section 1 - The American College Online Learning Center

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a. In a later competency we will discuss in detail the systematic withdrawal strategy,the so-called “bucket approach” strategy, and the income floor strategy as a wayto turn the client’s assets into a stream of retirement income.b. These strategies can go a long way towards addressing client risks. We will revisitthe impact of each strategy on retirement risks in the later competency.c. It is important that the planner coordinate the risks and solutions discussed in thissection with the strategies discussed later (and vice versa) in order to allow for acomprehensive solution for the client.7. Invest in inflation protected securities.a. Investing in inflation protected securities, like the U.S. Treasury’s Series I Savingsbonds, and its Treasury Inflation Protected Securities (TIPS) can provide inflationprotection for that part of the portfolio.b. Social Security benefits also have an inflation protection component because thebenefit payments receive an annual cost of living adjustment.Retirement Income Checklist: Does Your Client’s Retirement Plan Consider these Post-Retirement Concernsand Risks?Concern:Losing value on investment assetsheld during retirement.Asset Allocation Risk—invest tooconservatively, too aggressively,and/or do not diversify assets.Market Risk — possibility thatevent(s) could cause all securityprices to fall.Sequence of Returns Risk—receiving low or negative returns inearly retirement years.Reinvestment Risk — chance thatclient will be unable to duplicate yieldon fixed investments as they mature.1. Use laddered bonds.2. Use an immunization strategy.3. Consider all retirement assets in the asset allocation model.4. Diversification and age-appropriate investing.5. Recommend that the client delay starting retirement.6. Recommend that the client go back to work full or part time.7. Ensure that the client is receiving professional advice.8. Monitor the plan and lower spending if necessary.9. Relocate to an area with a lower cost of living.10. Recommend an appropriate approach to convert assets into income.11. Invest in inflation indexed securities.Liquidity Risk — inability to haveassets available to financially supportunanticipated cash flow needs.SECTION 4: THE RISKS AND SOLUTIONS ASSOCIATED WITHRUNNING OUT OF MONEY IN RETIREMENT BECAUSE OFSPECIFIC LIFE EVENTSLO 5-4-1: Analyze the risks and solutions associated with running out ofmoney in retirement because of specific life events (It’s a hard cruel world!)1. Overview—There are 6 risks that may or may not happen to your client depending onhis or her specific situation. When applicable, these risks apply to both married andsingle clients. These risks have highly specific solutions that apply to the highly specificproblems they present. These include:5.26
a. Forced retirement riskb. Reemployment riskc. Public policy riskd. Loss-of-spouse riske. Unexpected financial responsibility riskf. Financial elder abuse risk2. Forced retirement risk is the possibility that work will end prematurely because of poorhealth, care-giving responsibilities, dismissal by the employer, lack of job satisfaction orfor other reasons. Your clients should be concerned about retiring earlier than plannedfor a variety of reasons:a. This is likely to lead to inadequate retirement income because the client has notgarnered the necessary resources to fund retirement needs.b. Example: Peggy plans to work until age 65, but her long time employer suddenlycloses her office when she is 61. (This scenario illustrates business continuityrisk.) There are very few employers needing her skills in the area, and she isunable to find suitable employment. Not only are her plans to accumulate morefunds for retirement ambushed, but she may not be able to receive or afford healthcare coverage until she is eligible for Medicare.c. Planning Point: Over 40 percent of clients retire earlier than expected.d. Planning Point: Clients may have little or no warning to prepare them for forcedretirement.3. Forced retirement risk can be minimized in the following ways:a. Suggest that the client save for graded levels of retirement security at differentages. In other words, instead of thinking of the goal for retirement savings tobe X dollars by Y year (the year of projected retirement) think about saving forretirement as providing for a specified standard of living by, for example, ten yearsbefore retirement; a more comfortable standard of living, for example, at 5 yearsbefore retirement; and the desired standard of living at retirement. By setting thesavings program up to meet graded goals, you may encourage the client to saveearlier and to assess what the final years of work will mean to his/her retirement.Most importantly, however, you will have prepared a level of security in case anearly termination occurs. The start of retirement is no longer a “date.” The startof retirement should be thought of as a period (age 60-70), not a date (the Julyafter my 65 th birthday).b. Career management is another solution to the problem of forced retirement risk.The client who chooses to adapt his/her skills and education to current marketneeds and the client who chooses to work for the employer with the greater senseof job security and satisfaction will be better served than the client who does notseek these adaptations to his/her career.c. See if formal or informal phased retirement is possible. A client can plan hisor her career to slow down responsibilities, cut back on clients, or drop theresponsibilities associated with a second job.d. Example: Joe has always been a high school teacher who did landscaping work inthe summer. When he turned 60, he decided to stop the physically demandinglandscaping. This allowed him to continue teaching with summers off until age 67.e. Advise negotiating for golden handshakes and severance pay.f. Example: Maggie, age 61, is thinking of leaving work to take care of her motherwho needs care for an illness, which threatens to linger for several years. Maggieshould investigate whether her employer is willing to offer her a package to leaveemployment (e.g., health insurance and a lump sum payment based on her long5.27
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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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(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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Page 108 and 109: 13. Transfers at deatha. Wills(2) A
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
Page 128 and 129: problem. On the other hand, we can
Page 130 and 131: d. Adding a cost of living adjustme
Page 132 and 133: g. Planning Point: Sometimes a high
Page 134 and 135: (2) Clients may not be able to “a
Page 136 and 137: c. Ensure that the client is receiv
Page 138 and 139: a. Example: Because of physical and
Page 140 and 141: options about where to get his/her
Page 142 and 143: (2) Facilities, monthly fees, and s
Page 144 and 145: 8. Other strategies that help to co
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Page 148 and 149: a collapse in the real estate marke
Page 152 and 153: years of service with the employer)
Page 154 and 155: a. Planning Point: Planners should
Page 156 and 157: (2) If you have locked in food, ren
Page 158 and 159: (4) Loss-of-spouse risk—Deferred
Page 160 and 161: (1) Excess withdrawal risk—The us
Page 162 and 163: (5) Frailty risk—Managing assets
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Page 166 and 167: Assignment 6CHOOSE APPROPRIATE STRA
Page 168 and 169: c. Example: Chuck and Sarah divide
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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
Page 180 and 181: (2) Annuities and long-term care an
Page 182 and 183: anticipates ramping down her activi
Page 184 and 185: c. Each of the three portfolios wil
Page 186 and 187: SECTION 4: THE ESSENTIAL VERSUS DIS
Page 188 and 189: d. Clients give up investment contr
Page 190 and 191: geared toward long-term growth. Thi
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Page 196 and 197: . Dollar-denominated liabilities of
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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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