Jimmy Johnson is 25 years old. He and his wife Jane have two children, Emmitt and Patricia, ages 2 and 4 respectively. Jimmy wants to retire in 40 years and build boats. He would like a nice retirement home with some land on a peaceful lake in the mountains of Georgia. Jimmy believes that to purchase a home and lot in 40 years would cost $300,000 in today’s prices. In forty years Jimmy also believes he and Patricia can live comfortably on $50,000 a year in today's dollar terms. Realizing that retirement is only 40 years away, and that he still had two children to raise and put through college, Jimmy thought he had better start saving for his retirement dreams. Also, Patricia is only 14 years away from college, and before Patricia finishes, Emmitt will be ready for school in 16 years. Currently Jimmy has $25,000 in an emergency money market account earning 2.0% interest compounded daily. His desire is to never have to use those emergency funds and that they will become a part of his estate. He also owns his own home that has a market value of $225,000 and a mortgage of $150,000. The 5.0% mortgage has 27 years remaining and his monthly payments are $1126 for principal and interest alone. Jimmy’s annual salary is $60,000. His employer puts an additional $3,000 into a 401(k) retirement plan. This retirement amount currently equals $9,000 and it is invested in a stock mutual fund, which has been earning an annual rate of return of 8.0%. With the current level of the federal debt, Jimmy is not counting on receiving any funds from social security at his retirement. With all of the concern about college tuition increasing over the years, Jimmy believes that the children will have to go to the local junior college for their first two years and then a state school for their last two years. The cost to attend the local junior college is $5,000 per year today, and the cost to attend a state school is $15,000 per year today. Inflation will have a great impact on Jimmy’s future retirement and college plans for his children. Based on what he has read and heard on the news, Jimmy believes that inflation will average 3.0% per year for the next 40 years; however, the cost of a college education will increase by 5.0% per year for the junior college and state schools. Also, with the desirability of vacation homes, the house and property in Georgia will probably increase at a rate of 5.0% per year, while his current home will increase in value at a rate of 3.0% per year. Jimmy hopes that his annual salary will increase by at least 4.0% per year.
10. (10 points) Jimmy hopes that the money from his retirement funds plus what he makes on the sale of his current home when he is 65, will be enough to allow him to buy the retirement home. Can this goal be realized?
I added the entire story if that helps. I was not sure what else to put in my question. Could you provide the answer on if it will be enough and an explanation of how the goal will be realized. Thanks.
| Jimmy’s Present Age | 25 | years | ||||||||||||||||||||||||||||||||||||||||
| tenure to work | 40 | years | ||||||||||||||||||||||||||||||||||||||||
| Retirement Age | 65 | years | ||||||||||||||||||||||||||||||||||||||||
| salary | 60,000.00 | |||||||||||||||||||||||||||||||||||||||||
| employers contribution | 3,000.00 | |||||||||||||||||||||||||||||||||||||||||
| annual salary will increase by at least 4.0% per year | ||||||||||||||||||||||||||||||||||||||||||
| at retirement he wants | today’s price | inflation will average 3.0% per year for the next 40 years | ||||||||||||||||||||||||||||||||||||||||
| home | 3,00,000.00 | |||||||||||||||||||||||||||||||||||||||||
| increase at a rate of 5.0% per year | ||||||||||||||||||||||||||||||||||||||||||
| monthly expenses | 50,000.00 | pa | ||||||||||||||||||||||||||||||||||||||||
| education of kids | Emmitt | Patricia | ||||||||||||||||||||||||||||||||||||||||
| present age | 2 years | 4 years | ||||||||||||||||||||||||||||||||||||||||
| tenure to attend collage | 16 | 14 | ||||||||||||||||||||||||||||||||||||||||
| junior collage | 2 years | 2 years | ||||||||||||||||||||||||||||||||||||||||
| state school | 2 years | 2 years | ||||||||||||||||||||||||||||||||||||||||
| junior collage pa | 5000 | 5000 | ||||||||||||||||||||||||||||||||||||||||
| state school pa | 15000 | 15000 | ||||||||||||||||||||||||||||||||||||||||
| cost of a college education will increase by 5.0% per year for junior college and state schools | ||||||||||||||||||||||||||||||||||||||||||
| emergency funds | 25,000.00 | money market account earning 2.0% interest compounded daily. | ||||||||||||||||||||||||||||||||||||||||
| Present Home | market value | 2,25,000.00 | ||||||||||||||||||||||||||||||||||||||||
| mortgage | 1,50,000.00 | |||||||||||||||||||||||||||||||||||||||||
| Interest rate | 5.00% | |||||||||||||||||||||||||||||||||||||||||
| remaining Tenure | 27 years | |||||||||||||||||||||||||||||||||||||||||
| Principle | Interest | |||||||||||||||||||||||||||||||||||||||||
| 1126 | ||||||||||||||||||||||||||||||||||||||||||
| current home will increase in value at a rate of 3.0% per year | ||||||||||||||||||||||||||||||||||||||||||
| This retirement amount currently equals $9,000 | ||||||||||||||||||||||||||||||||||||||||||
| earning an annual rate of return of 8.0% | ||||||||||||||||||||||||||||||||||||||||||
| money from retirement funds | Year 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39 | 40 | ||
| salary | 60,000.00 | 62400 | 64,896.00 | 67,491.84 | 70,191.51 | 72,999.17 | 75,919.14 | 78,955.91 | 82,114.14 | 85,398.71 | 88,814.66 | 92,367.24 | 96,061.93 | 99,904.41 | 1,03,900.59 | 1,08,056.61 | 1,12,378.87 | 1,16,874.03 | 1,21,548.99 | 1,26,410.95 | 1,31,467.39 | 1,36,726.08 | 1,42,195.13 | 1,47,882.93 | 1,53,798.25 | 1,59,950.18 | 1,66,348.19 | 1,73,002.11 | 1,79,922.20 | 1,87,119.09 | 1,94,603.85 | 2,02,388.00 | 2,10,483.52 | 2,18,902.87 | 2,27,658.98 | 2,36,765.34 | 2,46,235.95 | 2,56,085.39 | 2,66,328.81 | 2,76,981.96 | ||
| employers contribution | 3,000.00 | 3120 | 3,244.80 | 3,374.59 | 3,509.58 | 3,649.96 | 3,795.96 | 3,947.80 | 4,105.71 | 4,269.94 | 4,440.73 | 4,618.36 | 4,803.10 | 4,995.22 | 5,195.03 | 5,402.83 | 5,618.94 | 5,843.70 | 6,077.45 | 6,320.55 | 6,573.37 | 6,836.30 | 7,109.76 | 7,394.15 | 7,689.91 | 7,997.51 | 8,317.41 | 8,650.11 | 8,996.11 | 9,355.95 | 9,730.19 | 10,119.40 | 10,524.18 | 10,945.14 | 11,382.95 | 11,838.27 | 12,311.80 | 12,804.27 | 13,316.44 | 13,849.10 | 2,85,076.55 | |
| employers contribution % | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | ||
| annual salary will increase by at least 4.0% per year | ||||||||||||||||||||||||||||||||||||||||||
| value of present home | Year 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39 | 40 | ||
| 2,25,000.00 | 2,31,750.00 | 2,38,702.50 | 2,45,863.58 | 2,53,239.48 | 2,60,836.67 | 2,68,661.77 | 2,76,721.62 | 2,85,023.27 | 2,93,573.97 | 3,02,381.19 | 3,11,452.62 | 3,20,796.20 | 3,30,420.09 | 3,40,332.69 | 3,50,542.67 | 3,61,058.95 | 3,71,890.72 | 3,83,047.44 | 3,94,538.86 | 4,06,375.03 | 4,18,566.28 | 4,31,123.27 | 4,44,056.97 | 4,57,378.67 | 4,71,100.03 | 4,85,233.04 | 4,99,790.03 | 5,14,783.73 | 5,30,227.24 | 5,46,134.06 | 5,62,518.08 | 5,79,393.62 | 5,96,775.43 | 6,14,678.69 | 6,33,119.05 | 6,52,112.62 | 6,71,676.00 | 6,91,826.28 | 7,12,581.07 | 7,12,581.07 | ||
| increase in value at a rate of 3.0% per year | 2,31,750.00 | 2,38,702.50 | 2,45,863.58 | 2,53,239.48 | 2,60,836.67 | 2,68,661.77 | 2,76,721.62 | 2,85,023.27 | 2,93,573.97 | 3,02,381.19 | 3,11,452.62 | 3,20,796.20 | 3,30,420.09 | 3,40,332.69 | 3,50,542.67 | 3,61,058.95 | 3,71,890.72 | 3,83,047.44 | 3,94,538.86 | 4,06,375.03 | 4,18,566.28 | 4,31,123.27 | 4,44,056.97 | 4,57,378.67 | 4,71,100.03 | 4,85,233.04 | 4,99,790.03 | 5,14,783.73 | 5,30,227.24 | 5,46,134.06 | 5,62,518.08 | 5,79,393.62 | 5,96,775.43 | 6,14,678.69 | 6,33,119.05 | 6,52,112.62 | 6,71,676.00 | 6,91,826.28 | 7,12,581.07 | 7,33,958.50 | ||
| principle | 9,97,657.62 | |||||||||||||||||||||||||||||||||||||||||
| Year 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39 | 40 | |||
| home | 3,00,000.00 | 3,15,000.00 | 3,30,750.00 | 3,47,287.50 | 3,64,651.88 | 3,82,884.47 | 4,02,028.69 | 4,22,130.13 | 4,43,236.63 | 4,65,398.46 | 4,88,668.39 | 5,13,101.81 | 5,38,756.90 | 5,65,694.74 | 5,93,979.48 | 6,23,678.45 | 6,54,862.38 | 6,87,605.50 | 7,21,985.77 | 7,58,085.06 | 7,95,989.31 | 8,35,788.78 | 8,77,578.22 | 9,21,457.13 | 9,67,529.98 | 10,15,906.48 | 10,66,701.81 | 11,20,036.90 | 11,76,038.74 | 12,34,840.68 | 12,96,582.71 | 13,61,411.85 | 14,29,482.44 | 15,00,956.56 | 15,76,004.39 | 16,54,804.61 | 17,37,544.84 | 18,24,422.08 | 19,15,643.19 | 20,11,425.35 | 20,11,425.35 | |
| increase at a rate of 5.0% per year | 3,15,000.00 | 3,30,750.00 | 3,47,287.50 | 3,64,651.88 | 3,82,884.47 | 4,02,028.69 | 4,22,130.13 | 4,43,236.63 | 4,65,398.46 | 4,88,668.39 | 5,13,101.81 | 5,38,756.90 | 5,65,694.74 | 5,93,979.48 | 6,23,678.45 | 6,54,862.38 | 6,87,605.50 | 7,21,985.77 | 7,58,085.06 | 7,95,989.31 | 8,35,788.78 | 8,77,578.22 | 9,21,457.13 | 9,67,529.98 | 10,15,906.48 | 10,66,701.81 | 11,20,036.90 | 11,76,038.74 | 12,34,840.68 | 12,96,582.71 | 13,61,411.85 | 14,29,482.44 | 15,00,956.56 | 15,76,004.39 | 16,54,804.61 | 17,37,544.84 | 18,24,422.08 | 19,15,643.19 | 20,11,425.35 | 21,11,996.61 | ||
| Jimmys dream home can not be brought by selling investment and existing house | shortage of funds | 10,13,767.73 | ||||||||||||||||||||||||||||||||||||||||
Jimmy Johnson is 25 years old. He and his wife Jane have two children, Emmitt and...
Jimmy and Jane Have Goals Jimmy Johnson is 25 years old. He and his wife Jane have two children, Emmitt and Patricia, ages 2 and 4 respectively. Jimmy wants to retire in 40 years and build boats. He would like a nice retirement home with some land on a peaceful lake in the mountains of Georgia. Jimmy believes that to purchase a home and lot in 40 years would cost $300,000 in today’s prices. In forty years Jimmy also believes...
Jimmy and Jane Have Goals Jimmy Johnson is 25 years old. He and his wife Jane have two children, Emmitt and Patricia, ages 2 and 4 respectively. Jimmy wants to retire in 40 years and build boats. He would like a nice retirement home with some land on a peaceful lake in the mountains of Georgia. Jimmy believes that to purchase a home and lot in 40 years would cost $300,000 in today’s prices. In forty years Jimmy also believes...
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