Peter and Patricia Morgan, Case 13 Summary

Morgan’s Case #13

Peter Patricia

Age 62 Age 29

$200M Salary Life expectancy 57.75 years

Life expectancy 25.75 years Owns two companies:

Patricia Advertising, Inc. and Publications, Inc.

Four children – all healthy and employed:

Martin 34

Julius 33

Brad 32

Laena 31

Several grandchildren

Social security income: $25.5M

75% if taken at age 62

Defined benefit plan – 25 years x 1.25 x $200,000

With 80% survivor benefit

Has choice of lump sum $1,200,000

2.4% single life annuity

3.68% joint/survivor annuity #26 calculation

⬆ Rates needed on investment to make lump sum better choice

Assumptions

• 3% inflation

• Risk free return = 2% 90-day T-bill

• Moderate risk takers

• $60,000 emergency fund

• Peter’s employer provides lifetime healthcare

• 11% equity return

• 28% Federal tax rate – no state income taxes

• Simple wills – leaving all to surviving spouse

• Plan on refinancing their home

• Plan on selling primary residence and buying new home in retirement community

• Patricia’s mother Natalie – 81 year-old widow – good health for her age

• Asset allocation: 50% stock, 50% bonds

• $5 million umbrella policy

• Net worth: $4.658 million

• Patricia selling Publication, Inc. – 20% down over 10 years at 11% interest

• Peter – Single premium annuity

o Current value: $332,403, 6% quarterly

o Start in 9 months or 3 quarters

o 100 quarters 1.5% rate

o Calculate annuity = $6,633

• Home value: $900M, $420M basis

• Gifted $800,000 to each of children in irrevocable trust (paid gift tax of $75,000). Peter received this money from his mother in 1995.

Life Insurance

Peter Patricia

Insured: Peter Insured: Patricia

Owner: Peter Owner: Patricia

Face: $450,000...