section 1 - The American College Online Learning Center

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SECTION 2: UNDERSTANDING RETIREMENT PREPAREDNESSDATALO 1-2-1: Identify the costs of retirement1. The present value (at age 65) of out of pocket medical costs including health insurancepremiums (not including long-term custodial care) (Video: What are some of the basiccosts of retirement? Littell, Tacchino, VanDerhei)a. Male age 65(1) Median cost is $71,000 (cost for someone at the 50% percentile)(2) Cost for someone at the 90% level of expenses is $136,000b. Female age 65(1) Median cost is $95,000(2) Cost at 90% level is $156,000c. Range for the present value needed at age 65 to cover the medical costs for acouple is $166,000 to approximately $290,0002. Cost of long-term care in a nursing homea. Average annual cost in 2011 for a private nursing home is $87,000 (The 2011MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services,and Home Care Costs)b. Costs range significantly by state.3. Expenses using a replacement ratio approacha. Classic replacement ratio studies looking at reduction in taxes and other expensesshow a required replacement ratio to maintain a pre-retirement standard of livingof approximately 70–85%.b. Classic approach does not consider possibility of catastrophic events (such aslanding in a nursing home).c. EBRI study looking at sufficient funds to meet basic expenses shows a rangebased on the probability of success of meeting necessary expenses and uninsuredmedical costs(1) High income male at 65—50% sure, then 52% replacement; 90% sure,then 119% replacement rate(2) High income female at 65—50% sure, then 59% replacement rate; and90% sure, 129% replacement rated. Planning Point: The income needed by clients who end up in a nursing home willbe significantly higher than for clients who do not end up in a nursing home.LO 1-2-2: Understand whether Americans are prepared financially forretirement1. Overall data (Video: What is the retirement readiness of those nearing retirement age?Littell, Tacchino, VanDerhei)a. If baby boomers and those in generation X retire at age 65, there is currently a4.5 trillion dollar retirement shortfall.b. This only looks at meeting basic expenses and uninsured medical expenses (theshortfall would be even more if the standard was maintaining the current lifestyle).1.8
c. As a whole group, 47% are at risk of a retirement shortfall.2. Retirement plan coveragea. Percentage of those generation X clients at risk drops from 60% (no retirementplan coverage) to 20% (with retirement plan coverage)b. 61% of full-time employees are covered and 54.5% participate in a retirement planc. Only 19% of those working for small employers (10 or fewer employees)participate in a pland. A much larger 65.7% of employees working for large employers (1,000 or moreemployees) participate in a plane. 82% of employees working for public employers participate in a retirement planf. The number one reason that small employers do not sponsor a retirement plan isbecause of volatility of earnings.3. Retirement readiness risk based on incomea. 70% of the lowest income individuals (the bottom third) are at risk not to havebasic necessities in retirement.b. Only 22% of the highest income individuals (the top third) are at risk.4. Employer-provided plan solutions for low-income individualsa. Companies can increase 401(k) participation by allowing automatic enrollment ofthose eligible employees who do not affirmatively elect out of the plan.b. Unfortunately, the default deferral percentage tends to be quite low (typically 3%).c. Planning Point: Financial planners should recommend a default deferredpercentage that is higher than 3 percent. Five and six percent are more in linewith creating adequate retirement income while at the same time not scaringemployees away from the plan.d. Plan participants could benefit from automatic escalation—which provides forincreases in contribution rates over time.e. Auto escalation should bring contributions up to 10 percent or more.f. Default deferrals and auto escalation underestimate the “number” needed forretirement.5. Role of Social Security and Medicarea. These programs are insufficient for covering the expenses of retirement for all butthe lowest income individuals.b. This assumes the current system remains the same—reductions in benefits willhave a significant impact on lower-income workers.6. Solutions for individualsa. Work longer.b. Save raises.c. Get company match.d. Calculate how much they need to have—before making the decision to retirement.e. Get a financial professional to sign off on whether the client has enough resources.7. Retirement readiness for high net worth individuals (Video: What is the retirementreadiness of high net worth individuals nearing retirement? Littell, Tacchino, VanDerhei)a. 22% of the top quartile are at risk of having insufficient assets in retirement tomeet basic expensesb. 80% of the top quartile of earners are able to replace 80% of their income inretirement (inflation adjusted)c. Why are so many wealthy individuals at risk?1.9
Page 1: Huebner School SeriesHS 353 STUDY O
Page 6: THEAMERICANCOLLEGE.EDUThrough The A
Page 10 and 11: c. But it is more comprehensive bec
Page 12 and 13: (3) Work part-time during retiremen
Page 16: d. Solutions(1) The model considers
Page 19 and 20: . Other sources of retirement incom
Page 21 and 22: c. Another option for solving cash
Page 23 and 24: (b) Net worth statements that ident
Page 25 and 26: d. Be ready to reengage with the cl
Page 27 and 28: (b) In financial planning(c) In inv
Page 29 and 30: j. Planning Point: Planners can use
Page 31 and 32: e. We also need them to have a bett
Page 33 and 34: Assignment 2IDENTIFY RETIREMENT INC
Page 35 and 36: (2) Income4. Determining risk toler
Page 37 and 38: collaborative experience which focu
Page 39 and 40: 6. Asset allocation and risk tolera
Page 41 and 42: c. How long will the income last?d.
Page 43 and 44: . Durationc. Reliabilityd. Other6.
Page 45 and 46: c. Supplemental Security Income (SS
Page 47 and 48: . An unused emergency fund can supp
Page 49 and 50: 5. Inflation(2) The expense method
Page 51 and 52: Assignment 3CHOOSE APPROPRIATE STRA
Page 53 and 54: . Save as a percentage of income an
Page 55 and 56: (1) Note that 38% of second income
Page 57 and 58: (4) The AARP website has a national
Page 59 and 60: 4. Contributions to IRAs and Roth I
Page 61 and 62: carve out the nondeductible contrib
Page 63 and 64: (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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(2) From the previous employer(s) p
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8. IRA funded plans (IRAs, SEPs, SI
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. Does the distribution election fi
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6. Net unrealized appreciation rule
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a. Tax-exempt plans include Roth IR
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8. Calculating required distributio
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(2) Exception: If there are separat
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5. Impactc. Tax rates are low in ea
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(7) Based on ordering rules, identi
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7. A married couple who file jointl
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(1) Needed to provide the appropria
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13. Transfers at deatha. Wills(2) A
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(1) The Retirement Equity Act manda
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(2) Beneficiary designation of bene
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13. Overview14. Types(2) The donor
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(1) Charity needs only to payout in
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c. Access should be granted to an a
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nightmare of living probate might h
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(6) Powers to represent their princ
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c. If the policy is term coverage w
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e. Factoring personal and family he
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problem. On the other hand, we can
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d. Adding a cost of living adjustme
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g. Planning Point: Sometimes a high
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(2) Clients may not be able to “a
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c. Ensure that the client is receiv
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a. Example: Because of physical and
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options about where to get his/her
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(2) Facilities, monthly fees, and s
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8. Other strategies that help to co
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standard deviations of the returns
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a collapse in the real estate marke
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a. In a later competency we will di
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years of service with the employer)
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a. Planning Point: Planners should
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(2) If you have locked in food, ren
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(4) Loss-of-spouse risk—Deferred
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(1) Excess withdrawal risk—The us
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(5) Frailty risk—Managing assets
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7. Practice good career management:
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Assignment 6CHOOSE APPROPRIATE STRA
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c. Example: Chuck and Sarah divide
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e. The bucket approach can be thoug
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3. Understanding systematic withdra
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(1) The time horizon used in the ca
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12. Four percent is not the number.
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markets have declined by a specifie
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(2) Annuities and long-term care an
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anticipates ramping down her activi
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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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