Your clients, John and Jane Smith, have come to you for assistance with their financial plan. They provide you with the following information:

John (age 44)

• Earns $104,000 annually working at Iron Works
• Contributes $1,625 to his 401(k) each month
• Employer matches 100% of the first 3% and 50% of the next 2% of Johns 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 John
• Social Security benefit estimate in todays dollars in $1,725/month at age 67

Family

• Children: Bill (age 9) and Susie (age 5)
• Bill has a 529 Plan with a balance of $23,500
• Susie has a 529 Plan with a balance of $12,000
• $1,800 is being contributed to each childs 529 plan at the end of each year.

Expectations

• John and Jane would like to have $125,000/year (in todays dollars) at retirement
• Neither John or Jane expect their earnings to change before retirement
• Both Bill and Susie will go to America University
  • Currently, one year of tuition is $13,200 and they expect to pay for 5 years of school per child
  • The Smiths believe the cost of tuition will increase at a rate of 6% per year until the time both children graduate
• The Smithss expect inflation to average 3% per year during their lifetime
• John 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 Smiths

• 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

• Johns 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) and is maturing in nine months.
• Checking account balance is $7,400

_ _ _

Based upon the information provided, answer the following questions in its own paragraph. Use a narrative format as if you are having a conversation with the Smiths. Supporting calculations can be referenced in an Appendix to the case study.

2. Calculate the cost of Susies education at America University.