Rick and Susie Jones have asked for your advice about their financial situation. They are a successful working couple who are both 48 years old and have two kids ages 11 and 6. Rick works at Boeing and Susie works at Microsoft. They have a good start on retirement savings and are looking to accomplish several financial goals:

Goals:

- Retire in 10 years and be able to spend $150,000/year for living expenses

- Purchase Whistler vacation condo - ~$350,000

- Pay for kids college education - ~$25,000 per year per child (total of $200,000)

Their assets are all in retirement accounts and they do not have any meaningful after tax assets and nothing set aside for college yet. Rick and Susie both contribute the maximum amounts to their 401(k)s but they don't have much left over to do any taxable savings. This is confusing to them because they make a combined $450,000 in gross earnings from their jobs.

They really want to be able to afford all three of their financial goals. They came to you because you have kids in the same school and they think you are trustworthy. You would really like to work with them which will require a compelling solution but will also require being honest about their situation.

The following is a snapshot of the balance sheet for Rick and Susie:

Current Assets		Current Liabilities
Stocks	$400,000	Student Loan	$50,000 @ 5.25%
Bonds	$125,000	Primary Mortgage	$125,000 @ 3.5%
Cash	$50,000
Primary Residence	$500,000

For your return assumptions, please use the following:

Asset Type 10-Year Return Assumption
Stocks Bonds Cash	8% 4% 2%

 

1. Does it look like they will achieve the goals based on the current asset base and savings rates? Discuss any concerns that you have as their advisor?

2. How would you advise them regarding the risk that they should take with their assets?

3. What are the three top recommendations that you have for the Joneses in order of importance? Please explain and show any analysis?