Read the case study below then answer the questions. Your paper should be written in essay format and DO NOT include the questions. When answering the questions, please describe in detail the steps you use for each calculation. For your calculations you will need to use an investment calculator. Double check on plagiarism and grammar before turn in. Please use the link below to answer questions:
https://www.americanfunds.com/individual/planning/tools/investment-calculator.htm
Like many married couples, Jane and Jon Nelson are trying their best to save for two important investment objectives: (1) an education fund to put their two children through college; and (2) a retirement nest egg for themselves. They want to have set aside $40,000 per child by the time each one starts college. Given that their children are now 10 and 12 years old, Jane and Jon have 6 years remaining for one child and 8 for the other. As far as their retirement plans are concerned, the Useltons both hope to retire in 20 years, when they reach age 65. Both Jane and Jon work, and together, they currently earn about $90,000 a year. Here is the rest their financial information.
- A number of years ago, the Nelson’s started a college fund by investing in bank CDs – that fund is now worth $45,000.
- They have $70,000 in a tax-sheltered retirement account. Jane and Jon believe that they’ll be able continue saving for retirement by putting away $6,000 a year for the next 20 years.
- The Nelson’s are fairly conservative investors and feel they can probably earn about 6 percent on their money. (Ignore taxes for the purpose of this exercise.)
Questions
- Determine whether the Nelsons’s have enough money right now to meet their children’s educational needs. That is, will the $45,000 they’ve accumulated so far be enough to put their children through school, given they can invest their money at 6 percent? Remember, they want to have $40,000 set aside for each child by the time each one starts college.
- Regarding their retirement nest egg, assume that no additions to the $70,000 they now have in the retirement account. How much would these investments be worth in 20 years, given that they can earn 6 percent?
- Now, if the Nelson’s can invest $6,000 a year for the next 20 years and apply all of that to their retirement nest egg, how much would they be able to accumulate given their 6 percent rate of return?
- How do you think the Nelson’s are doing with regard to meeting their twin investment objectives? Explain.