section 1 - The American College Online Learning Center

(2) Timing risk—Laddered bonds and the immunization strategy lock in yieldat the time of purchase. This can be fortunate for the client if yields godown in the future.(3) Frailty risk—Laddered bonds and the immunization strategy putinvestments on autopilot.(4) Asset allocation risk—Laddered bonds and the immunization strategy workwell for asset allocation if the right bonds are chosen.(5) Loss-of-spouse risk—Laddered bonds and the immunization strategy putinvestments on autopilot, thus giving the bereaved spouse one less thingto worry about.b. Hurts by potentially exacerbating:(1) Inflation risk—Laddered zero coupon bonds will lose purchasing power ifinflation occurs. In addition, since the immunization strategy was based ona prior (and lower) inflation rate, this strategy is also hurt by inflation.(2) Timing risk—Laddered bonds and the immunization strategy lock in yieldat the time of purchase. This can be unfortunate for the client if yieldsgo up in the future.(3) Asset allocation risk—if the client picks the wrong bonds.(4) Liquidity risk—depending on the bond selection, there could be little orno liquidity.(5) Financial elder abuse risk—Bonds can be embezzled.Understand major single-purpose strategies and the risks they address1. Relocate to an area with a lower cost of living: Helps to potentially minimize inflationrisk. The risk of losing purchasing power is lowered by relocating to an area in whichcosts are lower than the place from which the client moved. However, the client will losehis network of friends and family.2. Access Medicaid services: Helps to potentially minimize long-term care risk. Medicaidmay be available to pay for long-term care services if the client has no more than therequisite amount of assets and income. However, clients who divest their assets toqualify for Medicaid will not have assets and income available for other priorities andare exposed to liquidity risk. Note also that a client on Medicaid may also be eligiblefor health care services.3. Select the most appropriate Medicare and Medigap coverage: Helps to potentiallyminimize health care expense risk. The proper selection of coverage could lead to lessout of pocket and uninsured medical expenses for the client.4. Use health savings accounts (HSA): Helps to pay for health care expense risk. TheHSA strategy can be an effective method of setting aside tax advantaged funds tospecifically pay for medical bills in retirement.5. Use tax free investments: Helps to minimize tax risk since the investment is not subjectto being affected by a large increase in the client’s personal tax situation.6. Plan to achieve graded levels of retirement security at different ages: Helps tocope with forced retirement or the need to leave work because of health or caregivingresponsibility because the client has achieved some level (although not the optimal level)of financial security.5.39