2 - Understanding Retirement Risks Flashcards
IMPORTANT
A successful defined contribution type of retirement system depends on a number of critical factors. Among these factors are (5):
- adequacy of contributions
- the right array of investment options
- financial education for plan participants
- plan features that assist in protecting against poor decision making by participants
- important policies and practices related to eventual distribution of plan assets.
the following factors contribute to retirement insecurity (risk). (4)
- resource shortfalls
- cataclysmic events (health, etc)
- environmental changes (tax strucutre, etc)
- loss of ability to independently manage risks and living needs
generally is a living arrangement that encompasses housing and meal arrangements and offers contracts that cover all health care services from assisted living to hospital care and physician’s visits, which are usually already covered by a resident’s private health insurance and/or Medicare.
A life care community
Portfolios of assets that fail to outpace _______ cannot succeed in providing adequate purchasing power to retirees
inflation
What additional major external and unexpected shocks can affect the resource systems of retirees? (3)
- Dramatic investment losses or the bankruptcy of a former employer
- Economic cycles
- Change in global competition
the situation where a person’s extended life span exceeds expectations and results in the depletion of resources expected to be suf cient to meet the material needs of retirement.
Longevity risk
describes the phase of life that follows an extended period where individuals engage in some form of work activity attributable to labor. Most forms of work result in income generation, providing resources to sustain the necessities and amenities of life
concept of retirement
describe the (3) reasons for retirement accumulation shortfalls
(important)
- poor planning and provision in income years
- individuals simply failing to plan adequately even though they possess the necessary resources.
- Asset erosion or elimination
Under a _________, individuals who meet eligibility and service requirements are guaranteed a specific regular and recurring pension payment.
defined benefit
Over short time periods there can be substantial ______ and ____ from historical rate-of-return means for defined contribution holdings.
variation
diversion
What does an article in On Wall Street skeptical of the “doomsday” scenario for baby boomers entering retirement suggest is the biggest problem for this group? (“Crisis of Expectations”)
Because they have saved less in percentage terms, boomers will have to either (2):
(important)
- lower their standard of living
- work longer to fulfill their expectations.
Provisions of the Pension Protection Act (PPA) of 2006 supporting the growth of defined contribution plans (2):
- plan sponsors to allow investment companies to provide financial advice
- plan sponsors may automatically enroll participants
According to the Society of Actuaries, the components of retirement risks may be grouped into (4):
- Financial and economic risks
- Business and employment risks
- Public policy risks
- Longevity, outliving assets and changes in family structure.
What government actions can have implications for the financial status of retirees?
Any revision to tax codes at the federal, state or local level that affects private retirement system benefits
(4) Events that can expand retirees’ needs for greater financial resources include
- a catastrophic health event (in some cases, requiring not only more health services but also custodial care),
- divorce or job loss of grown children
- death of a spouse
- divorce of a spouse in retirement.
