section 1 - The American College Online Learning Center

c. Ensure that the client is receiving professional advice by working with a financialplanner or planners. Longevity risk, excess withdrawal risk, inflation risk, andtiming risk are serious and complex issues which require the expertise of trainedand experienced professional planners.d. Monitor the retirement income plan and lower spending if necessary. Plannersshould monitor a retirement income plan at least annually and adapt expendituresto make sure funds are not exhausted. The “stitch in time saves nine” proactiveadjustments can help to slow down the depletion of assets when necessary whichwill help keep the client from running out of money prior to his/her life expectancy(longevity risk) and from spending assets too quickly (excess withdrawal risk).e. Relocate to an area with a lower cost of living. This will work best to hedgeinflation risk and to stretch dollars as a protection against longevity risk.f. Involve both spouses in the financial planning process. Clients are less likely tosubject a surviving spouse to longevity and excess withdrawal risk when eachspouse has a say in the matter. For example, one spouse may act to restrictreckless spending by the other spouse. In addition, with both spouses involvedin planning the probability of using a joint and survivor annuity or delaying SocialSecurity in order to maximize the survivor benefit is more likely.g. Use cash value life insurance. Life insurance has always been thought of asthe traditional product for replacing income. Most clients realize its value forpre-retirement income replacement. However, your clients should realize its valuefor postretirement income replacement. Planners need to plan for the early deathof a spouse in retirement. The death benefit and/or the cash value will protectagainst longevity risk by providing another pool of income. Income settlementsfrom the policy can protect against excess withdrawal risk. An income settlementallows the beneficiary to leave the death benefit with the insurance company andparcel out the death benefit plus earnings on a periodic (e.g., monthly, annually,etc.) basis.(1) Planning Point: Cash value insurance would be the preferred method ofproviding this protection of additional retirement income. A term policy maybe either unavailable or too expensive to provide this protection.10. Recommend an appropriate approach to convert assets into income. In a later section ofthis course we will discuss in detail the systematic withdrawal approach, the so-called“bucket approach,” and the income floor approach as a way to turn the client’s assets intoa stream of retirement income.a. These approaches can go a long way toward addressing client risks. We willrevisit the impact of each approach on retirement risks in the later competency.b. It is important that the planner coordinate the risks and solutions discussed in thissection with the approaches discussed later (and vice versa) in order to allow for acomprehensive solution for the client.5.12