section 1 - The American College Online Learning Center

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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
Retirement Income Checklist:Does Your Client’s Retirement Plan Consider these Postretirement Risks and Solutions?Concern/RiskConcern: Running outof money at the end ofretirement.Longevity Risk— thepossibility of outlivingresources by livinglonger than planned.Excess WithdrawalRisk— the depletionof retirement assetsthrough poorly plannedsystematic withdrawals.Inflation Risk—thepossibility that increasesin the price of goods andservices may impede theclient’s ability to maintainthe desired standard ofliving.Timing Risk—considers the variationsin sequences of actualevents beginning withdifferent time periods.Possible Solutions1. Defer claiming Social Security.2. Elect (from the employer plan) or purchase an immediate annuity3. Purchase an Advanced Life Delayed Annuity.4. Purchase a deferred annuity that also promises a guaranteed living benefit payment.5. Create a separate portfolio that is reserved until the later years of retirement.6. Capitalize on the value of the home—Use a reverse mortgage, downsize and pull outequity, use the sale-leaseback strategy, or consider a home equity loan.7. Increase the portfolio's sustainability by investing in equities.8. Prepay expenses.9. Delay starting retirement.10. Go back to work full-time or part-time.11. Use professional advice.12. Monitor the retirement income plan and lower spending if necessary.13. Relocate to an area with a lower cost of living.14. Involve both spouses in the financial planning process.15. Use cash value life insurance.16. Recommend the appropriate approach to convert assets into income.SECTION 2: THE RISKS AND SOLUTIONS ASSOCIATED WITHRUNNING OUT OF MONEY BECAUSE OF THE AGING PROCESSLO 5-2-1: Analyze the risks associated with running out of money becauseof the aging process1. Overview—There are three risks associated with a client becoming old and frail over thecourse of his/her retirement. These risks do not always apply to your client. For example,your client could remain healthy until his or her death (e.g., die in a car accident). If therisks do apply, both single individuals and couples will be affected. In a married couple,these risks will probably impact the financial future of the surviving spouse even if thesurviving spouse never experienced the risk herself. The risks associated with the agingprocess include:a. Long-term care riskb. Frailty riskc. Heath care expense risk2. Long-term care risk is the risk that dementia and/or physical impediments could restricta person from performing the activities of daily living and may require them to outlaysignificant resources for custodial or medical care. Your clients should be concernedabout needing long-term care for a variety of reasons:5.13
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Huebner School SeriesHS 353 STUDY O
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THEAMERICANCOLLEGE.EDUThrough The A
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c. But it is more comprehensive bec
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(3) Work part-time during retiremen
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SECTION 2: UNDERSTANDING RETIREMENT
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d. Solutions(1) The model considers
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. Other sources of retirement incom
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c. Another option for solving cash
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(b) Net worth statements that ident
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d. Be ready to reengage with the cl
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(b) In financial planning(c) In inv
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j. Planning Point: Planners can use
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e. We also need them to have a bett
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Assignment 2IDENTIFY RETIREMENT INC
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(2) Income4. Determining risk toler
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collaborative experience which focu
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6. Asset allocation and risk tolera
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c. How long will the income last?d.
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. Durationc. Reliabilityd. Other6.
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c. Supplemental Security Income (SS
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. An unused emergency fund can supp
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5. Inflation(2) The expense method
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Assignment 3CHOOSE APPROPRIATE STRA
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. Save as a percentage of income an
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(1) Note that 38% of second income
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(4) The AARP website has a national
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4. Contributions to IRAs and Roth I
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carve out the nondeductible contrib
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(2) Plus salary deferrals (for an i
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a. Example:(1) Save $10,000 in 25%
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(a) This requires knowing four fact
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. Solution(1) Li and Lin Lin are bo
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(1) The increase in dollar amounts
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9. In some circumstances, an indivi
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2. Reverse mortgage basicsa. Almost
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5. Planning considerations(b) Keep
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(2) Some funds that are promoted as
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(1) Berstresser, Chalmers, and Tufa
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RESOURCES FOR COMPETENCY 3: CHOOSE
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Page 110 and 111: (1) The Retirement Equity Act manda
Page 112 and 113: (2) Beneficiary designation of bene
Page 114 and 115: 13. Overview14. Types(2) The donor
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Page 118 and 119: c. Access should be granted to an a
Page 120 and 121: nightmare of living probate might h
Page 122 and 123: (6) Powers to represent their princ
Page 124 and 125: c. If the policy is term coverage w
Page 126 and 127: e. Factoring personal and family he
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Page 132 and 133: g. Planning Point: Sometimes a high
Page 134 and 135: (2) Clients may not be able to “a
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Page 142 and 143: (2) Facilities, monthly fees, and s
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Page 150 and 151: a. In a later competency we will di
Page 152 and 153: years of service with the employer)
Page 154 and 155: a. Planning Point: Planners should
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Page 158 and 159: (4) Loss-of-spouse risk—Deferred
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Page 162 and 163: (5) Frailty risk—Managing assets
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Page 166 and 167: Assignment 6CHOOSE APPROPRIATE STRA
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Page 174 and 175: (1) The time horizon used in the ca
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Page 178 and 179: markets have declined by a specifie
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Page 184 and 185: c. Each of the three portfolios wil
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SECTION 4: THE ESSENTIAL VERSUS DIS
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d. Clients give up investment contr
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geared toward long-term growth. Thi
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. Trade-offs involve:(1) Irrevocabl
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(1) Rate at which banks lend to the
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. Dollar-denominated liabilities of
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(a) Dividend taxed in year paid out
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4. Taxationtheir return generating
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. Close ended(1) IPO style launch(2
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(3) Tax control17. Conversations in
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(3) Mutual funds provide lower cost
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way to obtain increasing payments t
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protection from the downside risk w
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6. Today’s annuitization rates ar
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h. Planning Point: Markets are very
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a. The client may not be clear abou
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a. Problems with implementation are
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c. Product solutions work together
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(1) A problem is that if the client
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(b) A traditional fund company(c) A
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d. Evelyn is in great health and he
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RESOURCES FOR COMPETENCY 7: INTEGRA
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