Lesson 7

Question 1

Step 1 - Accumulation vs Decumulation

Answer 1

Accumulation - how much change in portfolio balance can I accept each year.

Decumulation - how will financial risk affect my goals?

Question 2

Step 2 - Ratio Replacement Method

Answer 2

Most acceptable for a younger person. It’s more than 5 years away from retirement. 60-80% of preretirement income.

Question 3

Step 3 - Expense Method

Answer 3

• Base all needs on expected expenses.
• Categorize all needs
• Changes in expenses over time
• Insurance…

Question 4

Step 4 - Income/Asset Sources

Answer 4

• Social Security Eligibility
  (Can receive at 62) (Full retirement at 66/67) 8% increase per year if you don’t take it until age 70.
• Up to 85% can be taxed as O.I.

Question 5

Step 5 - Calculate Financial Preparedness

Answer 5

• Needs and Savings Analysis

Question 6

Step 6 - Develop Strategies (Retirement Income Shortfall)

Answer 6

• Don’t have enough to meet income needs.

Solutions:

• Save
• Tax-Deferred Savings
• Tax-Exempt
• Backdoor ROTH

Question 7

Step 7 - Withdrawal Strategies

Answer 7

• Asset Liquidation priority
• ## Consider federal income tax and Capital Gains tax rates

Question 8

Step 8 - Consider the risks

Answer 8

- Protect against loss with longevity income
Longevity risk (Immediate Annuity...)
Inflation risk (TIPS, Increase SS, Invest in Equities, Create a contingency fund)

• Long term Care Risk (eating, bathing, dressing, toileting, grooming, moving from bed to chair)

Investment Risk - Market risk

Question 9

Step 9 - Convert Assets into Income

Answer 9

1. Structured Systematic Withdrawal Approach
   - Diversify investment based on risk profile.
   - Select withdrawal strategy

Essential vs. Discretionary (match investment to client expenses) (Riskier investments fund discretionary expenses.)

Question 10

6 Steps of the Financial Planning Process

Answer 10

• Establishing and defining the client/planner relationship (letter of engagement)
• Gathering Data
• Analyzing data
• Developing and presenting recommendations
• Implementing recommendations
• Monitoring recommendations