Case Study Your clients, George and Jane Jetson, have come to you for assistance with their...
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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 George's salary Would like to retire at age 65 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 $1,800 is being contributed to each child's 529 plan at the end of each year. 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 o Currently, one year of tuition is $13,200 and they expect to pay for 5 years of school per child o 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 o Home mortgage: $325,000 (12 years left at $1,800/month) o Auto loan: $17,000 (2 years left at $730/month) o 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) and is maturing in nine months. Checking account balance is $7,400 4. Using the Annuity Method and only retirement account assets, will their current retirement account assets and contributions meet their retirement needs? Using calculations, show and explain your answer to the couple. 5. Using the Capital Preservation Method, calculate how much capital the couple needs to retire at their goal ages using only retirement account assets. 6. Using the Purchasing Power Preservation Method, calculate how much capital the couple needs to retire at their goal ages using only retirement account assets, 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 George's salary Would like to retire at age 65 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 $1,800 is being contributed to each child's 529 plan at the end of each year. 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 o Currently, one year of tuition is $13,200 and they expect to pay for 5 years of school per child o 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 o Home mortgage: $325,000 (12 years left at $1,800/month) o Auto loan: $17,000 (2 years left at $730/month) o 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) and is maturing in nine months. Checking account balance is $7,400 4. Using the Annuity Method and only retirement account assets, will their current retirement account assets and contributions meet their retirement needs? Using calculations, show and explain your answer to the couple. 5. Using the Capital Preservation Method, calculate how much capital the couple needs to retire at their goal ages using only retirement account assets. 6. Using the Purchasing Power Preservation Method, calculate how much capital the couple needs to retire at their goal ages using only retirement account assets,
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SOLUTION To determine if the Jetsons current retirement account assets and contributions will meet their retirement needs we will use the Annuity Method This method calculates the future value of thei... View the full answer
Related Book For
South Western Federal Taxation 2016 Corporations Partnerships Estates and Trusts
ISBN: 9781305399884
39th edition
Authors: James Boyd, William Hoffman, Raabe, David Maloney, Young
Posted Date:
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