section 1 - The American College Online Learning Center

geared toward long-term growth. This strategy is partially built into the flooringapproach because it is anticipated that assets not used to secure the floor can beinvested more aggressively.b. Risk tolerance is a key to this part of time diversification, but so is client education.c. Time diversification in this context means investing assets for near term, locked-inincome, and for far term growth to accommodate creating a portfolio that will besufficient for a retirement that could last 30 years or more.d. It goes without saying that it is important to work within the client’s risk capacity.But it needs to be emphasized that the client should be educated about theimportance of equities for the long haul. Just because the client has stoppedworking, it does not mean their money can stop working for them. In fact, theirmoney needs to work for them harder than ever.e. Example: Mary Anne decides to reduce the risk of volatility in her portfolio and isfearful of her assets losing value, so she opts for more stable investments suchas CDs. However, the low return generated by the CDs increases her risk ofoutliving assets.3. Employ product diversification to create and sustain a retirement income plana. Product diversification means combining financial products with different strengthsand features to protect the client against risks and implement the chosen strategy.b. There is no single product solution that mitigates all retirement risks.c. There is no single product solution that meets the need of the chosen approach tofunding retirement income (systematic withdrawal, bucket, or flooring).d. Effective product diversification can help defeat many of the risks the client faces.e. Effective product diversification can be used to implement the approach to fundingretirement income (systematic withdrawal, bucket, or flooring).f. At a time in life when there is little room for error, the combination of risks createsa puzzle that can only be solved with product diversification in the context ofthe optimal approach.g. Example: Carmella and Tim can use an immediate annuity to create a guaranteedincome floor and invest the other portion of the portfolio more aggressively togenerate income for future needs.4. Understand that all clients are already partially annuitized and plan accordingly.a. Every client receiving Social Security (and this is almost all clients) is alreadyreceiving an inflation adjusted joint and survivor annuity.b. Since Social Security retirement benefits are adjusted for the cost of living, theyare a perfect match to buy basic expenses like food, utility, cable, cell phone, andother bills. Regardless of whether your client has chosen to floor, the presenceof Social Security in the retirement income plan means they are already partiallyfloored. Clients should therefore use Social Security benefits to pay for essentialexpenses. Clients wishing to create a floor for some other essential expenses canpurchase an immediate annuity to meet this task.c. Considering that almost all retirement income plans have the Social Security floorshould enable the planner to think a little differently and invest a little differently inthe systematic withdrawal approach, bucket approach, and flooring approach.d. Considering that almost all retirement income plans have the Social Securityfloor should enable the planner to think differently about retirement risks. Theplanner and client must incorporate in how Social Security factors into their riskminimization strategy.e. The percentage of retirement income provided by Social Security varies by theclient’s earning history. Affluent clients who earned six figure salaries while6.25