Case Study Your clients, George and Jane Jetson, have come to you for assistance with their financial plan. They provided you with the following information:

George (age 44)

* Earns $104,000 annually working at Spacely Sprockets

*Contributes $1,625 to his 401(k) each month

*Employer matches 100% of the first 3% and 50% of the next 2% of Georges salary

*Would like to retire at age 67

*Social Security benefit estimate in todays dollars is $2,050/month at age 67

Jane (age 44)

*Earns $31,000 working part-time from home as a graphic artist

*Contributes $7,750 per year to a Simplified Employee Pension (SEP) plan

*Would like to retire at the same time as George *Social Security benefit estimate in todays dollars in $1,725/month at age 67

Family Children:

*Judy (age 9) and Elroy (age 5)

*Judy has a 529 Plan with a balance of $23,500

*Elroy has a 529 Plan with a balance of $12,000

*$150/month is being contributed to each childs 529 plan

Expectations:

*George and Jane would like to have $125,000/year (in todays dollars) at retirement

*Neither George or Jane expect their earnings to change before retirement *Both Judy and Elroy will go to Galaxy University

*Currently, one year of tuition is $13,200 and they expect to pay for 5 years of school per child

*The Jetsons believe the cost of tuition will increase at a rate of 6% per year until the time both children graduate

*The Jetsons expect inflation to average 3% per year during their lifetime

*George and Jane each expect to live to age 95

*They expect their invested money to average a 9% per year return during their lifetime

Additional Information about the Jetsons:

*Current net worth is $1,072,000

*Liabilities

*Home mortgage: $325,000 (12 years left at $1,800/month)

*Auto loan: $17,000 (2 years left at $730/month)

*Credit Card: $8,400 (paying $450/month)

*Cumulative living expenses (food, utilities, fuel, clothing, etc.): $1,700/month

*Effective income tax rate is 18%

Assets:

*Home value is $575,000

*Georges 401(k) balance is $625,000

*Janes SEP balance is $95,000

*Investment account balance is $45,000

*Bank CD balance is $75,000 (at 1.5% interest)

*Checking account balance is $7,400 _ _ _

1. Calculate the cost of Judys education at Galaxy University?

2. Calculate the cost of Elroys education at Galaxy University?

3. George and Jane want to make their last contribution to each childs 529 plan at the time Judy starts college. Based upon the current 529 plan balances and monthly contributions, will they achieve this goal? Using calculations, show and explain your answer to the couple.

4. Using the Annuity Method and only retirement account assets, will their current retirement account assets and contributions meet their retirement needs? Using calculations, show and explain your answer to the couple.

5. Using the Capital Preservation Method, calculate how much capital the couple needs to retire at their goal ages using only retirement account assets.

6. Using the Purchasing Power Preservation Method, calculate how much capital the couple needs to retire at their goal ages using only retirement account assets.

7. In your own words, explain the advantages and disadvantages of each of the three methods of retirement needs analysis and why the calculated amounts are different.

8. If the couple is not on track to meet their financial goals (individual or collective), what are three alternative ideas to help them meet their goals? Using calculations, show and explain each alternative to the couple.

9. Calculate the following ratios for the Jetsons and comment on what each one represents and how each relates to their financial goals:

Emergency Fund Ratio

Debt to Total Assets

Net Worth to Total Assets

Savings Rate (combined)