Reference no: EM133011538
Problem 1: Using the Capital Preservation method, calculate how much capital the couple needs to retire at their goal ages using only retirement assets.
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 George's salary
Would like to retire at age 67
Social Security benefit estimate in today's 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 today's 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 child's 529 plan
Expectations
George and Jane would like to have $125,000/year (in today's 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 Jetson's 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
George's 401(k) balance is $625,000
Jane's 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