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Assignment 3CHOOSE APPROPRIATE STRATEGIES TOADDRESS GAPS IN INCOME3Assignment 3SECTION 1: CASH FLOW PLANNINGLO 3-1-1: Understand the impact of saving more now and spending lessin retirement1. Objectivea. If a client has a shortfall of funds needed for retirement, the planner should reviewthe impact of saving more on a retirement income deficit.b. If a client has a shortfall of funds needed for retirement, the planner should reviewthe impact of spending less on a retirement income deficit.2. Saving more can have a limited impact on bridging the gap for those clients who areclose to retirement.a. Example: 58-year-old single individual with $100,000 of income, assets of$500,000, saving 20 percent of pay each year, and needing 85 percent of incomeb. Calculations use the Smart Money Retirement Planner calculator assuming a 19%effective tax rate, a 7% preretirement return, 6% post-retirement return and a2.7% inflation ratec. Under this scenario, retirement occurs at age 65 and the client has an incomeshortfall at age 81.d. If the planner changes the savings rate from 20% to 25%. then the incomeshortfall occurs at age 82. (Not much help!)3. Saving more is still an important strategya. The more years to retirement, the more effective the strategy will be. However, forolder clients, saving more is not likely to solve the problem.b. Some clients may have the ability to save a lot more in the years prior to retirement.(1) No longer have a mortgage(2) Finished paying for children’s college education(3) Expenses may be lower as the home is fully furnished4. The strategy of saving more is more effective in combination with other strategiesa. Saving with appropriate tax-advantaged vehicles can maximize the impact of thesaving program.b. Add years of saving by working longerc. Saving more means getting used to spending less — allowing the client theoption to “test-drive” a lower spending solution, helping to determine if the lowerspending strategy will work.5. Behavioral finance considerations affecting saving more for retirement (Video: What canwe learn from behavioral finance research about retirement savings? Littell, Tacchino,Basu)a. Clients are not aware of their own behavioral biases.3.1