section 1 - The American College Online Learning Center

(2) Co-pay and contributions are certainly likely to go up for these programs.(3) There may be more restrictions on what care is delivered.(4) There are discussions to unify Parts A and B.(5) It is certainly possible that changes in Medicare and Medicaid will be madethat affect current retirees.7. What can the client do about inflation risk?a. A 10% to 11% inflation rate would kill anyone’s retirement.b. First, put inflation protection into any annuity products, or at least fixed increases.c. Buy TIPs.d. The impact of inflation on equities may be sensitive to the nature of each company.e. Inflation always benefits people holding assets such as land and homes.f. Research shows that in the middle income market, nonfinancial assets such asthe home accounts for about 70% of people’s assets if we don’t count the presentvalues of Social Security or defined benefit pensions8. Conclusiona. There is no good news here.b. We have to be worried about inflation risk, public policy risk, timing risk, andmarket risk.c. Spending less helps to mitigate risks.LO 5-6-2: Review major strategies that address most risks1. Delay starting retirement as long as possible.2. Go back to work if possible.3. Monitor the retirement income plan and lower spending if necessary.4. Create and monitor a well-diversified and age-appropriate portfolio.5. Use cash value life insurance.6. Involve both spouses in the financial planning and budgeting process.7. Engage a professional planner to provide help and advice.Review major multipurpose strategies and the risks they address1. Defer claiming Social Security to increase monthly benefits in the later years of retirement.This strategy:a. Helps to potentially minimize:(1) Longevity risk—Deferred claiming of Social Security benefits results ingreater income at older ages because larger monthly Social Securitychecks are paid as long as the client lives.(2) Excess withdrawal risk—Deferred claiming of Social Security benefitsensures clients will properly use assets to pay for legitimate expenseswhile they wait for increased Social Security benefits. Using assets topay for the increased annuity value of Social Security means that thoseassets won’t be prematurely spent.(3) Inflation risk—Deferred claiming of Social Security benefits means thatSocial Security cost of living adjustments will compound on a largermonthly benefit providing greater maintenance of purchasing power.5.33