The Jensens Struggle with Two Investment Goals 2022 latest answers
Like many married couples, Morgan and Thomas Jensen are trying their best to save for two import-ant investment objectives: (1) an education fund to put their two children through college; and (2) a retirement nest egg for themselves. They want to set aside $100,000 per child by the time each one starts college. Given that their children are now 10 and 12 years old, Morgan and Thomas have 6 years remaining for one child and 8 for the other. As far as their retirement plans are concerned, the Jensens both hope to retire in 20 years, when they reach age 65. Both Morgan and Thomas work, and together, they currently earn about $90,000 a year. The Jensens started a college fund some years ago by investing $6,000 a year in bank CDs. That fund is now worth $65,000. They also have $50,000 that they received from an inheritance invested in several mutual funds and another $20,000 in a tax-sheltered retirement account. Morgan and Thomas believe that they’ll be able to continue putting away $6,000 a year for the next 20 years. In fact, Morgan thinks they’ll be able to put away even more, particularly after the children are out of school. The Jen-sens are fairly conservative investors and feel they can probably earn about 6 percent on their money. (Ignore taxes for the purpose of this exercise.)
Critical Thinking Questions
1. Use Worksheet 11.1(attached below) to determine whether the Jensens have enough money right now to meet their children’s educational needs. That is, will the $65,000 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 $100,000 set aside for each child by the time each one starts college.
2. Regarding their retirement nest egg, assume that no additions are made to either the $50,000 they now have in mutual funds or to the $20,000 in the retirement account. How much would these investments be worth in 20 years, given that they can earn 6 percent?
3. Now, if the Jensens 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?
4. How do you think the Jensens are doing with regard to meeting their twin investment objectives? Explain.