Competency 2

Question 1

Ready to retire too can help demonstrate the product solutions being recommended to recline are suitable for their particular situation

Answer 1

True

Question 2

Risk capacity is the same as risk tolerance.

Answer 2

Faults. The capacity to take on risk in investing is based on accumulated wealth and income sources, not a clients attitude towards risk.

Question 3

Risk tolerance can be viewed differently and retirement income for folios versus accumulation for folios portfolios.

Answer 3

True

Question 4

Risk to principle is more important than purchasing power risk in retirement income portfolios.

Answer 4

Faults a portfolios decline in purchasing power jeopardizes the retirement income plan as much or more as risk to principal when investing

Question 5

Employment earnings is one measure of human capital.

Answer 5

True

Question 6

Risk tolerance changes with age.

Answer 6

True

Question 7

Human capital decisions made in retirement influence the retirement income portfolio

Answer 7

Faults. Human capital is depleted in retirement and does not influence the retirement income portfolio.

Question 8

Benefits from a defined-benefit plan are generally stated as a single life annuity in the plan
document.

Answer 8

True

Question 9

Nonqualified plans, like qualified plans, are designed to defer taxes until benefits are paid out. However,
taxes can be deferred by rolling benefits into an IRA. In other words, taxes are due when
benefits are paid.

Answer 9

False … they cannot be rolled over

Question 10

Nonqualified plans are likely to offer salary continuation only for a stated number of years. However,
some nonqualified plans offer life annuities

Answer 10

True

Question 11

Benefits in nonqualified plans are just as secure as with qualified plans. The participant is treated
as a general creditor of the company, and if the company has financial problems it is possible that
some or all of the benefits will not be paid.

Answer 11

False They are not as secure, for the reasons stated.

Question 12

A non-qualified plan plan can also include a do-not-compete clause or a post-retirement consulting clause, meaning that benefits will stop if these agreements are not complied with

Answer 12

True

Question 13

Unlike qualified plans, non-qualified plans may not allow any alternative forms of distribution.
Even if they are available, elections must be made well in advance of the distribution of benefits.

Answer 13

True

Question 14

An important question when taking an inventory of income sources for meeting retirement income needs is whether the income source is reliable.

Answer 14

T

Question 15

Estimating Social Security retirement benefits requires determining what different types of benefits a client may be eligible for

Answer 15

T

Question 16

Getting Social Security estimates is almost impossible now that Social Security has stopped sending out benefit statements to eligible workers.

Answer 16

False. The Social Security “estimator” calculator found at the Social Security site allows an individual who enters their own Social Security number to obtain a benefit estimate using actual wage history. (LO 2-2-1)

Question 17

Social Security has a number of calculators available, some of which are more accurate and provide the ability to change future wages and other assumptions

Answer 17

T

Question 18

Traditional qualified benefit plans sponsored by private employers typically do not provide for automatic cost of living increases

Answer 18

T

Question 19

Nonqualified benefits have a similar level of benefit security as qualified plan benefits.

Answer 19

False. Qualified plan assets are outside the claims of the company’s creditors while in nonqualified plans participants are treated as general creditors of the company, and if the company has financial problems benefits may not be paid

Question 20

Part-time work in retirement can provide purpose and social interaction.

Answer 20

T

Question 21

Business interests sold in an installment sale can create a source of retirement income and stretch out the payment of taxes over time.

Answer 21

T

Question 22

When considering the value of assets available to meet income needs, it is generally easier to identify the future value at retirement than the current value.

Answer 22

False. Current value is easier to determine than future value, which requires estimating both future contributions and an appropriate rate of return. (LO 2-2-2)

Question 23

It is important to consider whether a retirement asset has any special provisions for converting the asset into income.

Answer 23

T

Question 24

It’s safe to assume that all of a client’s assets will be available to meet retirement needs.

Answer 24

False. Personal assets are typically not used to meet retirement needs, and even some financial assets will be earmarked for other purposes

Question 25

The average retirement age is approximately age 62.

Answer 25

T

Question 26

Retiring early may require purchasing health insurance before Medicare eligibility

Answer 26

T

Question 27

Retiring early reduces exposure to inflation.

Answer 27

False. Retiring early increases exposure to inflation. (

Question 28

Many retire early due to their own health problems or health problems of a family member.

Answer 28

T

Question 29

When choosing an inflation assumption, it is best to choose the most recent inflation rate.

Answer 29

False. When choosing an inflation assumption, it is more appropriate to choose one that represents a long-term inflation rate.

Question 30

A limitation of many online calculators used for calculating retirement need is the inability to choose different return assumptions on different types of assets

Answer 30

T

Question 31

A good retirement needs software program can help to educate the client by illustrating the impact of changing assumptions

Answer 31

T

Question 32

The most sophisticated software guarantees a better estimate of retirement need

Answer 32

False. Even the most sophisticated tools do not guarantee the accuracy of the estimate as the numbers are always tied to the assumptions and even a small change in an assumption provides wildly different results.

Question 33

The choice of software program needs to consider how much time is required to prepare illustrations for a client

Answer 33

T