section 1 - The American College Online Learning Center

(5) Frailty risk—Managing assets will become difficult if the client’s mentalfaculties are compromised.(6) Loss-of-spouse risk—If the spouse who dies had the primary knowledge ofthe investment strategies, this risk is exacerbated.(7) Financial elder abuse risk—Equity investments can easily be embezzled.8. Purchase long-term care insurance.a. Helps to potentially minimize:(1) Inflation risk—If the long-term care insurance policy has an inflation rider.(2) Long-term care risk—Long-term care insurance directly provides the fundsneeded or a portion of the funds needed for a long-term care event.(3) Loss-of spouse-risk—Purchasing long-term care insurance on the life of aspouse who uses it will help the economic status of the surviving spouse.b. Hurts by potentially exacerbating:9. Prepay expenses(1) Liquidity risk—The use of long-term care insurance means assets areconsumed to pay for this insurance. Consuming those assets might impedethe client from having the funds needed for major expenses in retirement.(2) Loss-of-spouse risk—Purchasing long-term care insurance on the life of aspouse who does not use it will hurt the economic status of the survivingspouse.(3) Bequest opportunity—takes away the opportunity for long-term careinsurance premiums to be left to the client’s heirs.a. Helps to potentially minimize:(1) Longevity risk—A prepaid mortgage will allow a client who is able to “agein place” to live rent free (except for property taxes) no matter how longthe client lives.(2) Portfolio failure risk—prepaying necessary and legitimate expensesensures that those assets won’t be prematurely spent.(3) Inflation risk—Prepaying an item locks in the price at the current time andtherefore eliminates inflation risk.(4) Frailty risk—Prepaid expenses leave less for the client with failing mentalfaculties to worry about.b. Hurts by potentially exacerbating:(1) Investment risk—Clients who prepay expenses pass up the opportunitycost to invest in appreciating assets.(2) Liquidity risk—Prepaying expenses means losing the flexibility to use themoney for other purposes.10. Use a laddered bond and/or immunization strategy to provide the income stream.a. Helps to potentially minimize:(1) Excess withdrawal risk—Laddered bonds and the immunization strategyhelp prevent a client from prematurely spending assets.5.38