section 1 - The American College Online Learning Center

More documents

Recommendations

Info

c. Product solutions work together to address a range of risks.(1) There is a role for both a traditional portfolio and a deferred annuity thatprovides for downside protection with an income rider.(2) Longevity insurance provides protection for later in life at a low cost.LO 7-3-3: Choosing software tools for retirement income planning1. Tools for retirement income planning (Video: Software tools for retirement incomeplanning: Littell, McLellan, Lemoine)a. For simple plans, tools used for retirement savings may be sufficient.b. For more complex plans, the function of a software tool should:(1) Help the advisor determine alternatives(2) Condense the advisor’s advice into a clear plan of actionc. More sophisticated software, like Monte Carlo analysis software, lets the advisorfine-tune alternatives and identify which alternative has an acceptable probabilityof success.d. The advisor cannot run the software without knowing the assumptions used inthe calculations.e. For the more sophisticated clients and for the income portion of the plan, it isimportant to use the type of software that allows us to not only help with someportfolio decisions, but to help the client see how everything comes together.f. Commit to training – when the decision is made to adopt that type of sophisticatedtool, there needs to be some sort of decision on committing time and resources,and to keep the software updated and current.g. The software tool must remain a tool and never a substitute for common senseand knowing the client.h. Educating the client(1) A more sophisticated tool requires more explaining and communicatingwith the client.(2) The software can be effective as an elaborate visual aid to inform andeducate your client on the many different moving parts in a financial planand get them thinking about the contingencies and possibilities.i. Not all tools have to be sophisticated—and sometimes there are so many movingparts that it does not add to the accuracy of the estimate.j. The advisor is inevitably responsible for the recommendations.SECTION 4: MONITORING AND ADJUSTING THE PLANLO 7-4-1: Understand methods for monitoring the sustainability ofretirement income1. Planners are obligated to focus on their client’s decumulation plan on an ongoing basis.a. Missteps in any direction can blow up the client’s plan!b. Planners must account for the following:(1) Is the portfolio meeting expectations?(2) Has the client been exposed to an unanticipated level of a particularretirement risk?7.28
(3) Is the client following the plan?(4) Is retirement income sustainable?(5) And many other issues!c. A tool called a RisQuotient calculation is one way to monitor sustainability.2. The basic idea to determine a RisQuotient calculation is to arrive at a portfolio failurerate that incorporates an uncertain longevity. (Video: How can the planner monitorsustainability of retirement income for her client? Tacchino, Woerheide, Milevsky)a. The RisQuotient avoids a Monte Carlo simulation and does the monitoringanalytically.3. The four numerical ingredients for determining the portfolio probability of failure are:a. Expected investment return adjusted for inflationb. Volatility risk of the portfolio as measured by its standard deviationc. Median remaining life span. This is the 50% point in the longevity tables.(1) For simplicity, a client can just use the mean life expectancy, as this isquite close to the median.d. Inflation-adjusted spending rate, as a percent of the initial retirement nest egge. In order to monitor susceptibility, the RisQuotient calculation plugs four numbersinto a model.(1) How bullish is the client on the stock market?(2) How volatile is the portfolio?(3) How long will the client live?(4) What is the client’s spending rate?f. Equity risk premium(1) The more optimistic the client is about what equities will earn, the more theclient can withdraw, and the more sustainable the spending rate.(2) Market direction is subjective.4. Does risk tolerance play a role in this process?a. With respect to the portfolio asset allocation and the associated standard deviation,use the client’s risk tolerance to determine the numbers in the spreadsheet.b. Once the asset allocation has been set and an assumption made about theexpected return and standard deviation on this portfolio, then use the formula.5. The traditional retirement analysis process was to assume a client would live for 30 years,and to assume a constant rate of return on this portfolio.a. William Sharpe refers to this as financial planning in fantasy land.b. The next evolution in the process is to introduce uncertainty about life expectancyand about the rate of return on the portfolio.6. Who makes the call on the numbers that go into the spreadsheet?a. It starts with a risk tolerance questionnaire, which allows the planner to select theoptimal portfolio on the efficient frontier which represents the best combinationof risk and expected return the client can live with.b. Note that now we are talking about retirement risk tolerance, not just risk tolerance.Is there a difference?7.29
Page 1:
Huebner School SeriesHS 353 STUDY O
Page 6:
THEAMERICANCOLLEGE.EDUThrough The A
Page 10 and 11:
c. But it is more comprehensive bec
Page 12 and 13:
(3) Work part-time during retiremen
Page 14 and 15:
SECTION 2: UNDERSTANDING RETIREMENT
Page 16:
d. Solutions(1) The model considers
Page 19 and 20:
. Other sources of retirement incom
Page 21 and 22:
c. Another option for solving cash
Page 23 and 24:
(b) Net worth statements that ident
Page 25 and 26:
d. Be ready to reengage with the cl
Page 27 and 28:
(b) In financial planning(c) In inv
Page 29 and 30:
j. Planning Point: Planners can use
Page 31 and 32:
e. We also need them to have a bett
Page 33 and 34:
Assignment 2IDENTIFY RETIREMENT INC
Page 35 and 36:
(2) Income4. Determining risk toler
Page 37 and 38:
collaborative experience which focu
Page 39 and 40:
6. Asset allocation and risk tolera
Page 41 and 42:
c. How long will the income last?d.
Page 43 and 44:
. Durationc. Reliabilityd. Other6.
Page 45 and 46:
c. Supplemental Security Income (SS
Page 47 and 48:
. An unused emergency fund can supp
Page 49 and 50:
5. Inflation(2) The expense method
Page 51 and 52:
Assignment 3CHOOSE APPROPRIATE STRA
Page 53 and 54:
. Save as a percentage of income an
Page 55 and 56:
(1) Note that 38% of second income
Page 57 and 58:
(4) The AARP website has a national
Page 59 and 60:
4. Contributions to IRAs and Roth I
Page 61 and 62:
carve out the nondeductible contrib
Page 63 and 64:
(2) Plus salary deferrals (for an i
Page 65 and 66:
a. Example:(1) Save $10,000 in 25%
Page 67 and 68:
(a) This requires knowing four fact
Page 69 and 70:
. Solution(1) Li and Lin Lin are bo
Page 71 and 72:
(1) The increase in dollar amounts
Page 73 and 74:
9. In some circumstances, an indivi
Page 75 and 76:
2. Reverse mortgage basicsa. Almost
Page 77 and 78:
5. Planning considerations(b) Keep
Page 79 and 80:
(2) Some funds that are promoted as
Page 81 and 82:
(1) Berstresser, Chalmers, and Tufa
Page 83 and 84:
RESOURCES FOR COMPETENCY 3: CHOOSE
Page 85 and 86:
(2) From the previous employer(s) p
Page 87 and 88:
8. IRA funded plans (IRAs, SEPs, SI
Page 89 and 90:
. Does the distribution election fi
Page 91 and 92:
6. Net unrealized appreciation rule
Page 93 and 94:
a. Tax-exempt plans include Roth IR
Page 96 and 97:
8. Calculating required distributio
Page 98 and 99:
(2) Exception: If there are separat
Page 100 and 101:
5. Impactc. Tax rates are low in ea
Page 102 and 103:
(7) Based on ordering rules, identi
Page 104 and 105:
7. A married couple who file jointl
Page 106 and 107:
(1) Needed to provide the appropria
Page 108 and 109:
13. Transfers at deatha. Wills(2) A
Page 110 and 111:
(1) The Retirement Equity Act manda
Page 112 and 113:
(2) Beneficiary designation of bene
Page 114 and 115:
13. Overview14. Types(2) The donor
Page 116 and 117:
(1) Charity needs only to payout in
Page 118 and 119:
c. Access should be granted to an a
Page 120 and 121:
nightmare of living probate might h
Page 122 and 123:
(6) Powers to represent their princ
Page 124 and 125:
c. If the policy is term coverage w
Page 126 and 127:
e. Factoring personal and family he
Page 128 and 129:
problem. On the other hand, we can
Page 130 and 131:
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 182 and 183: anticipates ramping down her activi
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
Page 198 and 199: (a) Dividend taxed in year paid out
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 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
show all

section 1 - The American College Online Learning Center

Create successful ePaper yourself

Delete template?

Save as template?