Retirement: 1-2 Retirement Planning Process Flashcards Preview

CFP 4 Retirement & Benefits > Retirement: 1-2 Retirement Planning Process > Flashcards

Flashcards in Retirement: 1-2 Retirement Planning Process Deck (41)
Loading flashcards...
1

Retirement: 1-2

Retirement Planning Process

Name the six stages of the retirement planning process.

1-2

1. Establish client-adviser relationship and define services to be provided

2. Gather data including the client’s goals

3. Analyze information to determine retirement savings needed to reach retirement goal

4. Develop and recommend a retirement savings program

5. Implement the program

6. Monitor the program

2

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

1. retirement date of client and spouse

2. residence during retirement

3. employment after retirement

4. changes in lifestyle

3

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

4

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

5

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

6

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

7

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

8

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

9

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

10

Retirement: 1-2

Retirement Planning Process

Module Check

15. 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.

11

Retirement: 1-2

Retirement Planning Process

Module Check

16. 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.

12

Retirement: 1-2

Retirement Planning Process

Module Check

17. 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%.

13

Retirement: 1-2

Retirement Planning Process

Module Check

18. 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.

14

Retirement: 1-2

Retirement Planning Process

Module Check

Retirement Planning Process

21. 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.

15

Retirement: 1-2

Retirement Planning Process

22. 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.

16

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


1. Establish client-adviser relationship and define services to be provided
2. Gather data including the client’s goals
3. Analyze information to determine retirement savings needed to reach retirement goal
4. Develop and recommend a retirement savings program
5. Implement the program
6. Monitor the program

17

Retirement: 1-2 Retirement Planning Process

What is the 4th 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

a. Develop and recommend a retirement savings program


1. Establish client-adviser relationship and define services to be provided
2. Gather data including the client’s goals
3. Analyze information to determine retirement savings needed to reach retirement goal
4. Develop and recommend a retirement savings program
5. Implement the program
6. Monitor the program

18

Retirement: 1-2 Retirement Planning Process

What is the 1st 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

d. Establish client-adviser relationship and define services to be provided


1. Establish client-adviser relationship and define services to be provided
2. Gather data including the client’s goals
3. Analyze information to determine retirement savings needed to reach retirement goal
4. Develop and recommend a retirement savings program
5. Implement the program
6. Monitor the program

19

Retirement: 1-2 Retirement Planning Process

What is the 2nd 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

b. Gather data including the client’s goals


1. Establish client-adviser relationship and define services to be provided
2. Gather data including the client’s goals
3. Analyze information to determine retirement savings needed to reach retirement goal
4. Develop and recommend a retirement savings program
5. Implement the program
6. Monitor the program

20

Retirement: 1-2 Retirement Planning Process

What is the 6th 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

c. Monitor the program


1. Establish client-adviser relationship and define services to be provided
2. Gather data including the client’s goals
3. Analyze information to determine retirement savings needed to reach retirement goal
4. Develop and recommend a retirement savings program
5. Implement the program
6. Monitor the program

21

Retirement: 1-2 Retirement Planning Process

What is the 5th 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

f. Implement the program


1. Establish client-adviser relationship and define services to be provided
2. Gather data including the client’s goals
3. Analyze information to determine retirement savings needed to reach retirement goal
4. Develop and recommend a retirement savings program
5. Implement the program
6. Monitor the program

22

Retirement: 1-2 Retirement Planning Process

The data gathering process involves two equally important steps. The 1st is:

a. assessing the current resources that are available to meet the stated goals

b. determining the income needed during the retirement years

1-2

b. determining the income needed during the retirement years

23

Retirement: 1-2 Retirement Planning Process

The data gathering process involves two equally important steps. The 2nd is:

a. assessing the current resources that are available to meet the stated goals.

b. determining the income needed during the retirement years

1-2

a. assessing the current resources that are available to meet the stated goals.

24

Retirement: 1-2 Retirement Planning Process

Different authors have come up with varying estimates for income replacement ratios in retirement, but the consensus is that those earning _____ will have a higher ratio (of future income need to present income) in retirement than those earning _____.

a. Less, more

b. More, less

1-2

a. Less, more

25

Retirement: 1-2 Retirement Planning Process

Regarding income replacement ratios to use while planning for retirement, after reaching an income level of about $_____, the ratio is approximately constant at 77%−78%.

a. $50,000

b. $60,000

c. $70,000

d. $80,000

1-2

b. $60,000

26

Retirement: 1-2 Retirement Planning Process

The young client may be unable to project his or her expenses during the pre-retirement years, let alone estimate how these may change at retirement. The approach commonly used with younger clients is the “top-down” approach. For example, assume that a client is making $60,000 per year, saving 10% of gross income in a brokerage account, and is paying Social Security taxes:

a. $50,410

b. $51,410

c. $47,410

d. $49,410

1-2

d. $49,410

$60,000
- 10%
= $6,000

$60,000
- 7.65%
= $4,590

$60,000
- $6,000
- $4,590
= $49,410

27

Retirement: 1-2 Retirement Planning Process

Regardless of whether Social Security income is to be assumed in the analysis, the client should be advised to review Social Security retirement benefits and credited earnings every _ years.

a. 1

b. 2

c. 3

d. 5

1-2

c. 3

28

Retirement: 1-2 Retirement Planning Process

Savings or investments are made from after-tax income into tax-deferred funds. The funds will accumulate tax-deferred earnings. Upon distribution, the value of the earnings will be subject to tax, but not the principal (the after-tax income contributed).

a. Tax-deferred savings

b. Before-tax savings

c. After-tax savings

1-2

a. Tax-deferred savings

29

Retirement: 1-2 Retirement Planning Process

Contributions to these accounts are excludible from gross income, and earnings accumulate tax deferred. The entire account will be taxed upon distribution.

a. Tax-deferred savings

b. Before-tax savings

c. After-tax savings

1-2

b. Before-tax savings

30

Retirement: 1-2 Retirement Planning Process

Savings or investments are made from after-tax income
into an account that accumulates earnings. The owner pays tax on the earnings each year; no tax will be due at distribution.

a. Tax-deferred savings

b. Before-tax savings

c. After-tax savings

1-2

c. After-tax savings