Competency 9 Knowledge Check

Question 1

1. An anchor point is a client-specific value-laden age at which the client may choose to retire.

Answer 1

False. An anchor point is a culturally defined age at which a person may make a transition into retirement such as age 65. (LO 9-1-1

Question 2

2. The lack of defined-benefit plans and long career relationships has changed the nature of the retirement decision from prior years away from anchor points and toward complex personal decisions

Answer 2

True. (LO 9-1-1)

Question 3

3. A client’s decision of when to retire depends upon his or her unique perspectives and goals

Answer 3

True. (LO 9-1-1)

Question 4

4. The checklist of 25 variables that must be considered to choose a retirement age should be first introduced to the client about one year before they are ready to retire

Answer 4

False. The checklist can be used at many ages, including in mid-career, 5 to 10 years from retirement, and when retirement is imminent. (LO 9-1-1)

Question 5

5. If the planner and client have determined that the client is not financially ready to retire, and continued work is recommended, the client will only benefit marginally by the continued work

Answer 5

False. Continued work has four benefits which can make a big difference in the client’s financial readiness: (LO 9-1-1)
• Preserving assets
• Building assets
• Minimizing longevity and inflation risk
• Increasing Social Security benefits (if the Social Security claiming decision is delayed)

Question 6

6. Most clients overestimate their longevity.

Answer 6

False. Studies consistently show that most clients underestimate their longevity. (LO 9-1-1)

Question 7

7. When evaluating the client’s debt situation, it is comforting to know that in 2012 less people in their early 60’s have a mortgage or home equity loans than in the mid-1990’s.

Answer 7

False. More people today have primary mortgages (39% vs. 22%) and more people today have secondary mortgages (20% vs. 12%). (LO 9-1-1)

Question 8

8. Researchers have found an incredibly strong link between health insurance coverage and retirement age

Answer 8

True. (LO 9-1-1)

Question 9

9. Sequence of returns risk should be one of the considerations in choosing a retirement age

Answer 9

True. (LO 9-1-1)

Question 10

10.Under 20 percent of current retirees retired earlier than planned

Answer 10

False. Health limitations cause a large risk of premature retirement. According to one study, 50 percent of the workforce retired earlier than planned and over one-half of those people said it was because of health problems. (LO 9-1-1)

Question 11

11.The Family and Medical Leave Act (FMLA) allows a client to have up to one year of paid leave to care for a terminally ill parent

Answer 11

False. The FMLA entitles a client to take unpaid, job-protected, benefits-protected leave for 12 weeks in a 12-month period for a seriously ill spouse, child, or parent. (LO 9-1-1)

Question 12

12.Constructive retirement involves a client leaving their job because the employer has made work intolerable

Answer 12

True. (LO 9-1-1)

Question 13

13.Adapting to retirement requires special preparation and consideration

Answer 13

True. (LO 9-1-1)

Question 14

14.Joint retirement is the concept that both the employer and employee agree to an approved retirement date

Answer 14

False. Joint retirement is when the husband and wife retire simultaneously. It is highly desired by many couples. (LO 9-1-1)

Question 15

15.Ninety percent of 65-year-olds are fully retired.

Answer 15

False. Forty-five percent of 65-year-olds are not working and fully retired. Fourteen percent are retired but working part-time or seasonally. Twenty-four percent are employed full-time but over 1/3 of them anticipate retiring in one year. (LO 9-1-2)

Question 16

16.About one quarter of 65-year-olds retired because of circumstances beyond their control

Answer 16

True. (LO 9-1-2)

Question 17

17.The major reason people aged 65 retire earlier than they expected is because of health reasons.

Answer 17

True. (LO 9-1-2)

Question 18

18.Sixty-five year old clients do not always define retirement as not working

Answer 18

True. (LO 9-1-2)

Question 19

19.Wealthier clients are more likely to retire because of health than poorer clients.

Answer 19

False. The likelihood of citing health as a reason to retire is inversely correlated to income. (LO 9-1-2)

Question 20

20.The majority of clients use phased retirement

Answer 20

False. Seventy-five percent of those surveyed reported they stopped working all at once (called cold-turkey retirement). (LO 9-1-2)

Question 21

21.The downward trajectory of labor force participation has been increasing since the mid-1980’s.

Answer 21

False. Before the mid-1980’s, there was a downward trajectory based on the fact that Americans got wealthier, worked more for an employer (instead of on farms), were subject to mandatory retirement, and were in labor unions. However, since the mid-1980’s, this trend has started to reverse based on the shift from defined-benefit to defined-contribution plans, the Social Security earnings test, increased levels of education (educated people work longer than people with less education), a decline in retiree health insurance, and improved health and longevity. (LO 9-1-2)

Question 22

22.The average retirement age is 65

Answer 22

False. It is 62 for women and 64 for men. (LO 9-1-2)

Question 23

23.The expectation of a “non-retirement scenario” for low-income workers does not seem realistic given the physical demands of blue-collar labor and the higher replacement ratio provided by Social Security

Answer 23

True. (LO 9-1-3)

Question 24

24.People plan to work while “retired” because they want to stay active and engaged.

Answer 24

True. (LO 9-1-3)

Question 25

25.One reason clients continue to work is because of debt they have accrued

Answer 25

True. (LO 9-1-3)

Question 26

26.There is a disconnect between when clients expect to retire and when they actually retire.

Answer 26

True. (LO 9-1-3)

Question 27

27.Planners should recommend that clients consider years until death (remaining life expectancy) or a work/retirement ratio as an alternative to age (e.g., age 65) when determining their retirement age

Answer 27

True. (LO 9-1-4)

Question 28

28.A 65-year-old’s life expectancy was roughly the same in 1950 as it is today

Answer 28

False. It was 12.81 years in 1950 and 16 years today. (LO 9-1-4)

Question 29

1. According to the Boston College Center for Retirement Research National Retirement Risk Index, less than 50 percent of households are ready to retire at age 65.

Answer 29

True. (LO 9-2-1)

Question 30

2. According to the Boston College Center for Retirement Research National Retirement Risk Index, working one or two more years will not materially affect a client’s ability to retire

Answer 30

False. The data indicates that work for one or two years can make a significant difference in the client’s readiness to retire. (LO 9-2-1)

Question 31

3. Planners do not need to integrate accumulation planning with decumulation planning when advising a client about when to retire.

Answer 31

False. It would be a common mistake to segregate these two issues and focus on just the accumulation goal. Planners must integrate the accumulation and decumulation processes in order to counsel a client about their retirement date. (LO 9-2-1)

Question 32

4. Planners should model the client’s retirement budget using variable retirement dates

Answer 32

True. (LO 9-2-1)

Question 33

5. Blue-collar workers are more likely to delay retirement than white-collar workers

Answer 33

False. Delayed retirement is not as likely for the blue-collar worker as it is for the white-collar worker. (LO 9-2-2)

Question 34

6. On average in 2012, American men can expect more disability-free years than they could in the 1960’s when the average retirement age was 66.

Answer 34

True. (LO 9-2-2)

Question 35

7. At least fifty percent of the population may find continued employment extremely difficult in their mid-60’s.

Answer 35

False. Physical limitations should not inhibit the bulk of older Americans from working at least until their mid-60’s. However, at least one quarter of the population may find continued employment extremely difficult. (LO 9-2-2)

Question 36

8. The disability-free life expectancy for “higher income, higher educated” people is better than for “lower income, lower educated” people

Answer 36

True. (LO 9-2-3)

Question 37

9. Clients considering when to retire should consider whether to fully retire or to work part-time in retirement

Answer 37

True. (LO 9-2-3)

Question 38

10.Clients considering when to retire should consider the importance of co-workers and how the various aspects of retirement might positively or negatively affect the relationship they have with family and friends

Answer 38

True. (LO 9-2-3)

Question 39

1. There is a standard legal definition of phased retirement

Answer 39

False. There is no standard or generally agreed upon definition. Phased retirement can be thought of as a broad range of employment arrangements that allows a retiree to continue working at a reduced workload while they gradually shift from full-time work to full-time retirement. (LO 9-3-1)

Question 40

2. The use of phased retirement is expected to decline in the future

Answer 40

False. The use of phased retirement is expected to grow in the future. In fact, while only 21% of surveyed companies believe that phased retirement is critical to their company’s HR strategy today, over 60% believe it will be critical in 5 years. (LO 9-3-1)

Question 41

3. Phased retirement can be with jobs that require the same work, jobs that require different work, or jobs that require skills similar to the full-time job.

Answer 41

True. (LO 9-3-1)

Question 42

4. Formal phased retirement policies allow an employee to continue working with their current employer at a reduced schedule and they are often contained in the employer’s personnel policies

Answer 42

True. (LO 9-3-2)

Question 43

5. Formal phased retirement policies tend to be most commonly available with small employers.

Answer 43

False. Formal phased retirement policies tend to be most commonly available with large employers. (LO 9-3-2)

Question 44

6. Informal phased retirement practices are more common than formal phased retirement programs and they are often done on a case-by-case basis

Answer 44

True. (LO 9-3-2)

Question 45

7. Bridge jobs are typically selected by the client through the support of a formal employer program

Answer 45

False. Bridge jobs are selected by the client without the support of a formal employer program. (LO 9-3-2)

Question 46

8. A bona fide termination of employment is required in a retirement and rehire situation.

Answer 46

True. However, there is no specific legal definition of bona fide termination of employment. (LO 9-3-2)

Question 47

9. Clients who are phasing a little are often referred to as phasing post-retirement

Answer 47

False. Clients who are phasing a lot are often thought of as phasing post-retirement. Clients who are phasing a little are often thought of as phasing pre-retirement. (LO 9-3-2)

Question 48

10.The term “double dipping” refers to a client getting a second pension

Answer 48

True. (LO 9-3-2)

Question 49

11.Phased retirement may involve reducing the hours worked, reducing the amount of days per week worked, or reducing the amount of weeks worked.

Answer 49

True. (LO 9-3-3)

Question 50

12.Phased retirement may involve a job sharing program or telecommuting

Answer 50

True. (LO 9-3-3)

Question 51

13.Phased retirees must be treated as employees, not independent contractors.

Answer 51

False. The former employee could engage in a consulting relationship with his or her ex-employer, another employer, or multiple employers as an independent contractor. (LO 9-3-3)

Question 52

14.The current cohort effect often eliminates the desire for phased retirement or continued employment.

Answer 52

False. The current cohort effect is seen as encouraging phased retirement and continued employment. Today’s retirees have greater longevity, higher levels of education, and a greater occupational profile, all of which combined provides a basis for staying employed longer. (LO 9-3-4)

Question 53

15.Phased retirement may be a good opportunity to double back and travel down the road not taken. It may allow the client to follow their heart (life’s passions) and not their wallet

Answer 53

True. (LO 9-3-4)

Question 54

16.Phased retirees are not allowed to have employer-provided health insurance

Answer 54

False. Under the right set of circumstances, phased retirement may allow the client to continue to have employer-sponsored health care (however, this is not always the case). (LO 9-3-4)

Question 55

17.In order for formal or informal phased retirement to work for the client’s long-term employee (or ex-employee), the business process must accommodate flexible hours

Answer 55

True. (LO 9-3-4)

Question 56

18.More often than not, it is the highly-desired and skilled employee that gets to engage in phased retirement with a former employer

Answer 56

True. (LO 9-3-5)

Question 57

19.There are restrictions on in-service withdrawals in a defined-benefit plan until age 66, so phased retirement and benefit withdrawal cannot occur simultaneously until that age

Answer 57

False. Under a fairly recent law change the age is 62 (unless the plan’s normal retirement age is younger than 62). (LO 9-3-6)

Question 58

20.Phased retirement programs may violate age discrimination laws

Answer 58

True. (LO 9-3-6)

Question 59

21.ERISA anti-cutback and nondiscrimination laws may impede phased retirement.

Answer 59

True. (LO 9-3-6)

Question 60

22.A formal or informal phased retirement plan cannot allow employees to draw full or partial retirement benefits.

Answer 60

False. A formal or informal phased retirement plan could allow employees to draw full or partial retirement benefits or to delay commencement of benefits while working reduced hours. (LO 9-3-8)

Question 61

23.A formal or informal phased retirement plan cannot redesign the defined-benefit formula to annualize pay in order to determine the pension from the plan.

Answer 61

False. A formal or informal phased retirement plan could redesign the defined-benefit formula to annualize pay in order to determine the pension from the plan. (LO 9-3-8)