section 1 - The American College Online Learning Center

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h. Planning Point: Markets are very efficient, so it is unlikely that abnormal returnscan be generated.i. Planning Point: Research has shown that in some periods actively managedfunds outperform and in other periods passively managed funds outperform.j. Investments with long time horizons will overlap and make investment in activelymanaged funds attractive (for example, hedge funds).k. Net worth takes on a different meaning during decumulation. A client whosewithdrawal requirements are “more significant” is in a much different position thana client whose withdrawal requirements are “less significant.”(1) It is a function of absolute and relative risk tolerance.(a) Absolute = X dollars in stock(b) Relative = X percentage in stockLO 7-2-3: Products used in the bucket approach to retirement incomeplanning1. Overview: The bucket approach to retirement income planning calls for special attentionto be paid to investment products used for the “near-term” bucket. Buckets beyondthe near-term bucket can use many of the products that were discussed early in thiscompetency and the products used with systematic withdrawals. (Video: What productswork best with the bucket approach to retirement income planning? Littell, Lemoine,Kitces, Guyton)2. The bucket approach uses more investment accounts than the systematic withdrawalapproach.3. The client and planner want to identify and work with the short-term money bucket, sothese assets must be specifically identified and segregated.a. The short-term bucket is less likely to be able to use institutional shares becauseof the lower amount of resources devoted to it.b. The short-term bucket will rely on a more retail approach.c. The short-term bucket needs to remove volatility for the client.d. The short-term bucket is usually more cash heavy.4. In the aggregate, the systematic withdrawal approach and bucket approach may havea similar asset allocation model.a. The long-term buckets are typically subject to more volatility because the “safe”assets are clustered in the near-term bucket and the long-term bucket includesmore of the “risky” assets.5. The short-term bucket identifies where the cash flows come from for the next set ofyears in the client’s life.6. Short-term buckets invest in:a. Cashb. Individual bondsc. Bond UITs with clear maturity datesd. Fixed annuities with fixed maturity time horizons7. Short-term buckets not only identify that the portfolio will liquidate what it needs, they alsoidentify where the money will come from for the next few years, and they specificallyidentify the assets which are to be liquidated.a. The client using a short-term bucket knows exactly where the cash is coming from.7.22
. The products that are used need to reflect the client’s knowledge of where themoney is coming from.c. Products in the short-term bucket should minimize liquidation fees and transactioncosts.8. Any “distant” buckets will be more identified with the equity investment portion of theneed for asset allocation.LO 7-2-4: Products for the flooring approach1. Overview: The flooring approach to retirement planning calls for special products to beused to set the floor. In other words, products used for essential spending are muchdifferent than products used for discretionary spending. (Video: What are the productsused when the flooring approach is followed? Tacchino, Woerheide, Nanigian, Lemoine)2. Items included in the floor are basic needs such as:a. Foodb. Shelterc. Clothingd. Transportation3. Immediate annuities can serve as an excellent base for the floor (if the environment isright to purchase them).4. TIPs can also be used to set up a floor.5. Laddering annuities may help to set the floor.6. Immediate annuities become very viable at interest rates over 5 percent.7. Discretionary expenses raise the following considerations:a. The products used depend on the importance of the expenditure to the client.b. There is a continuum of expenses in retirement ranging from critical for survival, tocritical for enjoyment of life, to not critical at all, but nice to have.c. Once clients have effectively set a floor, then they can choose products that fittheir other goals and wishes.8. The panel’s selections for flooring:a. Social Security and inflation adjusted fixed annuityb. I-bonds: These are attractive in today’s interest rate environment and they alsoprovide inflation protection.c. TIPs9. The panel’s selections for discretionary expenses:a. Equities and mutual fundsb. Deferred annuity with a death benefitc. Stock mutual funds that invest in less liquid stocksSECTION 3: PRACTICAL APPLICATIONLO 7-3-1: Identify practical issues that arise in the retirement incomeplanning process1. Forming the client relationship (Video: Forming the client relationship with a retirementincome plan: Littell, Tacchino, Kitces, Guyton)7.23
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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
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(2) Clients may not be able to “a
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c. Ensure that the client is receiv
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a. Example: Because of physical and
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options about where to get his/her
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(2) Facilities, monthly fees, and s
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8. Other strategies that help to co
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standard deviations of the returns
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a collapse in the real estate marke
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a. In a later competency we will di
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years of service with the employer)
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a. Planning Point: Planners should
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(2) If you have locked in food, ren
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(4) Loss-of-spouse risk—Deferred
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(1) Excess withdrawal risk—The us
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(5) Frailty risk—Managing assets
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Page 178 and 179: markets have declined by a specifie
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Page 184 and 185: c. Each of the three portfolios wil
Page 186 and 187: SECTION 4: THE ESSENTIAL VERSUS DIS
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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 220 and 221: c. Product solutions work together
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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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