Retirement: 1-2 Retirement Planning Process Flashcards
Retirement: 1-2
Retirement Planning Process
Name the six stages of the retirement planning process.
1-2
- Establish client-adviser relationship and define services to be provided
- Gather data including the client’s goals
- Analyze information to determine retirement savings needed to reach retirement goal
- Develop and recommend a retirement savings program
- Implement the program
- Monitor the program
Retirement: 1-2
Retirement Planning Process
In the second stage of the retirement planning process, the planner and the client must establish what four preliminary retirement objectives?
1-2
- retirement date of client and spouse
- residence during retirement
- employment after retirement
- changes in lifestyle
Retirement: 1-2
Retirement Planning Process
Defined benefit plans, deferred compensation income streams due at retirement; tax is due on each payment
a. Investment Assets
b. Real Estate Assets
c. Tax Deferred Savings
d. Before Tax Savings
e. Retirement Income
f. Future Savings / Investments
g. Other Sources
1-2
e. Retirement Income
Retirement: 1-2
Retirement Process
Consistent contributions to after tax savings; the client’s existing savings program if it can be judged by the planner from the cash flow statement. A level amount should be assumed.
a. Investment Assets
b. Real Estate Assets
c. Tax Deferred Savings
d. Before Tax Savings
e. Retirement Income
f. Future Savings / Investments
g. Other Sources
1-2
f. Future Savings / Investments
Retirement: 1-2
Retirement Planning Process
Anticipated future receipts (such as balloon payments), installment sale proceeds, or an inheritance
a. Investment Assets
b. Real Estate Assets
c. Tax Deferred Savings
d. Before Tax Savings
e. Retirement Income
f. Future Savings / Investments
g. Other Sources
1-2
g. Other Sources
Retirement: 1-2
Retirement Planning Process
Assets to be liquidated at or near retirement (specifically designated for that goal); taxes on current distribution and capital gains taxes should both be considered
a. Investment Assets
b. Real Estate Assets
c. Tax Deferred Savings
d. Before Tax Savings
e. Retirement Income
f. Future Savings / Investments
g. Other Sources
1-2
a. Investment Assets
Retirement: 1-2
Retirement Planning Process
Real property to be liquidated at or near retirement; appreciation, taxes due at sale, and other expenses related to the sale should be noted.
a. Investment Assets
b. Real Estate Assets
c. Tax Deferred Savings
d. Before Tax Savings
e. Retirement Income
f. Future Savings / Investments
g. Other Sources
1-2
b. Real Estate Assets
Retirement: 1-2
Retirement Planning Process
Lump sum deposits made with post-tax dollars (but whose earnings are tax deferred until distribution)
a. Investment Assets
b. Real Estate Assets
c. Tax Deferred Savings
d. Before Tax Savings
e. Retirement Income
f. Future Savings / Investments
g. Other Sources
1-2
c. Tax Deferred Savings
Retirement: 1-2
Retirement Planning Process
Regular contributions to tax-deductible savings plans (deductible IRA, 401k, etc.); taxes will be due on entire amount at distribution
a. Investment Assets
b. Real Estate Assets
c. Tax Deferred Savings
d. Before Tax Savings
e. Retirement Income
f. Future Savings / Investments
g. Other Sources
1-2
d. Before Tax Savings
Retirement: 1-2
Retirement Planning Process
Module Check
- You are working with Bob and Paula Smith to develop a plan for their retirement in 17 years. As you look at their current cash flow, which of the following statements would be reasonable assumptions that Bob and Paula should consider when calculating their retirement income needs?
I. Work-related expenses such as clothing, driving, parking, and meals will be reduced.
II. Medicare will reduce their out-of-pocket expenses for medical care.
III. They will no longer defer part of their income to the 401(k) plans that they currently both participate in, and they will no longer have to pay FICA taxes.
IV. They can anticipate receiving “senior discounts” that may be as high as 10% or 15% on such items as meals at restaurants.
a. I and II only
b. I and III only
c. I, II, and III only
.
d. I, III, and IV only
(LO 1-2)
I, III, and IV only
In planning for retirement, individuals can expect to have a reduction in work-related expenses, to no longer defer part of their income to contributory retirement plans, and to possibly qualify for various senior discounts. Regarding medical care, however, they should anticipate that their out-of-pocket expenses will increase over time.
Retirement: 1-2
Retirement Planning Process
Module Check
- You are working with Bob and Paula Smith to determine what their income goal should be regarding their retirement in 17 years. Bob feels that making the goal 75% of their present income of $72,000 should suffice. Which of the following statements would be appropriate for you to make?
a. You agree with Bob’s statement and point out that using a figure of 75% of their present income would be a reasonable target.
b. You tell Bob and Paula that you do not endorse using 75% as their target income, but that you will agree to use a retirement income goal that seems appropriate to them.
c. You note that the 75% income replacement figure may be reasonable, but you also recommend an analysis of both their current expenses and their expected retirement expenses to establish a reasonable retirement goal.
d. You explain that using the income replacement method is particularly appropriate considering their ages and the length of time before they plan to retire.
(LO 1-2)
c. You note that the 75% income replacement figure may be reasonable, but you also recommend an analysis of both their current expenses and their expected retirement expenses to establish a reasonable retirement goal.
Income replacement ratios are more appropriate to guide younger clients. However, it is far more appropriate to analyze the Smiths’ current expenses and expected retirement expenses.
Use of an income replacement ratio may be helpful to guide younger clients as they begin saving for retirement. In this case, however, Bob and Paula plan to retire in 17 years. An analysis of their current expenses and their expected retirement expenses would be more appropriate for setting their retirement income goal. Seventeen years is a relatively short time to use income replacement ratios. An analysis of expenses is more appropriate in this case.
Retirement: 1-2
Retirement Planning Process
Module Check
- Bob and Paula Smith plan to retire in 17 years, and you are helping them plan for retirement. In discussing what rate of inflation to use for calculations, Bob has said he wants to use at least 8% because of the price increases he has experienced since he was in college. Which of the following statements would be an appropriate response?
a. You agree that an 8% rate is possible and add that adjustments can be made as you review their retirement plan in the future.
b. You agree that an 8% rate is possible but point out that such a rate would skew the results. You also point out the average rate of inflation over the last thirty years is much less.
c. You agree that an 8% rate is possible but point out that during the last fifty years inflation has been less than 8%.
d. You agree that an 8% rate is possible and emphasize that this is their plan. They can choose any number they want.
(LO 1-2)
b. You agree that an 8% rate is possible but point out that such a rate would skew the results. You also point out the average rate of inflation over the last thirty years is much less.
You would be providing your client with a more realistic view of inflation today and its history over the past 25 years.
An 8% inflation rate greatly exaggerates the actual inflation rate since 1950. The historical, not “possible,” inflation rate should be used. Although 8% is possible, it is more useful to consider the historical inflation rate, which is closer to 3%.
Retirement: 1-2
Retirement Planning Process
Module Check
- Which of the following statements is correct regarding the expected period of retirement?
a. In 1900, the average expected period of retirement was five years. The current expected period of retirement is 12 years; and by 2070, it is expected to be 15 years.
b. The current average expected retirement period is 17 years, and by 2070 it is expected to be over 20 years.
c. By 2070 the expected retirement period is over 30 years.
(LO 1-2)
b. The current average expected retirement period is 17 years, and by 2070 it is expected to be over 20 years.
Retirement: 1-2
Retirement Planning Process
Module Check
Retirement Planning Process
- Which of the following statements is correct regarding the retirement planning process?
a. There are five stages in the retirement planning process.
b. The first step includes completing a Retirement Planning Data Summary.
c. Under the fourth stage, the planner develops and recommends a savings program including appropriate investment vehicles.
(LO 1-2)
c. Under the fourth stage, the planner develops and recommends a savings program including appropriate investment vehicles.
Just as there is with the financial planning process, there are six stages in the retirement planning process. The first step is to establish the client-adviser relationship, including a mutually understood definition of the scope of the services to be provided by the adviser.
Retirement: 1-2
Retirement Planning Process
- In your first meeting with a young couple to discuss retirement planning, the wife expresses concern that they are too young to be considering a retirement plan. She feels that they need to first work on needs such as their children’s education and home ownership. Which of the following statements would be the most appropriate response?
a. Planning for retirement should be postponed until higher priority needs, such as children’s education and home ownership, are satisfied.
b. It is important to begin planning for retirement as soon as possible. The sooner one begins to plan and save, the smaller the annual savings requirement will be. Naturally, such a plan will be modified many times over the years.
c. Retirement planning should be their first concern and the savings for that should be started before money is set aside for other objectives.
(LO 1-2)
b. It is important to begin planning for retirement as soon as possible. The sooner one begins to plan and save, the smaller the annual savings requirement will be. Naturally, such a plan will be modified many times over the years.
Retirement: 1-2
Retirement Planning Process
What is the 3rd stage of the retirement planning process?
a. Develop and recommend a retirement savings program
b. Gather data including the client’s goals
c. Monitor the program
d. Establish client-adviser relationship and define services to be provided
e. Analyze information to determine retirement savings needed to reach retirement goal
f. Implement the program
1-2
e. Analyze information to determine retirement savings needed to reach retirement goal
- Establish client-adviser relationship and define services to be provided
- Gather data including the client’s goals
- Analyze information to determine retirement savings needed to reach retirement goal
- Develop and recommend a retirement savings program
- Implement the program
- Monitor the program
