Case Study

Your clients, George and Jane Jetson, have come to you for assistance with their financial plan. They provide 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 65
• 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

Based upon the information provided, answer the following question.

Calculate the cost of Judys education at Galaxy University. Calculate the cost of Elroys education at Galaxy University. 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.