Case Study B
Bill and Mary are both 52 years old. Bill is a Sales Manager at XYZ Company and Mary is an administrator for Company QWE. Bill makes $72,000 and Mary makes $87,000 annually. Both receive an annual bonus which has been averaging $5000 each. Bill has a 401(k) with $172,000 in it and has been averaging 8.4%. His 401(K) is now in American Funds and is divided equally between AMRMX, AGTHX and AHITX. Mary's 401(k) has $241,000 and has been averaging 9% return. Mary's 401(k) is in Blackrock funds and holds 30% SSGRX, 40% SHSSX, 15% BMCIX and 15% BGSIX. Bill contributes $1,000 per month while Mary contributes $1,200 per month. Both have been clear that they are conservative investors. They have two children, both in college and doing well. Tuition for the first daughter is $16,000 per year and tuition for the second daughter is $12,000 per year as she has a partial scholarship for sports.
They have a house with a $525,000 mortgage on which they owe $175,000 with a 3.6% mortgage payment. They have two cars and owe $3000 on the first and $5000 on the second. Both daughters have cars that they own.
They would like to retire at 63, with a monthly income of $12,000, after inflation. They plan on living to 100 and figure inflation to be 2%. Social Security at 62.5 for them should be about $17,500 per year. It increases by 7.5% per year you delay receipt up to age 70. They can now use any fund, but they have been getting professional advice from Slick "you bet your retirement" Jones who told them that the bull market will go on forever and to stay where they are in their 401(k)'s. In each case, state your assumptions, what I told you when or if you contacted me, how you got to your conclusions and why you did what you did.
Assume 2% inflation to continue.
What would you recommend to reach their goal now and in retirement?
Work more year?orsave more?. 5% post requirement.
What changes should they make now to their portfolio?
What would you recommend for a portfolio in retirement with what rate of return?