CASE STUDY 1-Your clients, Jerry and Jenny, are 25 years old.

Case Study 1

Your clients, Jerry and Jenny, are 25 years old. They have come to you for assistance with planning for the cost their child’s education and their retirement. They would like to know if they are on track to reach these two goals. Below are the facts about the family.

· Jenny currently earns $150,000 and they expect to need $150,000 per year in today’s dollars in retirement. Jerry is a stay-at-home dad.

· Jenny plans to retire at age 67, and they expect to live until age 100.

· They also expect that Social Security will provide $40,000 of benefits in today’s dollars at age 67.

· Jenny has been saving $5,000 annually in her 401(k) plan.

· Their son, Jazz, was just born and is expected to go to college in 18 years.

· They want to save for Jazz’s college education, which they expect will cost $20,000 in today’s dollars per year and they are willing to fund 5 years of college.

· They were told that college costs are increasing at 7% per year, while general inflation is 3%.

· They currently have $100,000 saved in total and they are averaging a 10% rate of return and expect to continue to earn the same return over time.

1. Calculate the amount of money the couple will need the first year Jazz starts college.

2. Calculate the capital needs of the couple at retirement and the current value of their retirement needs.

3. Provide the couple with a summary of their goals with the current total amount needed to reach their goals, showing how you arrived at the total.

4. Given their current resources, does the couple have sufficient resources to achieve their goals? Using calculations, show and explain your answer to the couple.

5. Using calculations and explanations provide the couple with three alternatives for meeting their goals.

6. In your own words, provide the couple with the advantages and disadvantages of two investment instruments that are used specifically to save for college education expenses. Which would you recommend and why?