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anticipates ramping down her activity and adjusting her budget accordingly (the so-called“slow-go” years). Then she anticipates a sedentary period at the end of retirementduring which she will cope with health care issues (the so-called “no-go” years). Patriciawill set up her budgets accordingly and target her investments to match her changingspending needs.5. Major issue — how do we match up investment strategies with the age banding approach?6. Age banding recognizes that needs differ at differing time periods of retirement.a. Understanding of expenses equals understanding the term structure of needs(1) Later retirement moneys needed for health care(2) Earlier retirement moneys needed for leisure activities7. The traditional portfolio looks at 30 years (Video: How can a retirement portfolio beconstructed to match the changing expense patterns during retirement? Littell, Tacchino,Basu)a. Is it a 30-year portfolio or a 3-month portfolio?b. If the portfolio has one required rate of return, there is a mismatch between termrisk and portfolio return.c. The retirement portfolio should require a higher rate of return for 30 years thanfor 1 year.d. If the money needed for year “20” is stuck in a portfolio for money for year “1” wecannot invest properly. This would create a mismatch.8. Segmenting into age bands helps a person get a greater rate of return.a. It allows the client to be more aggressive with money reserved for future periods.b. The immediate time period will be more conservative.9. Bucket approach investing works really well from a behavioral economics standpoint:a. Stocks are for later time periods, so the client can buy and hold rather than worryabout short-term market fluctuations.b. Without looking at a bucket approach, it is difficult to rationalize to a client whystocks should be in a retirement fund.c. Clients can sleep better at night.10. Major issue — how does flooring affect the age banding?a. If we have separated out into necessities, conveniences, and luxuries (prioritiesset)b. Immediate annuity for 1 st (present) age band (the 80s)c. Deferred annuity for 2 nd age band (the 70s) for necessities (annuitize at 70)d. Covering the necessities with guaranteed income11. Variable portion of age banding allows us to forgo luxuries during down markets.12. Variable portion of age banding allows us to take out more for luxuries during up markets.13. Breaking up age bands into needs and luxuries60s 70s 80sNeeds Needs NeedsLuxuries Luxuries Luxuriesa. More likely to work with flooring and age banding6.17
. The floor might be different for the three different age bands.14. Age banding allows the planner and the client to visualize the entire retirement period.a. Clients can know in X times, I will be able to do Y.b. That is a planned life!15. Without age banding, people may not be as focused on how to apportion their money(withdrawals) for necessities and luxuries.a. We leave as little room for error by dissecting the investing as many ways as wecan and creating components in the plan.LO 6-3-2: Understand the different phases of retirement and how to dividea retirement portfolio into multiple portfolios1. Changes during retirement can be: (Video: What are the phases of retirement? Tacchino,Woerheide, Rappaport)a. Sudden or gradualb. Planned or unplannedc. Financial or nonfinancial in nature2. The three phases of retirementa. Phase one—The client is the same as he was before retirement. This typicallymeans the client has no limitations (fully active).b. Phase two—The client experiences moderate limitations.(1) Occurs at different times for different people in the relationship(2) Relationships and interactions with others become more meaningfulc. Phase three—The client experiences significant limitations.(1) Appropriate and regular support are needed(2) Family caregivers may need to leave their own jobs3. We never know when a person will move from one phase to the next.4. Ways to conceptualize the changes:a. Changes in healthb. Changes in physical capabilityc. Changes in family status (death, divorce, remarriage)d. Renewal of caregiving for a childe. Changes in financial status5. Clients need to think through and plan for the various changes ahead.6. Clients should consider having activity portfolios. Activity portfolios are a document whichspecifies how a client will stay engaged as they move through the different phasesof retirement.7. Key issue — how can a portfolio be divided into multiple portfolios in order toaccommodate the dynamic nature of retirement? (Video: What is the theory behinddividing a retirement portfolio into multiple sub portfolios? Littell, Tacchino, Basu)a. Planners should create three subportfolios—one for each bucket of retirementb. The first bucket should be invested conservatively.(1) These are the assets needed to create income the soonest.(2) We need to minimize variability with this portfolio.6.18
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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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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
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
Page 146 and 147: standard deviations of the returns
Page 148 and 149: a collapse in the real estate marke
Page 150 and 151: a. In a later competency we will di
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
Page 164 and 165: 7. Practice good career management:
Page 166 and 167: Assignment 6CHOOSE APPROPRIATE STRA
Page 168 and 169: c. Example: Chuck and Sarah divide
Page 170 and 171: e. The bucket approach can be thoug
Page 172 and 173: 3. Understanding systematic withdra
Page 174 and 175: (1) The time horizon used in the ca
Page 176 and 177: 12. Four percent is not the number.
Page 178 and 179: markets have declined by a specifie
Page 180 and 181: (2) Annuities and long-term care an
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
Page 192 and 193: . Trade-offs involve:(1) Irrevocabl
Page 194 and 195: (1) Rate at which banks lend to the
Page 196 and 197: . Dollar-denominated liabilities of
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Page 200 and 201: 4. Taxationtheir return generating
Page 202 and 203: . Close ended(1) IPO style launch(2
Page 204 and 205: (3) Tax control17. Conversations in
Page 206 and 207: (3) Mutual funds provide lower cost
Page 208 and 209: way to obtain increasing payments t
Page 210 and 211: protection from the downside risk w
Page 212 and 213: 6. Today’s annuitization rates ar
Page 214 and 215: h. Planning Point: Markets are very
Page 216 and 217: a. The client may not be clear abou
Page 218 and 219: a. Problems with implementation are
Page 220 and 221: c. Product solutions work together
Page 222 and 223: (1) A problem is that if the client
Page 224 and 225: (b) A traditional fund company(c) A
Page 226 and 227: d. Evelyn is in great health and he
Page 228: RESOURCES FOR COMPETENCY 7: INTEGRA
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