Lesson 7 Flashcards
Your client who is single, age 62, with an AGI of $300,000 and maximum 401(k) contributions, needs
to retire for health reasons by the end of the current calendar year. She finally decides to engage in
retirement income planning. The financial services professional determines that she has a retirement
income shortfall notwithstanding years of deferring the maximum to her 401(k). Which would be an
option to address that shortfall?
A. Move money from equities to bonds.
B. Make a deductible IRA contribution.
C. Turn on Social Security benefits from 60 to 62 but then defer when the shortfall is met.
D. Use a line-of-credit reverse mortgage.
D. Use a line-of-credit reverse mortgage.
After a financial service professional and client have their initial contact and get acquainted meeting, if
they want to move forward in a professional capacity, what best practices should the financial services
professional then consider?
A. Begin to set client expectations through an engagement letter
B. Begin to implement the plan
C. Begin to secure demographic, qualitative, and quantitative data about the client
D. Begin a general retirement income calculation
A. Begin to set client expectations through an engagement letter
If interest rates rise dramatically in the next ten years, which of the following would be most negatively
affected?
A. A diversified retirement portfolio is predominantly stocks.
B. A mortgage at fixed interest rate.
C. A retirement portfolio 100% invested in long-term bonds.
D. A money market mutual fund
C. A retirement portfolio 100% invested in long-term bonds.
Isabella is a financial planner creating a retirement income analysis for her client, Lorena, who retired
12 years ago at age 65 and remains in good health. Coincidentally, Lorena’s current age of 77 was her
estimated life expectancy at birth. Isabella has found an actuarial table that estimates Lorena’s current life
expectancy to be 89 years of age. Based on this information, what age should Isabella use as the final
year of Lorena’s retirement income plan for the purposes of assessing longevity risk?
A. 75, her life expectancy at birth
B. 88, her current life expectancy
C. 95, 30 years from her retirement age
D. An age greater than 95
D. An age greater than 95
Which of the following statements is true in regard to IRA distributions?
A. Traditional IRA distributions are taxed at the ordinary income tax rate while qualifying Roth
IRA distributions are received tax free.
B. Like a Traditional IRA, Roth IRAs require a minimum distribution (RMD) every year once the client
attains the appropriate age.
C. The primary benefit of a Roth IRA over a Traditional IRA is that distributions are taxed at long term
capital gains rates.
D. The key difference between Roth IRAs and Traditional IRAs is that qualifying Roth IRA distributions
are received tax free while Traditional IRAs are taxed at long term capital gains rates.
A. Traditional IRA distributions are taxed at the ordinary income tax rate while qualifying Roth
IRA distributions are received tax free.
What is the overall primary purpose of retirement income planning?
A. To advise a client on the effective use of retirement assets to meet his/her retirement
expenses during the decumulation phase.
B. To advise a client on how to accumulate assets for retirement.
C. To provide investment advice.
D. To assist a client in the implementation of his/her pre-death estate planning.
A. To advise a client on the effective use of retirement assets to meet his/her retirement
expenses during the decumulation phase.
A personal balance sheet dominated by which of the following assets would be most exposed to
liquidity risk?
A. Cash
B. Real estate
C. Stock ETFs
D. Stock in a single large cap multinational corporation
B. Real estate
Which document helps define the client/planner relationship, including what the advisor will do for the
client, how the advisor will be compensated, and who is responsible implementing recommendations?
A. The six-step financial planning process
B. A fact finder
C. An engagement letter
D. The advisor’s credentials (CFP, ChFC, etc.)
C. An engagement letter
Which of the following statements would you consider to be objectives of the retirement income
planning process?
I. To address conditions, like inflation and longevity risk, that could negatively
impact an individual’s future financial security.
II. To undertake a comprehensive planning approach to ensure the success of
a retirement income plan.
C. Both I and II
Which of the following statements is (are) correct regarding how a financial services professional
could help a client visualize his/her retirement?
I. He could explain that the entire period of retirement may be viewed as
constituting three (3) stages: the “go-go years,” the “slow-go years,” and the “nogo
years.”
II. He could create a document that estimates a client’s projected expenditures and
income in retirement.
C. Both I and II
All of the following assets perform well as a hedge against inflation EXCEPT:
A. TIPS
B. Social Security retirement benefits
C. Single straight life annuity
D. Real estate investments
C. Single straight life annuity
All of the following statements identify an approach to convert retirement assets into retirement
income EXCEPT:
A. the Required Minimum Distribution (RMD) approach
B. the systematic withdrawal approach
C. the time-based segmentation approach (also known as the “bucket approach” or the “age-banded
approach”)
D. the essential-versus-discretionary approach (also known as “flooring”)
A. the Required Minimum Distribution (RMD) approach (there is no such thing)
All of the following people would be a good candidate for a Roth IRA Conversion in the current year
EXCEPT:
A. John is a self-employed sole proprietor and funds an IRA with deductible IRA contributions each
year. While John is normally quite successful, he suffered a series of business losses this year.
John expects to continue owning his company in retirement and drawing an increasing paycheck
from the company over time.
B. Susan was laid off early this year and her 401(k) is about to be distributed out to her. She does
not plan on working for the remainder of the year and will support herself from savings in her bank
account due to an inheritance a few years back.
C. Juan has nearly all of his savings in 401(k) and deductible IRA accounts. He is planning to retire
in about 10 years but is worried that tax rates might go up substantially in the future.
D. Sally works in sales and earns money based on commissions. This year is Sally’s best
year ever but, like many Americans, she is looking forward to retirement. Sally has modest
retirement savings in an IRA, some home equity, and is looking forward to claiming Social
Security at age 65 when she will receive a larger standard deduction and start paying less
income taxes.
D. Sally works in sales and earns money based on commissions. This year is Sally’s best
year ever but, like many Americans, she is looking forward to retirement. Sally has modest
retirement savings in an IRA, some home equity, and is looking forward to claiming Social
Security at age 65 when she will receive a larger standard deduction and start paying less
income taxes.
All of the following statements regarding the estimation of retirement income needs are correct
EXCEPT:
A. A financial services professional will need to ask the client to make a list of expected
expenses for each year of his/her retirement.
B. The expense method is preferred over the ratio replacement method for a client who is within five
(5) years of retirement.
C. The second step of the expense method, after accounting for current expenses, is to project
future retirement expenses.
D. The use of a well-designed software application is a good tool to use when using the expense
method.
A. A financial services professional will need to ask the client to make a list of expected
expenses for each year of his/her retirement.
All of the following statements represent good strategies to address a projected retirement income
shortfall for a client who is not near retirement EXCEPT:
A. save more
B. defer the retirement date
C. postpone the commencement of social security retirement benefits
D. convert a tax-deferred IRA account into a Roth IRA during a year that his/her tax rate is
high
D. convert a tax-deferred IRA account into a Roth IRA during a year that his/her tax rate is
high
