CH 21 - Retirement Needs Analysis

Question 1

What is the average age of retirement and the full age of retirement?

Answer 1

average = 62 or 63

full = 67 if born in 1960 or later

Question 2

What are the FOUR reasons for earlier retirement?

Answer 2

• poor health
• corporate downsizing
• financially prepared and met financial goals
• 45% retire earlier than planned

Question 3

What are FOUR problems early retirement cause?

Answer 3

• later Social Security retirement age
• reduces pension benefits
• increased exposure to inflation and debt
• health insurance coverage issues

Question 4

How should the life expectancy tables be used?

Answer 4

Starting at age 65, not at birth.

Question 5

Name the THREE factors to consider in determining life expectancy.

Answer 5

• health status (add a few years if needed)
• family history
• use software for estimating

Question 6

This method is used to project FIRST year retirement expenses and more appropriate for older clients.

A. replacement ratio

B. expense method

Answer 6

expense method

Question 7

This method is used to project FIRST year of retirement expenses and assumes one will need 60% to 80% to live in same manner.

A. replacement ratio

B. expense method

Answer 7

replacement ratio

Question 8

During retirement, what FOUR tax related items would we normally see a benefit from?

Answer 8

• FICA taxes eliminated
• increased standard deduction
• state and local tax breaks
• exclusions or possible tax free Social Security benefits

Question 9

During retirement year, what are THREE expense reduction items?

Answer 9

• reductions in work related expenses
• dependent children gone
• elimination of the mortgage expense

Question 10

What are TWO expenses would you expect to INCREASE during retirement?

Answer 10

medical

travel/leisure (early years)

Question 11

Forecasting inflation is difficult. However, choosing a _______ rate for modeling is the best option.

A). long-term

B). short-term

Answer 11

long-term

Question 12

When choosing a proper inflation rate you should consider the clients risk tolerance. What if the client is risk adverse?

Answer 12

Choose a higher inflation rate which requires saving more for retirement.

Question 13

What are FOUR common retirement investing strategies?

Answer 13

• limit investments in employer stock
• use dollar cost averaging (buy and hold)
• tax efficiency (bonds in tax deferred plans and stock outside)
• be aggressive and take more risk in early years