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

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

Neither George nor Jane expect their earnings to change before retirement

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

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

A) 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.