Benchmarks

Question 1

Life insurance

Answer 1

10 - 16x gross income is the client has a life insurance need

Question 2

Health insurance

Answer 2

At least $1 mil lifetime cap pre-affordable care act.

ACA eliminated per illness or per lifetime cap

Question 3

Disability

Answer 3

If paying premiums with after-tax dollars, then a policy paying 60-70% of gross income is necessary

Question 4

Property insurance (home and auto)

Answer 4

Covers both home and auto for fair market value is appropriate

Question 5

Long term care

Answer 5

Provides daily benefit for nursing home care, home health care or help with activities of daily living (ADLs) with inflation protection is necessary

Question 6

PLUP

Answer 6

Personal liability umbrella policy - need a policy with $1-3M in liability protection

Question 7

Emergency fund

Answer 7

3-6 months of non-discretionary expenses in an emergency fund.

Question 8

Housing ratio

Answer 8

A clients primary mortgage which includes PITI should not exceed 28% of gross income.

Question 9

Housing ratio plus all other debt ratio

Answer 9

A clients primary mortgage plus all other recurring debt payments should not exceed 36% of gross income

Question 10

Education funding

Answer 10

Depending on the university, a client should save $3,000, $6,000 or $9,000 a year for 18 years.
Public - 3k
Semi private - 6k
Competitive private - 9k

Question 11

Retirement amount

Answer 11

At ages 62-65 an individual should have 16 times the amount of income needed annually saved for retirement.

If an individual needs $100,000 a year in retirement income, the individual needs
16 x $100,000 = $1.6 mil in retirement assets

Question 12

Savings rate

Answer 12

An individual should save 10-12% towards a retirement goal, assuming savings starts at an early age. The education goal is extra (separate).

Question 13

Return on investments

Answer 13

An investor should expect a return on investments of 8-10% assuming a long term time horizon

Question 14

Risk

Answer 14

Risk is measured using standard deviation, which is a measure of volatility and variability. The benchmark for a standard deviation of a diversified portfolio is 8-14%.

Question 15

Rate of Return on Investments (ROI)

Answer 15

ROI = (ending investments - beginning investments - savings - gifts received) / (average invested assets)

Average invested assets = (beginning investments + ending investments) / 2