Instructions

Your clients, George and Jane Jetson, have come to you for assistance with their financial plans. They provided you with the following information (NOTE: Not all of this information is used for every question):

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

_ _ _5. Using the Capital Preservation Method, calculate how much capital the couple needs to retire at their goal ages using only retirement account assets.