section 1 - The American College Online Learning Center

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c. Each of the three portfolios will have a certain or guaranteed income stream.(1) The guarantee could be the Social Security annuity.(2) The guarantee could be immediate or deferred annuities.(3) The Social Security and/or annuity component will be keyed towards thenecessities for all three 10-year age bands.(a) Editor’s Note: This part of the video actually crosses over to“morphing” the bucket approach with the flooring approach(discussed next).d. Once the flooring is set for all three age bands and specific necessities, thenget the asset allocation issue:(1) First portfolio as conservative as possible:(a) Fixed income securities(b) Bond ladders(c) Treasury bonds(d) Some inflation hedge securities (TIPs)(2) The second bucket is 1½ to 2 macroeconomic cycles of growth andrecession. This allows the client to manage the portfolio(a) Some equities for growth(b) Bring in other assets to diversify (it’s not just stocks and bonds)real estate, commodities, REITs(3) The third bucket will have even more risk(a) Bring in small caps, emerging markets, high yielding bonds(b) Can take more risk(c) Since you are investing for 25 years versus 2 years, the termpremium should be 2 to 3 percent more8. How does parsing the investments into buckets affect the psyche of the investor?a. When breaking the portfolio into three pieces, how much you need to save forretirement goes down.b. The marginal increase in rate of return can grow return enough to lowercontributions.c. When you break it down, the client will be reassured to see how you specificallyaddressed their needs.d. Even if markets fall dramatically in the short run, we know that the equity money isbeing used much later, so we will sleep better.e. The bucket investment strategy allows the client to buy and hold.9. Additional psychological benefits of time segmentation from the Principal white paper“Income Distribution: Comparing a Bucket Strategy and a Systematic WithdrawalStrategy”a. A bucket strategy can address the client preference for smaller simplified issues.b. The bucket strategy helps take a large problem and parcels it into manageablepieces.c. The bucket strategy may lead to self-control and minimize excess withdrawalrisk because:(1) It links money directly with goals.6.19
(2) It serves as a form of mental accounting.(3) It compartmentalizes assets into a long-term box which may be perceivedas “locked” (and thus not available for current consumption).LO 6-3-3: Understand how bucket portfolios should be reallocated overtime1. Up to this point, we have looked at segmenting investments into three portfolios and howto initially create those portfolios. (Video: With the multiple retirement portfolio approach,how should portfolios be reallocated over time? Littell, Tacchino, Basu)2. Under the bucket approach, the portfolio will be depleted at the end of each time period.(Editor’s note: this is a different way of approaching the bucket portfolios than wassuggested in the Principal white paper discussed earlier which consistently replenishedthe “spending bucket.” Both methods are viable ways to reallocate the client’s portfolio.)3. Under the bucket approach, we recognize that at each period of time, significant lifestylechanges can occur.a. Each period has different expense structures.b. Example: After 75, leisure activities go down and health care expenses go up.4. The bucket strategy allows the client to adapt goals and vision over time.a. Changes to the investment portfolio accommodate the natural fluidity of retirementand life changes.5. Reallocation of the portfolio starts with a budget.a. Look at what is actually spent compared to what was projected to be spent.b. As a general rule, planners need to monitor spending so it meets the budget (getclients back on track).c. However, sometimes spending changes are needed.6. In addition to being adapted to changing budget needs, the portfolio can react to achanging economy.7. Planning Point: Planners should not confuse the need for budget changes andreallocation with the need for an emergency funda. The emergency fund should be used in some instances.b. A changed budget and asset allocation should be used in others.c. Planners need to keep in mind there are some things clients cannot do evenfor their families.8. Planning Point: By monitoring their clients, planners can restructure the portfolio basedon spending, the economy, and inflation.9. The bucket approach allows a more adaptable investment plan.a. Buckets can be invested for the unknowns.b. If planners err on the conservative side, and things do not go awry, then the clientwill have more money for their heirs.6.20
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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
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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
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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 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
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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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