Ch2 - Wealth Accumulation, Discovery, and Marketing Flashcards
2 components of the objectives-based planning approach
1- Focus on the client’s values and objectives
2- The discovery process
What is the objectives-based planning approach
A discovery method that helps build trust between the advisor and client. The discussion focuses on values and goals.
two types of questions to get information from the client
1- Current State Questions
2- Future State Questions
seed-money formation stage needs
« Paying for housing.
« Putting money aside for capital purchases
« Funding a lifestyle, vacations, clothing, entertainment
« Looking after children’s needs
pre-retirement stage needs
« Topping up funding for children’s education. « Adding to retirement savings. « Reducing debt. « Upgrading a home. « Purchasing a vacation home. « Supporting parents or children.
retirement stage needs
« Managing disposable income or financial windfalls.
« Creating a legacy or acting as a steward for family money.
« Providing for future care.
« Giving to charities and being benevolent.
« Reducing debt.
items to calculate for retirement needs analysis
- The periodic cash flow income required after retirement.
- The income from all sources after retirement.
- The difference between items 1 and 2, which is the shortfall or the surplus.
- The assets required to cover the shortfall.
What is periodic cash flow
how much income the client needs during retirement,
Three ways to calculate periodic cash flow
- An itemized list of all expected expenses.
- Net income, adjusted for pre-retirement expenses.
- An estimated percentage of pre-retirement income.
what is the square one approach?
ignores the current reality of a client’s expenses and income, and focuses on his or her dream. (expected expenses)
2 ways to calculate assets needed for retirement income
- 4% rule
* Rule of 20
what is the rule of 20?
For every dollar of annual pre-tax retirement income the client requires, they will need $20 in their retirement portfolio to fund it.
what is the 4% rule?
client can withdraw 4% of their investment portfolio in the first year, then adjust for inflation each subsequent year, and not run out of money for 30 years
What is the sustainable withdrawal rate (SWR)
The maximum amount of money a client can withdraw from a retirement portfolio with no probability of running out during their lifetime.
What is the Funding Factor?
indicates how much savings are required at the beginning of retirement to finance each dollar of annual withdrawal for a given time horizon.
