Module 1 Chapter Reviews Flashcards
Identify three current trends in retirement planning.
(1) Businesses are less likely to offer defined benefit (DB) plans.
(2) Increased focus on planning for longevity.
- People are living longer
(3) Expansion of plan distribution options.
- There are more retirement savings vehicles available today.
Discus the challenges associated with the shift from defined benefit plans to defined contribution plans.
Defined benefit plans give participants life time income or pensions, but the costs and risks are borne by the company. As longevity increases, this risk/cost has become too much for the company to bear.
Defined contribution plans put the risk/cost on the employee instead. Most of these employees have little or no financial expertise.
What is a defined benefit plan?
&
What is a defined contribution plan?
Defined benefit plans: provide participants with guaranteed lifetime income or a pension.
Defined contribution plans: are investment accounts that focus on investment returns instead of an income goal.
Identify the six steps of the retirement planning process.
E.G.A.D.I.M.
(E GAD I Made it)
E - Establish client relationship
G - Gather data
A - Analyze data
D - Develop plan
I - Implement plan
M - Monitor plan
Explain: E - Establish client relationship
Identify the services to be provided.
Disclose the compensation.
Determine the client/counselor responsibilities.
Establish the duration of the relationship.
Provide any material information necessary to define the limit/scope.
Explain: G - Gather data
Data is the raw unprocessed information used to:
- Understand the client
- Help the client form valid goals and expectations
- Develop an appropriate plan and recommendations
Explain: A - Analyze data
You must analyze the client’s data to form all material information like:
- Income needs
& - Retirement savings needs
Explain: D - Develop/Present plan
The plan should be clear to the client and presented to them in a way that makes sense to the client.
Explain: I - Implement plan
This is the step in which you put the plan to work and begin the plan
Explain: M - Monitor plan
The plan should be reviewed often and monitored to make sure that it is still on track or needs adjustments.
Identify and describe the three key components of a statement of financial position.
The statement of financial position is also known as the Balance Sheet or Net Worth Statement.
The three components are:
Assets, Liabilities, and Net Worth
Assets - Liabilities = Net Worth
Describe the cash flow statement.
The cash flow statement helps identify the clients current spending habits of inflows and outflows.
What is the equation that defines the cash flow statement?
Cash Inflows - Cash Outflows = Net Cash Flow (or Deficit)
What two qualities should retirement goals have to make them useful in planning?
Goals should be specific:
- Goals should have an amount of money and time horizon specified.
- Goals should be S.M.A.R.T (Specific, Measurable, Action-oriented, Realistic, and Time-oriented).
Goals should be prioritized:
- Each goal should be ranked in order of importance in case there are not enough resources to achieve all goals.
What are S.M.A.R.T goals?
Specific, Measurable, Action-oriented, realistic, and Time-oriented.
