Alvin and Fran Jackson came to you, a financial planner, as a referral.

They are in the asset accumulation and risk management phases of life and need help determining how much to save so they can send their three boys to college while also securing their own retirement. They have learned that you need to be flexible when you have three children because things change, sometimes frequently and often unexpectedly. They want their financial plan to be flexible enough to meet their goals. They believe they will benefit from meeting with a CERTIFIED FINANCIAL PLANNER TM practitioner and arrived with the following information for you to assist them in creating a plan to meet their financial goals.

Alvin Jackson, age 43, works at Mach Speed Company, a family-owned firm that supplies the aerospace industry. Alvin has been with the company for 16 years. He plans to retire with 35 years of service at age 62. Alvin grew up in Idaho but moved to Seattle to attend college which is where he met and married Fran 20 years ago. They lived and worked in Seattle until Alvin was offered a higher paying job at Mach Speed which is located south of Seattle in Laplace, Washington.

Fran Jackson, age 43, grew up in Wisconsin and loves the outdoors. She moved to Seattle after high school to be close to the Pacific Ocean and milder weather. Fran learned to surf and spent a great deal of time in, on and around the water. She enjoyed the water so much that she became interested in fluid dynamics and decided to attend college. College is where she met Alvin, who also enjoyed the natural beauty and outdoor activities of the Pacific Northwest. Fran has been in and out of the work force due to having three children, but has been with her current employer, Water Striders, for five years. She expects to work until age 62.

Alvin and Fran have three children: Curly (age 12), Larry (age 8) and Moe (age 6). The boys attend public school. They are intelligent and athletic with college prospects. However, Alvin and Fran do not want to rely on the boys ability to obtain athletic or merit-based scholarships to attend college. They want to save enough money to provide each boy with 5 years of college at State University, beginning at age 18.

Financial Goals & Concerns (in order of priority)

1. Retirement at age 62 with 80% of preretirement income including Social Security. Life expectancy is 96 for both.

2. College education of children for 5 years, each beginning at age 18, at the state university.

3. Appropriate risk management (insurance) portfolio, and estate planning portfolio.

4. They plan on buying a vacation home in 19 years in Colorado at a price of $350,000 in todays dollars.

5. They will not sell the movie collection and may add to it.

Economic Information

General inflation is expected to average 3.0% annually for the foreseeable future.

Education inflation is expected to be 6.0% annually.

They live in the state of Washington which has no state income tax.

Raises are uncertain but in the long-run are expected to be equal to general inflation (CPI).

The economy is in a slow growth recovery from a recession with moderate to high unemployment.

Bank Lending Rates

15-year conforming rate mortgage is 3.75%.

30-year conforming rate mortgage is 4.00%.

Any closing costs associated with any mortgage refinance are an additional 3% of any amount mortgaged and will be paid directly (i.e., not included in the new mortgage).

They plan to stay in their home through retirement and are more concerned about cash flow and possible monthly savings than the term of debt associated with the home.

Investment Return Expectations

General market for stocks is expected to return 9.5%.

The Jacksons required rate of return is 8%.

Fixed income investments are expected to earn 6%.

T-Bills are expected to yield 3% per year and are the proxy for the risk-free rate of return.

Education Information

They currently have no funds earmarked for education.

College costs at State University are currently $18,000 per child, per year in todays dollars or $72,000 for a four year degree.

They plan to pay the full costs of college education so the children will have no debt and will not have to work during college so they can concentrate on their studies.

Retirement Information

Both Alvin and Fran have similar 401(k) profit sharing plans at their respective employers. The plans have an employer match of 1% for the first 3% contributed and 12% for any contribution greater than 3% up to 5%. The total possible employer match is 4% of each salary.

Alvin participates in his employers plan contributing 10% of his annual salary. They would like for Fran to participate in her employers plan but she has not signed up yet.

Alvin and Fran are also interested in contributing to traditional IRA accounts for the tax deduction and want to know your thoughts on such a contribution.

Estate Planning Information

Alvin and Fran have no legal or estate planning documents. While they do not expect to take care of their parents they also do not expect to receive any inheritances from their parents or grandparents.

They want to take care of each other and leave any remaining assets in trust for their boys. They tell you that they dislike paying taxes and remind you that they like flexibility. They ask if their estate planning documents can be drafted to reflect these preferences.

Other Assumptions:

1. Alvin and Fran expect to live to age 96.

2. They have a moderate risk tolerance and a required rate of return of 8%.

3. The childrens child care expenses are paid to a child care center.

4. They will refinance their home, if possible, and use the additional cash flow to fund savings for retirement, college or both.

5. They will pay any expected expenses from refinancing from their investment account.

6. Alvins parents are retired and live on their savings and Social Security. They have told Alvin and his brothers, Theodore and Simon, that they have purchased long-term care insurance so they would not be a burden to anyone.

7. Frans parents are also retired with a pension and Social Security. They have not purchased long-term care insurance. Fran tells you there is no history of Alzheimers on either side of her family and that all of her grandparents are still alive and well, living in retirement communities in Arizona and Florida.

8. Alvins Social Security retirement benefit at normal retirement age of 67 is $2,250 per month in todays dollars. Frans Social Security retirement benefit at normal retirement age of 67 is $1,800 per month in todays dollars.

9. Alvin and Fran want to retire at age 62.

10. They purchased a luxury SUV at the beginning of last year and financed $53,333 for 48 months at 0% interest. They pay $1,111.10 per month ($13,333 per year).

11. The previous years net worth was $843,149. 13. The previous years total assets were $1,217,149. 12. The previous years investment assets were $429,916.

YOUR DELIVERABLES:

1. Provide a Retirement Funding Analysis and Suggestions/Alternatives