Include a reference list at the end of your assessment.
You are required to:
• use appropriate presentation and format for your assessment
• demonstrate independent research and analysis
• demonstrate appropriate use of relevant references
• follow the Harvard referencing style as recommended in the ‘Referencing and Citations available
from the ‘Library Learning Hub’ in KapLearn
• include a reference list at the end of your assessment following the recommended
referencing style
• adhere with the assessment word limit.
Criteria-based marking guide for presentation and referencing
The Criteria-based Marking Guide provided at the end of each question is designed to assist students
to understand what is expected of them in each question and to let them know how their
performance will be judged. It provides advice about the criteria used in the marking of the question
and what discriminates between an excellent, satisfactory and unsatisfactory answer.
Excellent
(Mark range: 4–5 marks)
Satisfactory
(Mark range: 2.5–3.5 marks)
Unsatisfactory
(Mark range: 0–2 marks)
• clear and appropriate assessment
layout and structure
• clear evidence of independent
research and analysis incorporated
throughout assessment
• appropriate use of referencing
• accurate use of Harvard referencing
style
• comprehensive reference list provided
at end of assessment
• adequate assessment layout and
structure
• some evidence of independent research
and analysis
• appropriate use of referencing
• use of Harvard referencing style
• reference list provided at end of
assessment
• poor assessment layout and/or structure
• assessment is significantly under or over
the word limit
• no demonstrated independent research
or analysis
• no use of references
• referencing does not use Harvard
referencing style
• no or inadequate reference list provided
at end of assessment
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Post-retirement case study
You are required to use the following case study to complete the assessment questions.
Please read it carefully and pay particular attention to the quantitative measures of the scenario.
Ida, who is 75, has recently been widowed following the death of her husband Eric, who was aged
77. Ida and Eric have three children, John (51), Philip (48), and Cheyenne (45). All three children are
independent, with Philip and John having their own family. Cheyenne has had numerous relationship
problems, has been married twice, and has three children from separate fathers.
Ida owned her home as joint tenants with her late husband and this is now in her own name. There
is no outstanding mortgage nor other debts. She has recently received a $200,000 inheritance from
her late mother’s estate.
Ida is fully retired and only worked for a few years before she married Eric.
Ida’s general living expenses are $3,000 per month (this does not include any of the specific
expenses mentioned below).
Ida’s home and contents insurance premium is $749 per annum. Ida also has a ten-year-old Honda
Civic. The comprehensive insurance premium for the car is $565 p.a. and she has compulsory third
party insurance with a premium of $626 per annum. She also has health insurance with a premium
of $1,152 p.a. She pays all these bills by cheque. Ida does not have any other insurance.
Ida goes on regular National Seniors coach trips that cost on average $675 per quarter. She is also
planning an organised European Heritage tour. The total package, including airfares, etc. is $9,000.
Ida has a four-year term deposit of $20,000, earning 2.5%, with the interest paid monthly. This term
deposit is due to mature in six months. In addition, she has a cheque account, which rarely has a
balance of over $1,000, that does not pay interest and she is charged $5 per month.
Ida has a superannuation fund with a balance of $79,000 made up of $36,000 tax free component
and $43,000 taxable component (element taxed). She has continued to hold her superannuation
benefit within the accumulation phase so she can use it to cover any excess costs and to use as an
emergency fund. Her belief is that if it is used as an income stream she will lose access to the funds.
Eric’s superannuation benefit was in the pension phase, that he commenced just prior to attaining
age 65 with a purchase price of $225,000. At the time of Eric’s death, the balance was $161,000
made up of $68,000 tax-free component and $93,000 taxable component (element taxed), he was
receiving income payments of $9,660 per annum. Eric commenced this account based pension prior
to 1 January 2015, and has continuously received aged pension since this date. Ida is the automatic
reversionary beneficiary.
Ida has been advised that she will have a reduction in her Age Pension entitlement, which she is unhappy
about. She would like to have the same amount of Age Pension she had when Eric was still alive.
Further, Ida is confused concerning Eric’s superannuation benefit. She has been receiving conflicting
information from various sources. Some say she can continue receiving Eric’s income stream, other
say if she receives it as a lump sum she will be entitled to a greater amount than the current balance.
In addition, she is concerned that if she receives Eric’s superannuation money she will have to pay
tax on any benefits she receives. Everyone she speaks to tells her superannuation is taxed on the
way in, taxed when it’s there, and taxed on the way out. She is also concerned that receiving the
superannuation benefit will also lead to an even smaller amount of Age Pension.
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Ida would like to use the $200,000 inheritance to assist in funding her lifestyle and ensuring she can
stay at home for as long as possible but making sure it has minimal impact on her Age Pension and
taxation. She is not overly concerned regarding access to it as she has her superannuation benefit to
use if she needs money. In addition, she would like to pass an inheritance to her children.
Like Ida’s inheritance, she would like all her assets to go evenly to her children. However, she is
concerned that any funds flowing to her daughter, Cheyenne, may be lost and end up going to her
next partner. She would like to make sure that her grandchildren will eventually receive the benefits
of her estate but allowing Cheyenne to use any income that may be generated from her portion of
Ida’s estate. In addition, Ida would like her estate paid to her children in the most tax effective way
and would like to see this detailed.
Ida wants to make sure that any advice she receives she can understand, is tax effective, and has a
minimal impact on or enhances her Age Pension entitlements.
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Question 1 The client’s position (10 marks)
Criteria-based marking guide for Question 1(a)–(b)
Excellent
(Mark range: 8–10 marks)
Satisfactory
(Mark range: 5–7.5 marks)
Unsatisfactory
(Mark range: 0–4.5 marks)
• all client outcomes shown in a clear and
appropriate manner
• clear evidence of understanding the
technical complications that may arise
in the advice process
• accurate financial calculations and data
used to explained sections A & B
• client outcomes listed, but not defined
against their current situation
• some technical knowledge shown
through the identification of
complications
• basic financial data used to explain
sections A & B
• no clear client outcomes or vague
explanation
• little or no evidence of understanding
the technical complications that may
arise in the advice process
• no financial calculations and data used
to explain sections A & B
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(a) Outline the outcomes that are important to the client. (5 marks)
This case study is concerned with Ida, who is a 75 year widowed women. Her husband has recently
expired and she has three children. Eric, Ida’s father expired at the age of 77 years and her three
children are John who is aged 51 years, Philip who is aged 48 years and Cheyenne who is aged 45
years. All the three children are impendent and out of them Philip and John have their own
families. On the other hand, Cheyenne has a problem with making relationships and therefore
have been married twice and currently have three children from her two husbands.
Ida is a retired lady and she has been living alone in the house that was earlier named after her
and her husband and after the death of her husband, she is the owner of the house. Ida being an
old lady has the main concern of generating adequate amount of money that would be helpful in
creating a healthy and sustainable life in the coming future. Ida wants to maintain a life and
maintain her standard of living equivalent to the lifestyle that she had prior to retirement age.
Ida has not undertaken several investments and purchase of insurance but has sufficient money
with the help of which she would be able to make investments in order to increase her level of
income. She has received a lump sum amount of $200,000 as an inheritance from the estate of her
late mother. She would like to make an effective investment of this amount she has received in
order to gain effective returns and thereby maintaining a lifestyle that is desired by Ida.
She is even worried about the superannuation fund of her husband as she is worried whether she
would be receiving the value that is available in the superannuation fund of her husband. She even
wants to know in case she receives the superannuation amount of her husband how would be
receive whether in lump sum or in monthly instalments. She has been advised that there are two
ways in which she can receive her husband’s superannuation and therefore she requires a
suggestions as to in which way she would like to receive the amount and which one of these
strategies would be more tax effective for Ida.
Ida is aged and therefore she may fall sick at a later stage of life and therefore it is important that
she purchases a healthcare insurance in order to meet any expenses that are related to health.
Ida has even found that after receiving the superannuation benefits it would even lead to smaller
amount of Age Pensions and therefore she requires assistance as to the strategies that can be
implemented with the help of which she would be able to increase her age pension amount.
Ida wants to give out her inheritance to her children equally and therefore requires assistance as
to in what manner her assets are distributed so that all of their children receive equal amount of
asset. As Cheyenne does not have stable relationship Ida is worried that the asset that would be
given to her would go to her next partner. Hence, Ida wants to make sure that her grandchildren
receives the benefits and therefore requires advice over the same. These are the aspects with
respect to which Ida requires assistance so that she would understand properly the advises that
would be tax effective for her and would have the minimum impact in order to increase the Age
Pension values.
(b) What are the issues/complications you have identified that may hamper the client’s
achieving their objectives? Provide financial data and calculations. (5 marks)
There are several issues and complications that may hamper the financial and the non-financial
goals of Ida. One of the essential issue that has been discovered for Ida has been the fact that Ida
does not have sufficient amount of investments and savings in the bank account and her main
source of income has been through superannuation fund. She does not have any other source of
income as she is retired and is mainly dependent on the money she receives from the
superannuation fund. Ida is satisfied about the fact that the money that is available in the
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superannuation fund would be able to meet any kind of unprecedented expenses but in case there
exists is an emergency situation the amount that is available may not be sufficient to meet the
expenses. It is seen that Ida is aged 75 years and therefore there can be scenarios that she may fall
sick, which may lead to rise in the amount of expenses. The daily expenses of Ida is very less
however on a regular basis, she goes for a National Senior coach trips and has even looked to go
for an organized European Heritage trip. In order to meet these expenses she may require
additional funds as well.
The term deposit that Ida has would be maturing in the next six months and therefore if the
money is not re-invested then it can hamper Ida as well. Even though Ida feels that she has
sufficient amount of value in the superannuation fund, but reduction in the Age Pension can have
an impact on their income and lifestyle. These are issues that can be faced by Ida.
Income and expenses
Client 1 Client 2 Notes
Income from employment
Salary
Salary sacrifice
Salary after salary sacrifice
Income Payment $9,660
Unfranked dividends
Franked dividends
Franking (imputation) credits
Interest $60,000
Other income, e.g. taxable benefits
Capital gains < 1 yr $43,000
Capital gains > 1 yr
Tax-free component of capital gains
Assessable income $112,660
Deductible expenses
Rental expenses, repairs etc.
Taxable income
Tax on taxable income $112,660
Non-refundable tax offsets (e.g. LITO/SATO)
Medicare levy
Medicare levy surcharge
Franking rebate
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Suggested word limit: up to 600 words.
9

Question 2 Meeting client objectives (10 marks)
Criteria-based marking guide for Question 2
Excellent
(Mark range: 8–10 marks)
Satisfactory
(Mark range: 5–7.5 marks)
Unsatisfactory
(Mark range: 0–4.5 marks)
• clear set of solutions outlined to match
client objectives
• accurate use of financial calculations
and data to explain solutions
• correct identification of appropriate
strategies/solutions
• clear set of solutions outlined to
match client objectives
• basic technical workings shown to
explain solutions
• no clear solutions or vague explanation
• only bullet points used
• little or no technical workings shown
What are the possible solutions for achieving your client’s goals?
There are several solutions that can be given to the client based on the goals and the aims of the
students and therefore one should take extensive measures with the help of which Ida can satisfy
their needs and goals. One of the essential goals of Ida is to maintain adequate level of income
that would be effective in maintaining their normal lifestyle eve in the future. In order to do the
same, Ida needs to purchase certain investments according to her notions and perspectives and
thereby these investments would be able to provide returns that would could be used by Ida in
order to meet her daily expenses and maintain her general living standards. There are numerous
investment plans and products that are available in the market and the ideal product would be
suggested to Ida based on her goals and objectives.
Ida is an aged lady and therefore there are circumstances that she may fall sick that may increase
her expenses. It is therefore essential that Ida purchases a healthcare insurances that would be
effective enough in order to pay for the expenses that she may incur for treating her health.
Ida has received an amount from inheritance of her mother’s estate and Ida want to make
investments from that money in order to earn additional returns that would enhance her level of
income. This money would be invested in such a manner so that Ida would receive the highest
amount of returns by paying for the minimum amount of tax.
An effective level of advice needs to be given to the client with respect to superannuation benefits
she would receive as a beneficiary of Eric. In this circumstances, if Ida receives the money on the
basis of the income stream of Eric, then Ida would receive better returns from the superannuation
of Eric and the amount of tax that would be levied on this money would be lower and effective.
Ida is even concerned that there might be a reduction in her age pension and therefore in order to
balance the amount that has been lost in the age pension Ida needs to undertake additional
investments. The investments can be undertaken by looking at the market and the amount of
interest and the risk that is associated with it so that Ida can increase their level of returns and
maintain their current lifestyle.
Ida needs to take suggestions from her accountants and solicitors with the help of which she can
have an idea of dividing her assets on an equal basis with the help of which all her children would
receive her assets on an equal basis. Ida even wants to ensure that her grandchildren receives the
benefits from her assets and therefore the part that would be given to Cheyenne would be
distributed among her three children so that Cheyenne is unable to transfer the asset to her next
partner. As Cheyenne’s children are dependent therefore indirectly Cheyenne would be able to
handle the money until her children are matured.
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Ida with the help of her adviser can take measures with respect to which her investments would
be allocated in an effective manner in various assets so that the extent of risk gets reduced and the
extent of return is maintained. The investments should be assessed from time to time so that any
kind of discrepancies like losses is observed from the investment can be mitigated. This is done
due to the fact that in case one of the assets are not performing in effectively then it can be
changed with another product that would provide better returns. These are the probable solutions
in order to attain the goals of Ida.
Suggested word limit: up to 600 words.
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Question 3 Technical workings (25 marks)
Criteria-based marking guide for Question 3
Excellent
(Mark range: 20–25 marks)
Satisfactory
(Mark range: 12.5–19 marks)
Unsatisfactory
(Mark range: 0–12 marks)
• well-articulated and easy to follow
advice process
• accurate use of financial calculations and
data
• use of appropriate mix of both imitated
conversation and explanatory writing
• well-articulated and easy to follow
advice process
• Basic technical workings shown to
explain solutions
• no clear solutions or vague explanation
• only bullet points used
• little or no technical workings shown
Detail the way in which you would explain your proposed solution to your client. You must include
all of the required technical workings/calculations for your proposed solution. This should be in
your own words and presented in a manner as if the client was in an appointment with you.
Note: This should detail to the client what the solutions are, how they are meeting their objectives
and the way in which the solution will be implemented.
Dear Ida,
I would like to thank you for taking my assistance with respect to the financial advices that you
require. You are retired and therefore require undertaking a meeting with you is essential in order
to have an idea about your goals and desires. By understanding your desires and ants, it would be
helpful for me in creating a financial structure that would be ideal for you and would provide you
with the returns that is desirable to you. The construction of an effective financial and investment
plan would be helpful in gaining proper savings and income from the investments that can be
utilized in order to pay for the general expenses and the expenses that would be incurred in the
coming time period.
This meeting would be fruitful in generating knowledge and understanding of the actual and the
future risks that may take place at any point of time in the future. The meeting would be helpful in
creating knowledge and understanding of the steps and the actions that needs to be followed and
the policies and strategies that is associated to tax savings and investment by taking assistance of
which you would be able to have a safe, comfortable and secured in the coming time period.
In the primary stage of the meeting it is vital to create knowledge on the areas and the topics that
would be addressed in this meeting so that all the concerns and the issues can be met in an
effective manner. It is seen that the key aim of Ida has been to create a retirement plan as she is
aged 75 years and she lives alone in her house. She needs to preserve a minimal amount which she
would feel is adequate in order to pay her general expenses during the current time period and
even in the future. Ida has a feeling that amount in the superannuation fund is adequate in order
to meet any kind of unprecedented events however, in order to maintain a surplus capital for any
accidents and events it is essential for Ida to create additional cash from the further investments.
The next aspect that would be taken into consideration is the tax effective characteristics of the
investments that would be undertaken so that Ida can enhance her income by paying off the least
amount of tax. A discussion regarding the superannuation needs to be undertaken so that an
understanding can be attained with respect to whether the superannuation amount that is
currently available to Ida would be adequate in meeting her future expenses. A discussion would
be undertaken with respect to the kind of additional investments that would be undertaken by Ida
with the help of the money she received from her mother so as to increase her income level. The
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