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Next Generation Family 4 is a married couple.
The couple, initially, age 25, are named Stephanie and Russell. Both are college grads. The couple lives in California. They have two children (one when they are age 28 and one at age 30), and buy a house at age 30. The couple has initial earnings at age 25 of $75,000, of which $50,000 is earned by Stephanie. Contributions Stephanie contributes 3 percent of her annual salary to her 401(k) account and her employer makes an equal-sized matching contribution. Russell contributes to an IRA. Measured in today's dollars, he contributes $500 per year for five years, then $750 for five years, then $2,000 for eight years, $2,500 for nine years, and $3,000 per year thereafter. The couple retires at 65 and takes Social Security at their full retirement age, age 67. 401(k) withdrawals begin at age 65. Stephanie and Russell earn a 6 percent nominal return on their investments, and the inflation rate is 3 percent. Over time, both Stephanie and Russell's earnings grow, albeit not smoothly. Stephanie turns out to be a tremendous earner. At age 64, she earns $528,645, while Russell earns $65,038. By this point, the couple has accumulated significant regular (non-retirement account) assets producing asset income of $84,897. Housing and College After renting for five years at $1,800 a month, the couple moves to Texas and buys a $350,000 house with 20 percent down at a 5 percent interest rate. Measured in today's dollars, the first year mortgage payment is $17,684. Property taxes, homeowners insurance, and other annual housing expenses, also measured in today's dollars, cost $9,500. Five years later, in 2020, the couple sells their home and buys a new one in New Mexico costing $800,000 (in today's dollars). Their new mortgage payment is $40,420, measured in today's dollars, in 2023. Property taxes, homeowners insurance, and other housing expenses, measured in today's dollars, total $15,500. Stephanie and Russell also spend $50,000 (in today's dollars) per year for four years for college expenses for each of their four children. |