MODULE 1 MAXIMIZING THE CLIENT EXPERIENCE DURING THE RETIREMENT PLANNING PROCESS Flashcards
ID 4 CURRENT TRENDS IN RETIREMENT PLANNING
(1) businesses today are less likely to offer defined benefit (DB) plans
(2) increased focus on planning for longevity
(3) expansion of employer sponsored financial wellness initiatives
(4) expansion of plan distribution options
DISCUSS CHALLENGES ASSOCIATED W/ THE SHIFT FROM DB TO DC PLANS
w/ defined contribution plans, risks are borne by plan participants/employees rather than by plan sponsors/employers (as w/ defined benefit plans). many of these employees have little or no financial expertise.
ID 6 STEPS IN THE RETIREMENT PLANNING PROCESS
EGAD, I Made it!
(1) establish and define the client-counselor relationship
(2) gather client data & determine goals/expectations
(3) analyze & evaluate data to determine the client’s financial status
(4) develop & present the retirement plan
(5) implement the plan
(6) monitor the plan
STATEMENT OF FINANCIAL POSITION 3 KEY COMPONENTS
(1) assets. what the client owns: cash, securities, property & other resources
(2) liabilities. what the client owes; credit card debts, mortgages, auto note balances, etc.
(3) net worth. assets minus liabilities. represents what the client would have left over if he liquidated all assets at FMV & used the proceeds to pay off all liabilities
CASH FLOW STATEMENT & EQUATION
a financial statement that describes cash inflows (from salaries, investment returns, rents, etc.) and cash outflows (for living expenses, loan payments, savings, taxes, etc.)
cash inflows - cash outflows = net cash surplus (or deficit)
2 QUALITIES RETIREMENT GOALS SHOULD HAVE TO BE USEFUL IN PLANNING
(1) specific: indicates an event, an amount, and/or a time. “my goal is to retire april 2025 with a nest egg sufficient to sustain a lifestyle similar to the one i now enjoy.”
(2) prioritized: when there are multiple goals, they must be prioritized: our first goal is to provide a fund to care for our disabled daughter. our retirement goal will have second priority.”
INCOME REPLACEMENT PERCENTAGES (aka REPLACEMENT RATIOS)
income replacement percentages are rough guides used in determining the amount of income needed in retirement, using preretirement income as a base.
ex. most American retirees need 70-80% of preretirement income in order to maintain current living standards
WHY SHOULD CAUTION BE USED IN APPLYING INCOME REPLACEMENT PERCENTAGES?
income replacement percentages are simply “rules of thumb”. bc their retirement lifestyle goals differ greatly, no 2 clients will need the same percentage of preretirement income to make ends meet in retirement.
income replacement percentages are useful in influencing the thinking of younger clients, but they should not be usd as the basis for detailed planning
IN ESTIMATING A CLIENT’S RETIREMENT INCOME NEEDS, ID SOME CURRENT EXPENSES THAT ARE LIKELY TO DECREASE DURING RETIREMENT, & 1 OR 2 THAT WILL LIKELY INCREASE
decreasing expenses:
- transportation costs (commuting to work ends). one or two cars may be eliminated altogether.
- food & housing costs are usually less bc mortgages are paid off and children are out of the home by retirement
- term life insurance & disability premiums can usually be stopped entirely
- dry cleaning bills, professional fees, clothing expenses & other costs associated w/ working diminish
increasing expenses:
- medical & dental expenses
- expenditures on hobbies, recreation & travel
WHICH OF A CLIENT’S ASSETS SHOULD NOT BE INCLUDED IN ANY LIST OF RETIREMENT INCOME PRODUCERS?
(1) emergency funds - client will need these funds for emergencies during retirement
(2) funds intended for college education
(3) value of personal residence (unless retiree sells current residence for a lower cost dwelling; the cost difference may be available for income-producing investments)
NAMES & CHARACTERISTICS OF 2 STRATEGIES CLIENTS CAN EMPLOY IN LIVING OFF RETIREMENT ASSETS
(1) capital preservation. clients live off income produced by their assets w/o touching principal. assures they will not outlive their incomes. very large asset pool is required to follow this strategy.
(2) capital utilization. both income & principal are tapped for retirement living expenses. retirees must make a good retirement of their life spans, otherwise they risk outliving their incomes.
ID SEVERAL FINANCIAL GOALS THAT MAY CONFLICT W/ RETIREMENT GOALS
(1) housing
(2) education
(3) emergency funds
(4) care of elderly parents/disabled child
METHOD FOR EVENTUALLY REALIZING SEVERAL COMPETING FINANCIAL GOALS
how to deal w/ competing financial goals:
(1) prioritize the goals
(2) sequence them
