Key Terms Flashcards
Annuity Method
Determines how much a client needs to fund their retirement based on the assumption that the person will die exactly at the assumed life expectancy with a retirement account balance of zero
Capital Preservation Model (CP)
A capital needs analysis method that assumes that at the client’s life expectancy, the client has exactly the same account balance as he did at the beginning of retirement
Lepto-Kurtic
A distribution that appears to be normal but has more area under the two tails than a normal distribution (i.e., fat tails)
Monte Carlo Analysis
A mathematical tool used to calculate the success of an individual’s retirement portfolio using changing variables
Purchasing Power Preservation Model (PPP)
A capital needs analysis method that assumes that at a client’s life expectancy, the client will have a capital balance with purchasing power equal to the purchasing power at the beginning of retirement
Pure Annuity Concept
The basic capital needs analysis approach, generally prepared on a pretax basis
Remaining Work Life Expectancy (RWLE)
The work period that remains at a given point in time before retirement
Retirement Funding (Capital Needs Analysis)
The process of calculating the amount of investment capital needed at retirement to maintain the pre-retirement lifestyle and mitigate the impact of inflation during retirement years
Retirement Life Expectancy (RLE)
The time period beginning at retirement and extending until death; the RLE is the period of retirement that must be funded
Retirement Needs Analysis
The process of determining how much money a person needs to accumulate to be financially independent during retirement
Savings Rate
The average savings amount in the U.S. based on consumption
Sensitivity Analysis
A tool used to understand the range of outcomes for each variable in a retirement plan. It rotates each variable toward the undesirable side of the risk to determine the impact of a small change in that variable on an overall plan
Suitability
Having a reasonable basis to believe that a recommended transaction or investment strategy is appropriate for a client, after considering the client’s age, other investments, financial situation and risk tolerance and other relevant issues. See FINRA rule 2111
Superannuation
The risk of outliving available savings
Wage Replacement Ratio (WRR)
An estimate of the percent of income needed at retirement compared to earnings prior to retirement
