lee_case_study-newlyweds.PDF The Lee Case Study Megan and Kevin Lee--The Newlyweds Megan and Kevin were married just a few months ago, and they are happily adjusting to their new lives together....

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lee_case_study-newlyweds.PDF


The Lee Case Study

Megan and Kevin Lee--The Newlyweds

Megan and Kevin were married just a few months ago, and they are happily adjusting to their
new lives together. Megan, who grew up in San Diego, and Kevin, who grew up in a small town
30 miles from Memphis, met at State University and dated for most of their college careers. Both
had enrolled in a large Physics course, and they happened to sit next to each other the first day
of class. By the end of the week, they each decided the only way to survive the class was to
organize a study group...and by the end of the semester they were “an item.” While neither of
them decided to become a physics major, Megan did receive her Bachelors degree in psychology
and started graduate school two years ago. Kevin received his Bachelors degree in Business
last summer and began his first job with a large consulting firm soon thereafter. He received a
$5,000 signing bonus that he used to open a money market mutual fund and to buy stock in
AT&T.

The first few months of marriage have been accompanied by many changes in both Megan and
Kevin’s lives. These include the normal challenges of merging two individual lives into one (e.g.,
selecting an apartment, taking a spouse’s needs and wants into account when deciding on
employment, etc.). But, as with many couples, financial management issues have been
particularly challenging. While dating they were each somewhat aware of the other’s spending
patterns and college funding, but financial practices were considered individual choices and not
really discussed. Now as a married couple they want to merge their finances, so both past and
future financial management practices are topics of debate.

The good news is that Megan and Kevin communicate well with each other. They have always
been able to express their opinions, even conflicting opinions, without letting the conflicts
become personal in nature. In addition, a two-day financial planning seminar given by an
experienced Certified Financial Planner (CFP) practitioner was one of the perks offered by
Kevin’s employer for all new employees and their spouses. This combination of instruction and
personal communication skills has provided Megan and Kevin with the tools to start tackling their
financial planning issues.

The bad new is that there are some difficult issues to tackle. They have significant debt, some
education loans as well as credit card balances. While Kevin’s father supported him financially
for at least half of his college costs, Megan provided for most of her own college expenses. In
addition, after years of college Megan and Kevin are experiencing pent up demand--the urge to
buy new clothes, furniture, cars, etc.--now that Kevin finally has a real job with a good income.
Then there are decisions to make about employer benefit plans, insurance, savings, etc. And
finally, Kevin is concerned about his father’s (Lyle Lee’s) financial future. His mother died when
Kevin was in high school, and his father (now age 50) has worked hard to see that all three
children were able to finish college. However, Kevin is concerned that his father has not been
able to provide for his own retirement.

Motivated by the financial planning seminar they attended, Megan and Kevin have worked the
past couple months to gather as much financial information as they could. Since they had little
idea about how much they were spending on things like eating out, entertainment, etc., they have
been keeping track of all their expenditures for the last two months. They have now filled out the
following forms they received at the seminar as completely as possible. Read the information
Megan and Kevin have provided so that you can “get acquainted” with them. As you first read
the case, you probably will not understand all the vocabulary or why certain information is even
included. Feel free to read ahead in your text or ask about terms that are not clear to you. By
the time you reach the end of this course, Megan and Kevin, as well as their financial lives, will
be old friends, and you will feel very comfortable with what all of this means!


PERSONAL FINANCIAL INFORMATION


Client Information

Spouse Information

Name: Kevin Lyle Lee

Name: Megan Lynne Lee

Birth Date: October 7, 1978

Birth Date: XXXXXXXXXXJuly 28, 1976

Soc. Sec. No.: XXXXXXXXXX

Soc. Sec. No.: XXXXXXXXXX XXXXXXXXXX

Business Phone: 512/ XXXXXXXXXX

Business Phone: XXXXXXXXXX/ XXXXXXXXXX

Residence Address: 1626 Volunteer Dr. #425
Smithvale, USA 78131



Home Phone: 512/ XXXXXXXXXX



Wedding Date: XXXXXXXXXXJuly 18, 2001




CHILDREN
Name Birth Date Social Security Number Grade
None




EDUCATION School Degree Year Received

Kevin State University B.A. Business August, 2001

Megan State University B.A. Psychology May, 1999
State University Ph.D. Social Work May, 2004 (projected)


OCCUPATION Employer Position XXXXXXXXXXYears
From To

Kevin DeVitt Consulting Computer Information Specialist 2001-present

Megan State University Teaching/Research Assistant 1999-present



FINANCIAL PLANNING CONSULTANTS




Name

Address

Phone

Financial Planner

Eric Anderson, CFP

Anderson Financial Consultants

XXXXXXXXXX

Attorney

None





Securities Broker

None





Bank Officer

None

State University Credit Union
Smithvale, USA 60131

XXXXXXXXXX

Insurance Agent

Alice Rodriguez

The Axtell Agency
1563 Trail Brush
Smithvale, USA 60131

XXXXXXXXXX



FINANCIAL PLANNING DOCUMENTS




Location

Personal Property Inventory

None



Wills/Trusts:

None




Insurance:

Life

Group policy through DeVitt Consulting
Information booklet in desk drawer at home



Health

Group coverage through DeVitt Consulting
Information booklet in desk drawer at home



Dental

Group coverage through DeVitt Consulting
Information booklet in desk drawer at home



Disability
income

None



Auto

Policy in desk drawer at home




Homeowners/
Renters

None

Deeds:


Auto


In desk drawer at home


Birth/Marriage/Other
Certificates:

Birth

Marriage

Megan’s is in desk drawer, but cannot find Kevin’s
In desk drawer at home


ASSETS - January 1, 2002




LOCATION


BALANCE

RATE OF
INTEREST


MATURITY

CHECKING

State Univ. Credit Union1,2
State Univ. Credit Union1,3
(minimum balance acct.)

$ 4,809
$ 780

N/A
N/A

N/A
N/A


MONEY MARKET
ACCOUNTS/FUNDS

State Univ. Credit Union1,4
(opened 2001)
Fidelity Cash Reserves2
(opened 2001)

$ 2,603

$ 3,610


2.5%

4.9%


N/A

N/A

SAVINGS ACCT.


First National Bank1,3
(opened 1983)

$ 518

2.0%

N/A

CASH ON HAND

Desk drawer at home

$ 340

N/A

N/A


VESTED PENSION
401(k)-DeVitt Consulting


See Security Investments


$ 558





SECURITY INVESTMENTS




Cost Current Value

Security

# Shares
Date Acquired Per Share Total Per Share Total

AT&T2 T

43

8/15/01

$23.50

$ 1,011

$15.25

$ 656

Fidelity Magellan Mutual3
Fund (inherited) FMAGX

517.384

9/18/91

$12.23

$ 6,328

$50.01

$25,874


401(k)--DeVitt Consulting:2
Vanguard 500 Index
Mutual Fund VFINX
Vanguard International Value
Mutual Fund VTRIX

Vanguard 500 Index MF
Vanguard International Value
MF


XXXXXXXXXX

XXXXXXXXXX


XXXXXXXXXX
XXXXXXXXXX

Monthly
purchases
from 9/01 to
1/02

Reinvested
dividends &
capital gains
distributions
Average

$48.50

$17.75


$47.25
$17.80


$ 293

$ 396


$ XXXXXXXXXX
$ 29


$43.20

$18.19


$43.20
$18.19


$ XXXXXXXXXX

$ XXXXXXXXXX


$ XXXXXXXXXX
$ XXXXXXXXXX







1Federally insured
2 Kevin’s separate account
3 Megan’s separate account
4 Kevin and Megan’s joint account with right of survivorship




PERSONAL PROPERTY



Year



Make

Model

Cost

Current Value

Automobile:

1999



Ford

Explorer

$20,500

$15,500



Market Value




Replacement
Value

Clothing

$ 3,000

$10,500

Furniture & appliances

$ 6,000

$13,000

Stereo, TVs, cameras, etc.

$ 3,200

$ 6,800

Computer, printer, & software

$ 2,000

$ 3,000

Golf clubs

$ 800

$ 2,000

Jewelry

$ 4,000

$ 7,500

Miscellaneous household items

$ 1,500

$ 3,000


REAL PROPERTY

None


LIABILITIES - January 1, 2002

LOANS

To Whom Owed

Original
Amount of
Account

Property or
Service
Purchased

Interest
Rate

Current
Balance

Payment
Amount

How often
Paid

Total
Number of
Payments

Date of First
Payment

State University
Credit Union

$9,800

Education
(Kevin)

9.0%

$ 9,800

$203

monthly

60

1/10/02

State University
Credit Union

$36,780

Education
(Megan)

8.0%

$36,780

N/A

N/A

N/A

N/A

State University
Credit Union

$ 3,000

Computer and
printer
(Megan)

10.0%

$ 2,409

$ 97

monthly

36

6/1/01

Ford Credit Corp.

$17,500

Automobile
(Kevin)

7.5%

$11,542

$423

monthly

48

8/3/00


CREDIT CARDS


Number
Annual
Fee
Interest
Rate
Maximum
Line of
Credit
Outstanding
Balance
Minimum
Monthly
Payment
Grace
Period
Calculation
Method

CitiBank
MasterCard
(Kevin)

XXXXXXXXXX

$35

14.0%

$4,000

$3,805

2% of balance
or $20,
whichever is
greater

yes1

Av. Daily
Bal.2

State Univ.
Credit Union
Visa (Kevin)

XXXXXXXXXX

$ 0

12.0%

$5,000

$2,808

3% of balance
or $75,
whichever is
greater

yes

Av. Daily
Bal.3

Dillards
Dept. Store
(Megan)

XXXXXXXXXX

$ 0

18.0%

$3,000

$1,800

2% of balance
or $50,
whichever is
greater

Yes1

Av. Daily
Bal.2

American
Express
(Kevin)

XXXXXXXXXX

$55

---

---

$ 0

Total balance

---

---

Sears
(Joint)

XXXXXXXXXX

$ 0

21.0%

$5,000

$1,667

2% of balance
or $10,
whichever is
greater

Yes1

Av. Daily
Bal.2

Discover
(Joint)

XXXXXXXXXX

$ 0

21.5%

$3,000

$2,967

2% of balance
or $25,
whichever is
greater

no

Two-cycle
av. daily
bal.1
**Kevin and Megan have decided they will pay all new charges in full starting January 2002.


LINE OF CREDIT

Number Annual
Fee
Interest
Rate
Maximum
Line of
Credit
Outstanding
Balance
Minimum
Monthly
Payment
Grace
Period
Calculation
Method
State Univ.
Credit Union
(Joint)
XXXXXXXXXX $ 0 11.0% $10,000 $ 0 2% of balance
or $50,
whichever is
greater
no Av. Daily
Bal.2

1 Grace period only if total outstanding balance is paid in full monthly.
2 Including new purchases and cash advances.
3 Excluding new purchases, but including cash advances.



INCOME—January 1 to December 31, 2001



Salary (Kevin)

$ 42,000

Bonuses

$ XXXXXXXXXX

Salary (Megan)

$ 19,000

Bonuses

$ XXXXXXXXXX

Consulting income (Megan)

$ 5,000

Interest1

$ XXXXXXXXXX

Dividends2

$ XXXXXXXXXX

Capital gains distributions3

$ 3,197


Monthly salary after tax deductions:
Kevin Megan

Gross salary $ 3,500 $ 1,583
Federal income tax withholding XXXXXXXXXX XXXXXXXXXX
State income tax withholding (3% XXXXXXXXXX XXXXXXXXXX47
Social security tax withholding (7.65% XXXXXXXXXX XXXXXXXXXX
Net salary $ 2,602 $ 1,304







1Money market account ($65 for the year, paid monthly) and savings account ($10 for the
year, paid monthly). Interest will be left in accounts to accumulate.
2Fidelity Cash Reserves ($177 for the year) and Fidelity Magellan ($798 for the year), both
paid semiannually in June and December. Dividends will be reinvested.
3Fidelity Magellan ($3,197 for the year), paid semiannually in June and December.
Dividends will be reinvested.








EXPENSES--January 1 to December 31, 2001
Cash Flow
Monthly

Cash Flow
Annually

Rent

$850

$10,200

Utilities (electricity and gas)

180

2,160

Telephone ($35) and cable TV ($45)

80

960

Groceries

300

3,600

Food away from home

170

2,040

Auto loan payments

423

5,076

Auto maintenance (gas, repairs, licenses, etc.)

165

1,980

Medical/dental expenses (not covered by insurance)

80

XXXXXXXXXX

Clothing

225

2,700

Insurance premiums paid through withholding

6

72

Contributions to 401(k) pension

175

2,100

Auto insurance (paid semi-annually in March and September)



586

Federal income tax withholding

636

7,632

Social security tax withholding

389

4,668

State income tax withholding

152

1,824

Appliance, furniture, and equipment purchases



1,500

Personal care

50

600

Entertainment

200

2,400

Vacations



1,000

Education expenses (books and supplies)

150

1,800

Charitable contributions

25

300

Gifts ($35/mo. Jan. through Oct., $400/mo. Nov. and Dec.)



1,150

Reinvested interest, dividends, and capital gains distributions



4,247

Computer loan payments

97

1,164

Minimum payments on credit cards

303

3,636

Miscellaneous

100

1,200


EMPLOYEE BENEFIT INFORMATION--DEVITT CONSULTING

DeVitt Consulting offers a cafeteria benefit plan with the following choices. DeVitt Consulting
pays $300 per month towards the premiums of the selected insurance coverages. If the
employee wants more of the insurance coverages than the $300 premium DeVitt Consulting
pays, the difference is deducted from the employee's monthly paycheck. No reimbursement is
made if the employee selects less coverage than the $300 premium covers. Kevin currently is
covered by the group term life policy and both Kevin and Megan are insured under the major
medical policy. Kevin is not covered by the other insurance and is not participating in the
company's flexible spending account.

LIFE INSURANCE

Type of life insurance

Group Term

Accidental Death and Dismemberment

Face amount

2, 3, or 4 times gross salary

Sold in multiples of $10,000 not to
exceed 10 times gross salary

Monthly premium

$0.07 per $1,000 of coverage

$0.023 per $1,000 of coverage

Kevin's current
coverage

$84,000 (2 times gross salary)

None

Beneficiary

Megan (primary beneficiary)
Lyle Lee (secondary beneficiary)

N/A

Owner

Kevin

N/A

Monthly premium for
coverage selected

$5.88

N/A

DISABILITY INSURANCE

Policy conditions

Employer group policy

Definition of disability

Own job for 2 years, then any job educationally suited for

Monthly benefit

70% of gross monthly salary

Sickness

90 days

Waiting
period
Accident

90 days

Sickness

to age 65

Benefit
period
Accident

to age 65

Monthly premiums

$0.4 per $100 of gross monthly salary

Kevin's current coverage

None

Monthly premium for
coverage selected

N/A






MEDICAL INSURANCE


*Type of Policy

Major Medical Option

HMO Option

Company



PMA Medical

Grant HMO

Policy number

Group #153-271

Group # XXXXXXXXXXHMO

*Hospitalization



Room Rate




85% of semi-private
rate


100% of semi-private rate

Number of days

unlimited

unlimited

*Major Medical



Maximum




$500,000/person/year


unlimited

Deductible/copayment

$500/person/year

$50 copayment/emergency room visit
$15 copayment/doctor's visit
$ 0 copayment/hospital stay
$15 copayment/brand-name prescription
$ 5 copayment/generic prescription

Participation percentage

85/15

--

Cap on participation

$2000/person/year

--

Mental health

85% for up to 20 visits
annually

$20 copayment per visit for up to 30
visits annually

Dental

not covered

not covered

Monthly premiums

$150 per person

$125 per person

Monthly premium for Kevin
and Megan’s current coverage

$300

N/A

*COMMENTS









Major medical: Prescription drugs are covered with a $10 copayment for generic
prescriptions and a $20 copayment for brand-name prescriptions. Drug
copayments cannot be included as part of the deductible or the participation
cap.

HMO: Must use HMO facilities and selected pharmacies and hospitals.


DENTAL INSURANCE


Policy Number

Group #078 61

Annual deductible

$25 (waived for 2 diagnostic and 2
preventative treatments a year)

Maximum annual benefit

$2,000

Diagnostic (oral exams and x-rays)

100%

Preventive (cleanings, fluoride, and sealants)

100%

Restorative--minor (fillings and stainless steel crowns)

75%

Restorative--major (porcelain, resin, and gold crowns)

50%

Endodontics (pulp caps and root canals)

75%

Periodontics (periodontal scaling, root planing, and treatment
of gum disease)

75%

Prosthodontics (bridges and dentures)

50%

Oral surgery (extractions)

75%

Orthodontics (retainers and braces)

50% ($2,000 lifetime maximum)

Monthly premiums

$35/per person

Current coverage

None

Monthly premium for coverage selected

N/A


OTHER BENEFITS

Sick leave: Employee earns 1 day per month. Sick days can be accumulated up
to 90 days of leave. Kevin currently has 4 days accumulated.

Personal days: 3 days of personal leave with pay are given each year after 1 year of
employment. These days cannot be accumulated from year to year.

Vacation: Two weeks of vacation are given annually after 1 year of
employment. Three weeks of vacation are given annually after 5
years of employment. Vacation days can be split, but they cannot be
accumulated from year to year.

Tuition reimbursement: Up to $2,000 per year tuition and fee reimbursement for courses
taken by employee that improve job skills.

Flexible spending accounts: Up to $400 per month can be contributed to each a health care
flexible spending account and a dependent care flexible spending
account. Employees can contribute to one or both of these
accounts, as needed.


PRIVATE INSURANCE

AUTO INSURANCE

*DESCRIPTION



XXXXXXXXXXFord Explorer





(2)

Company



Safe-Drive Casualty, Inc.







Policy Number

XXXXXXXXXXEXP







Liability

$40,000 or (20/40/15)







Medical Payments

$3,000/person







Uninsured Motorist

$40,000 or (20/40/15)







Collision

(Actual Cash Value)







Deductible

$200







Comprehensive

(Actual Cash Value)







Deductible

$ 50







Annual Premium

$586







Comments

Paid semi-annually in March
and September








XXXXXXXXXXRETIREMENT INFORMATION--DEVITT CONSULTING


Type of pension plan

401(k) salary reduction plan

Employee contribution

Voluntary contribution. Maximum contribution is 15% of gross salary
(excluding bonuses) up to $10,500 annually.

Employer contribution

Matches $0.50 for every $1.00 of employee contribution for the first 8% of
gross salary contributed by employee.

Vesting

Employee contributions immediate; employer contributions--40% after 2
years, 60% after 3 years, 80% after 4 years, and 100% after 5 years

Investment choices

Employee can put money in a 5-year Guaranteed Investment Contract (GIC)
and/or any of the Vanguard family of mutual funds. The 5-year GIC offered
is paying a 5% rate of return.

Kevin's current
contribution

5% of gross salary

Current value of
pension

$837

Current vested value

$558

Beneficiary

Megan


FINANCIAL GOALS

Assume these goals are listed in order of priority (from highest to lowest).

Short range (1 year):
• Evaluate their financial situation and make necessary changes in spending and financial
alternatives
• Get control of their finances
• Pay all new credit card charges in full upon billing

Intermediate range (2-5 years):
• Pay off all credit card balances
• Accumulate an adequate emergency fund
• Buy a second car
• Purchase a house
• Save for a new car to replace the Explorer

Long term (over 5 years):
• Save for retirement
• Provide funds for Kevin’s father in case he needs financial support
• Have 2 children
• Save for children’s college educations (once children are born)

XXXXXXXXXXOTHER INFORMATION

1. Are you able to save regularly? Only for retirement through 401(k) and through
reinvestment of interest, dividend, and capital gains distribution income.

2. How much are able to save annually? $2,100 in the 401(k) and about $4,250 of
reinvested interest, dividend, and capital gains distribution income.

3. Do you invest regularly? Only through the 401(k).

4. Do feel that you are financially organized? No, but we are working on it.

5. Do you budget your money? No, but we are willing to start budgeting.

6. If you were to die, could your dependents handle their finances? Yes

7. How do you feel about saving for retirement? It's important, but we have other goals that
are also very important right now.

8. If you had an extra $5,000 what would you do with it? Pay off credit card debt

9. How do feel about taking investment risks? We are comfortable with a moderate amount
of risk.

10. How is your health? Very good except for an occasional cold or injury.

11. What is your single most important financial objective at this time? Pay off our new credit
charges each month and reduce the current outstanding credit card balances.
Answered 2 days AfterMay 05, 2021

Solution

Vasudha V answered on May 08 2021
15 Votes

1. Megan and Kevin Lee are in the Early Career Stage, in this stage both are planning for the future, no firm decision is taken for the future stability of the family. Being in the early stage, there...

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