HS 353 > Comprehensive Test > Flashcards

Comprehensive Test Flashcards

(100 cards)

Study These Flashcards
1
Q 
1. What is the approximate average cost in the United States for a year’s stay in a nursing home? (LO 1-2-1)
A. $84,000
B. $49,000
C. $27,000
D. $108,000
A
  1. The answer is A.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q 
A qualitative question that could help you better understand how your client feels about financial matters is (LO 2-1-1)
A. How many children do you have?
B. What keeps you up at night?
C. What retirement assets do you have?
D. What expenses do you have?
A
  1. The answer is B. The others are quantitative questions.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Which of the following statements concerning estimating nonqualified defined benefit plan benefits provided by private employers is correct? (LO 2-2-1)
A. Benefits are generally paid out as a life annuity.
B. Benefits may be rolled into an IRA, if a lump sum distribution is chosen.
C. Benefits are generally secure as in most cases assets are held in an irrevocable trust.
D. Benefits may be subject to a forfeiture provision if a do-not-compete clause is violated.

A
  1. The answer is D. A is incorrect as many nonqualified plans generally provide benefits for a stated number of years. B is incorrect since rollovers are never allowed with nonqualified plans. C is incorrect as nonqualified plan benefits are subject to some risk as assets are not generally held in an irrevocable trust
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Which of the following statements concerning assumptions used in determining retirement need is correct? (LO 2-3-1)
A. Actuarial tables reveal that 68% of those who live to 65 will still be alive at age 90.
B. It is appropriate to disregard the client’s health status in determining a life expectancy assumption.
C. The expense method approach to estimating retirement need becomes more plausible as clients approach retirement age
D. It is best to use the most recent inflation rate when choosing an inflation assumption.

A
  1. The answer is C. A is incorrect as the percentage is much lower (28%). B is incorrect as individual and family health considerations are appropriate to consider when estimating life expectancy. D is incorrect as long-term inflation rates are better to use when choosing an inflation assumption
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q 
To complete a Roth IRA conversion for 2012 the conversion must occur on or before (LO 3-3-1)
A. October 15, 2012
B. December 31, 2012
C. April 15, 2012
D. October 15, 2013
A
  1. The answer is B. Conversions have to be completed by the end of the year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q
  1. Jennie and Johnny are both age 58, are married, and have AGI of $300,000. Both are employees of large companies and maximize contributions to their companies’ 401(k) plans. Jennie can make additional contributions to a tax-advantaged retirement plan for the year by (LO 3-3-3)
    A. Making additional contributions to the 401(k) plan under a Roth election.
    B. Making deductible contributions to an IRA.
    C. Setting up a SEP to shelter a portion of their investment earnings.
    D. Making nondeductible contributions to an IRA and then converting to a Roth IRA.
A
  1. The answer is D.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q 
7. Gretta is married, self-employed with no employees, age 72 and earns $50,000 of Schedule C earnings. In order to shelter as much income as possible she should adopt a (LO 3-3-3)
A. SEP
B. Profit-sharing plan
C. Money purchase pension plan
D. 401(k) plan
A
  1. The answer is D. The 401(k) plan allows the largest contribution since salary deferrals can be made in addition to the maximum contribution that can be made to the other types of plans mentioned
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q
  1. Which of the following statements about reverse mortgages is correct? (LO 3-5-1)
    A. Repayment is required immediately if the loan exceeds 50 percent of the value of the home.
    B. Loans payments are treated as taxable income to the homeowner.
    C. If the home’s value exceeds the loan amount, the bank would receive the windfall when the home is sold.
    D. Payment choices include a lump sum, line of credit and tenure option.
A
  1. The answer is D. A is incorrect as there is no such requirement. B is incorrect, a reverse mortgage is a loan and there are no income tax consequences when payments are made to the homeowner. C is incorrect. The bank is only entitled to repayment of the loan. The homeowner or heirs would be entitled to any windfall
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q 
9. An actively managed stock mutual fund that has a high level of overlap with the appropriate benchmark is referred to as a (LO 3-6-1)
A. Value fund
B. Closeted index fund
C. Growth fund
D. Large cap fund
A
  1. The answer is B
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q
  1. Ray has decided that he will rollover his Roth 401(k) account. His best option is a (LO 4-1-1)
    A. Direct rollover into a Roth IRA.
    B. Rollover into a traditional IRA.
    C. Net unrealized appreciation election.
    D. Rollover to his new employer’s defined benefit plan.
A
  1. The answer is A. A direct rollover avoids mandatory withholding, and Roth Accounts can only be rolled into a Roth IRA or Roth account in another employer’s retirement plan.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q 
11. Ralph has a $50,000 IRA with $30,000 of nondeductible contributions and a $250,000 rollover IRA that has no cost basis. If he withdraws $20,000 from the nondeductible IRA how much of the distribution is subject to income tax. (LO 4-1-2)
A. $0
B. $12,000
C. $18,000
D. $20,000
A
  1. The answer is C. The formula for determining the portion that is not taxable is $20,000 x $30,000/$300,000 ($50,000 + $250,000). Since $2,000 is not taxable $18,000 is taxable.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q 
12. Jerry has one Roth IRA which he has contributed $20,000 and the account value is currently $30,000. Jerry is 55, has made no prior withdrawals, and now takes a distribution of all $30,000 to pay for his daughter’s college education expenses. How much of the distribution is subject to the 10% early withdrawal penalty tax? (LO 4-1-2)
A. $0
B. $10,000
C. $20,000
D. $30,000
A
  1. The answer is A. This is a nonqualifying withdrawal and $10,000 is subject to income tax. The 10% penalty does not apply because the withdrawal is for college education expenses.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q
  1. Adam, age 60, has a nonqualified deferred annuity with $80,000 of premiums and a current value of $120,000. If he takes a single withdrawal of $18,000 as a down payment on a car what are the tax consequences? (LO 4-1-5)
    A. $12,000 is taxable income and $6,000 is not taxable as it is a return of premiums.
    B. $18,000 is not taxable as a return of premiums.
    C. $18,000 is taxable and the 10% early withdrawal penalty applies.
    D. $18,000 is taxable income but there is no penalty tax.
A
  1. The answer is D. Since the benefit has not been annuitized the distribution represents taxable earnings but the 10% penalty does not apply because Adam has
    attained age 59½.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q 
14. Victor is a single taxpayer, has AGI of $40,000, $5,000 in tax-free municipal bond income, Social Security income of $20,000 and a $10,000 tax-free withdrawal from a Roth IRA. Victor’s provisional income for determining the tax treatment of Social Security is (LO 4-1-6)
A. $40,000
B. $45,000
C. $55,000
D. $65,000
A
  1. The answer is C. Provisional income includes AGI, tax-free municipal bond interest, one-half of Social Security benefits. It does not include Roth IRA distributions that are not subject to income tax.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q
  1. Which of following statements concerning strategies for delegating health care decisions is correct? (LO 4-3-1)
    A. A do not resuscitate order can substitute for a health care power of attorney.
    B. An individual with a declaration of heath care (living will) must also appoint a health care power of attorney.
    C. Guardianship is the most effective way to delegate health care decisions upon incapacity.
    D. When adopting a health care power of attorney it is appropriate to choose both an agent and a contingent agent
A
  1. The answer is D. A is incorrect as a do not resuscitate order is a type of declaration by the patient, but it does not appoint an alternative decision maker. B is incorrect, some who make declarations are not comfortable appointing an agent to make decisions. C is incorrect as guardianship is an expensive and slow process and requires court supervision.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q
  1. Which of the following statements concerning a power of attorney is correct? (LO 4-3-2)
    A. With a power of attorney the agent delegates certain responsibilities to the principal.
    B. The problem with a springing power of attorney is that the power terminates after the task has been completed.
    C. The durable power of attorney terminates at the death of the principal.
    D. Courts generally interpret the powers of a durable power of attorney broadly
A
  1. The answer is C. A is incorrect, the roles described are reversed, the principal delegates power to the agent. B is incorrect, a special or limited power terminates, not the springing power. D is incorrect. Courts interpret these documents narrowly, since the court’s objective is to ensure that the powers are not abused
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q
  1. Which of the following statements for planning for the risk of inflation in retirement is correct? (LO 5-1-2)
    A. Claiming Social Security benefits as early as protects against inflation risk.
    B. Choosing the current inflation rate is the best option when modeling how much to save for retirement.
    C. Including international equities can improve the inflation hedge offered by equities.
    D. Avoid investing in I bonds as they may lose value in inflationary times
A
  1. The answer is C. A is incorrect as deferring Social Security results in a higher percentage of income subject to cost of living increases. B is incorrect as a long-term inflation rate is a better option than the current rate. D is incorrect as I bonds are inflation adjusted.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q 
18. The percentage of retirees age 65 and older that have long-term care insurance is approximately (LO 5-2-2)
A. 2 percent
B. 10 percent
C. 25 percent
D. 50 percent
A
  1. The answer is B.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q
  1. Which of the following statements concerning financial elder abuse is correct? (LO 5-2-4)
    A. Roughly 55 percent of the perpetrators are family members, friends,
    neighbors, or caregivers.
    B. The typical victim is a man age 55 to 70.
    C. Abuse perpetrated by businesses typically involves smaller sums of money than abuse by family members.
    D. Because of the financial impact most financial abuse is reported.
A
  1. The answer is A. B is incorrect the typical victim is a woman age 70 to 89. C is incorrect as abuse by businesses often involves large sums of money and multiple victims. D is incorrect as much abuse is not reported out of embarrassment, concern of retaliation and other concerns
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q 
20. Pfau’s research looking at hypothetical retirement portfolios involving 30 years of saving that were identical except for the years involved in saving found that at age 65 the portfolio values varied as a multiple of income from (LO 5-3-1)
A. 2 to 4 times income
B. 9 to 12 times income
C. 3 to 27 times income
D. 1 to 45 times income
A
  1. The answer is C. Illustrating how hard it is to protect a savings “number” at retirement
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q 
21. Study after study show that more than \_\_ percent of workers retire earlier than planned. (LO 5-4-1)
A. 70
B. 40
C. 20
D. 10
A
  1. The answer is B
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q
  1. Which of the following statements concerning loss of spouse risk is correct? (LO 5-5-1)
    A. Society of Actuary surveys show that couples are generally quite aware of the financial impact of a loss of a spouse.
    B. An important part of the planning for loss of a spouse is reviewing the terms of wills, trusts and beneficiary designations.
    C. Studies show that widows are generally in better financial shape than older married couples.
    D. A second-to-die life insurance policy would be a good way to take care of the income needs of the surviving spouse.
A
  1. The answer is B. A is incorrect as surveys show the opposite, that couples do not comprehend the financial magnitude of the loss of a spouse. C is incorrect as widows show more financial distress than other groups. D is incorrect. S second-to die policy only pays after the second death. A first-to-die policy would be an appropriate solution
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q
  1. Glide path refers to (LO 6-2-3)
    A. The change in equity allocation over time.
    B. The integration of systematic withdrawals with the minimum distribution rules.
    C. The tax treatment of Social Security benefits.
    D. The stream of income that is attributable to a deferred variable annuity with a GMWB rider.
A
  1. The answer is A. Choices B, C, and D are not relevant to glide path
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q
  1. Which of the following strategies will have the greatest difficulty managing reinvestment risk? (LO 6-5-1)
    A. The systematic withdrawal approach with triggers that change the withdrawal
    B. The systematic withdrawal approach without triggers that change the withdrawal
    C. The bucket approach
    D. The flooring approach
A
  1. The answer is C. The bucket strategy will have the greatest difficulty managing reinvestment risk because the near-term bucket must be replenished with short-term investments like bonds, CDs, and other investments that are particularly sensitive to reinvestment risk.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
25. Which of the following statements accurately describes advantages of using a national online bank to manage a client’s cash positions? (LO 7-1-1) A. Online banks offer more full service products when contrasted to national banks with physical bank branches. B. Online banks generally offer a slightly higher yield in money market and savings products than their physical counterparts do. C. Community banks have poorer customer service opportunities than online banks. D. Online banks are not covered by FDIC insurance and should be avoided
25. The answer is B. Online banks do offer more competitive yields on money market and bank accounts. A is incorrect because online banks often have fewer product offerings than more established traditional competitors. C is incorrect, as community banks tend to have higher customer service than online service and D is incorrect as any national bank is covered by FDIC insurance
26
``` 26. Consider an investor whose dollar-weighted average length of time until she will use money from the portfolio to fund consumption is 10 years. For the purpose of simplicity, assume that the following bonds are zero-coupon bonds, i.e. they only distribute one cash inflow to investors, which occurs at the maturity date. Which of the following treasury securities would best immunize her portfolio from interest rate risks? (LO 7-1-3) A. 1-month Treasury Bill B. 2-year Treasury Note C. 5-year Treasury Note D. 10-year Treasury Note ```
26. The answer is D. Interest rate risks borne by the hypothetical investor are monotonically decreasing in time to maturity along the spectrum of 0 – 10 years of time to maturity. This is because when the weighted-average length of time until an investor will receive cash inflows from a bond equals the investor’s dollar-weighted average length of time until consumption, price risk cancels out reinvestment risk.
27
27. Which of the following client fact patterns would best indicate recommending a portfolio of actively managed mutual funds? (LO 7-1-4) A. The client wants to guarantee returns to develop a flooring approach portfolio that covers their fixed expenses. B. The client has experience in fixed income and equity markets and wants to minimize their annual investment costs. C. The client has $500,000 in an IRA and wants professional investment advice while beginning systematic withdrawals. D. The client has a large position in their employer stock and is interesting in hedging their concentrated investment portfolio
27. The answer is C. Mutual funds are low-cost investments which lend themselves to the systematic withdrawal approach. A is incorrect as mutual funds should not be used to “guarantee” returns; even money market funds have some element of volatility. B is a good answer – but not as compelling as C. An investor who is experienced and wants to minimize costs might be better served in passive ETFs or individual holdings. D is incorrect as mutual funds are not built with hedging one specific equity position in mind.
28
28. The best option for a client looking for an annuity that provides for longevity protection, inflation protection, and the opportunity for a beneficiary to receive benefits in the case of an early death is (LO 7-1-5) A. An immediate, fixed, single life annuity. B. An immediate, term certain annuity payable for 20 years. C. An immediate, fixed joint and survivor annuity. D. An immediate, variable, single life annuity with a 10-year term certain.
28. The answer is D. The variable immediate annuity option is the only one that offers any potential for inflation protection
29
29. Which of the following statements concerning investing the decumulation portfolio under the systematic withdrawal approach is correct? (LO 7-2-2) A. Smaller investors typically take a “5 mutual fund” approach. B. At the $2 million level, the client should consider an actively managed fund. C. Direct investments such as private placements and limited partnerships are very suitable for the decumulation portfolio needing income under the systematic withdrawal approach. D. Markets are not very efficient, so it is likely that abnormal returns can be generated for the client’s portfolio.
29. The answer is B. smaller investors typically take a “2 mutual fund approach.” Direct investments such as private placements and limited partnerships have lack of liquidity, high costs, and corporate control issues, which make them less suitable for a decumulation portfolio. Markets are very efficient so it is hard to generate abnormal returns.
30
30. Which of the following statements concerning the capital preservation rule is correct? (LO 7-4-2) A. If the required withdrawal rate for the current year is more than 20 percent above the client’s initial withdrawal rate, the client must make a 20 percent cut in lifestyle. B. Using the capital preservation strategy increases the initial withdrawal rate by 100 basis points. C. The rule only serves to decrease what a client can spend and will never allow the client to increase the withdrawal rate in any year. D. The rule stress tests the plan to see how it will perform under extreme market conditions.
30. The answer is B. The cutback is 10 percent in withdrawals and this will actually be less than a percent lifestyle cutback. The rule acts as a guardrail that will keep a client on course by either increasing or decreasing the current withdrawal rate. Statement D describes the SORDEX, not the capital preservation rule.
31
31. Which of the following statements about retirement income planning is/are correct? (LO 1-1-1) I. Retirement income planning typically means analyzing the trade-offs between income and wealth. II. Retirement income planning should start before the client retires. A. I only B. II only C. Both I and II D. Neither I nor II
31. The answer is C. Both statements are correct.
32
32. Which of the following are important parts of retirement income planning? (LO 1-1-1) I. It involves budgeting for both essential and discretionary expenses. II. It involves planning for different time frames and uncertain time frames. A. I only B. II only C. Both I and II D. Neither I nor II
32. The answer is C. Both statements are correct.
33
33. Which of the following statements about costs a client might face in retirement is/are correct? (LO 1-2-1) I. The present value (at age 65) of out of pocket medical costs will be higher for male clients than it will be for female clients. II. Costs for long-term care in a nursing home vary significantly from state to state. A. I only B. II only C. Both I and II D. Neither I nor II
33. The answer is B. Statement I is incorrect because a male (age 65) has a median costs of $65,000 and a female (age 65) has median costs of $86,000.
34
34. Which of the following statements about the retirement preparedness of Americans is/are correct? (LO 1-2-2) I. Approximately 25 percent of American’s are financially prepared to meet their basic expenses in retirement and 75 percent are not. II. More high income individuals are at risk not to have basic necessities in retirement than low income individuals. A. I only B. II only C. Both I and II D. Neither I nor II
34. The answer is D. Statement A is incorrect because as a whole group 44%are at risk of a retirement shortfall. Statement B is incorrect because 86% of the lowest income individuals (the bottom third) are at risk not to have basic necessities in retirement and only 12% of the highest income individuals (the top third) are at risk
35
35. Which of the following statements comparing goal based software and cash flow software is/are correct? (LO 1-4-2) I. Goal based software is harder to explain to the client than cash flow based software. II. Goal-based software determines that you need to save $500 a month for retirement and cash flow software would help you understand whether you could meet that goal. A. I only B. II only C. Both I and II D. Neither I nor II
35. The answer is B. Statement I is incorrect because cash flow based software is harder to explain than goal based software.
36
36. Which of the following statements comparing commercially available retirement income software for professionals with proprietary retirement income software is/are correct? (LO 1-4-2) I. Commercially available software has fewer controls than proprietary software and it often allows the planner or client to change assumptions freely because there are fewer compliance concerns. II. Some broker-dealers use branded software like eMoney and NaviPlan—and limit the range of assumptions that can be used. A. I only B. II only C. Both I and II D. Neither I nor II
36. The answer is B. Statement I is incorrect. Commercially available software has more controls than proprietary software and often does not allow the planner or client to change assumptions as freely.
37
37. Which of the following statements concerning planning a budget for retirement is/are correct? (LO 2-1-4) I. It is important to determine expenses that are necessities and those that are conveniences or luxuries. II. Creating some discipline around a budget gives the client more financial security and more conscious control over decision making. A. I only B. II only C. Both I and II D. Neither I nor II
37. The answer is C. Both are correct
38
38. Which of the following statements concerning saving more in the years just prior to retirement is (are) correct? (LO 3-1-1) I. Saving more can be more effective if combined with other strategies such as working longer. II. Saving more is quite difficult for older clients who typically have more financial obligations than younger ones. A. I only B. II only C. Both I and II D. Neither I nor II
38. The answer is A. B is incorrect as older clients often have fewer obligations and may be able to save a lot more for retirement.
39
39. Which of the following statements concerning spending less in retirement as a way to address a retirement income shortfall is (are) correct? (LO 3-1-1) I. Temporary reductions will not have any impact on the retirement income plan. II. Large permanent cuts in spending may require changes such as relocation or downsizing. A. I only B. II only C. Both I and II D. Neither I nor II
39. The answer is B. I is incorrect. Temporary reductions in spending in years of poor or negative investment performance can have a positive impact on the retirement income plan
40
40. Which of the following statements about working longer as a strategy to address a retirement income shortfall is (are) correct? (LO 3-2-1) I. Delaying retirement shortens the retirement period, allows an individual to defer Social Security, and can enhance company sponsored retirement benefits. II. Working longer is such an important strategy that older workers should take steps to protect their employment opportunities. A. I only B. II only C. Both I and II D. Neither I nor II
40. The answer is C.
41
41. Which of the following statements concerning tax-advantaged retirement savings plan opportunities for consulting income for an individual who also has another job and contributes the maximum salary deferrals to the company’s 401(k) plan is (are) correct? (LO 3-3-1) I. The individual could set up a SEP to shelter a portion of the consulting income as long as the two business entities are unrelated. II. The individual could set up a 401(k) plan for the consulting income and make maximum salary deferrals as long as the two business entities are unrelated. A. I only B. II only C. Both I and II D. Neither I nor II
41. The answer is A. II is incorrect; salary deferrals to all 401(k) salary deferrals are aggregated and are subject to one uniform limit, even with unrelated employers
42
42. When using the break-even approach to choosing Social Security benefits, which of the following statements is (are) correct? (LO 3-4-1) I. A single individual with a short life expectancy is the best candidate for beginning benefits early. II. Those with higher socio-economic status may have more incentive to defer benefits. A. I only B. II only C. Both I and II D. Neither I nor II
42. The answer is C. Both are correct
43
43. Which of the following statements about approaches to accessing home equity is (are) correct? (LO 3-5-1) I. A conventional loan may be a good approach to address a short-term financial need in retirement. II. A reverse mortgage creates a substantial risk of foreclosure. A. I only B. II only C. Both I and II D. Neither I nor II
43. The answer is A. II is incorrect because the loan does not need to be repaid until the retiree leaves the home
44
44. A financial advisor may be able to bring value to the client’s retirement portfolio by (LO 3-6-1) I. Using modern portfolio theory to make sure that the client has the portfolio that is generating the highest rate of return per unit of risk. II. Selecting specific assets once the appropriate asset allocation has been chosen. A. I only B. II only C. Both I and II D. Neither I nor II
44. The answer is C
45
45. Which of the following statements concerning asset location and asset allocation decisions based on tax considerations is (are) correct? (LO 3-6-2) I. Asset allocation decisions should disregard the differences in the tax aspects of different accounts. II. Hold stocks in the taxable account and bonds in the tax-advantaged retirement accounts to the fullest extent possible. A. I only B. II only C. Both I and II D. Neither I nor II
45. The answer is B. I is incorrect since it is more appropriate to make asset allocation decisions based on after-tax values
46
46. Which of the following statements about the client’s distribution options from an employer sponsored retirement plan is (are) correct? (LO 4-1-1) I. The benefit election decision is important since it may be irrevocable. II. The decision is complicated as it may involve spousal elections and tax considerations. A. I only B. II only C. Both I and II D. Neither I nor II
46. The answer is C. Both I and II
47
47. Which of the following statements about a client’s distribution decisions at retirement from a qualified defined benefit plan is (are) correct? (LO 4-1-1) I. If a lump sum distribution is available, annuity options inside the plan can be compared to annuity options available in a rollover IRA. II. The distribution election should be made in light of the client’s comprehensive retirement income plan. A. I only B. II only C. Both I and II D. Neither I nor II
47. The answer is C. Both I and II
48
48. Jill receives a distribution from her 401(k) plan. In determining the tax treatment of the distribution, which of following questions is (are) relevant? (LO 4-1-2) I. Is Jill single? II. Has Jill received employer stock as part of the distribution? A. I only B. II only C. Both I and II D. Neither I nor II
48. The answer is B. A is incorrect as Jill’s marital status is not relevant to determining the tax treatment of the distribution.
49
49. Bob, age 75 owns two IRAs, one pays out a life annuity and the other is an account plan. His beneficiary for both IRAs is his 35-year-old niece. Which of the following statements concerning the required minimum distribution (RMD) rules that apply to these plans is (are) correct? (LO 4-1-3) I. The distribution from the IRA paying a life annuity may reduce the RMD from the account plan IRA. II. The calculation of the required distribution for the account plan is based on his niece’s life expectancy. A. I only B. II only C. Both I and II D. Neither I nor II
49. The answer is D. I is incorrect, as required IRA distributions from annuities are not aggregated with IRA account plans. II is incorrect because during Bob’s lifetime the calculation is based on the uniform lifetime table—only after Bob’s death does the niece’s life expectancy come into play
50
50. George and Georgia are 62, retired and are not yet receiving Social Security benefits. They have taxable investments and a large tax-deferred rollover IRA. Which of the following is (are) tax-efficient withdrawal strategy(ies) for this couple? (LO 4-1-4) I. They should take all distributions from the tax deferred account first to avoid required minimum distributions. II. They should consider taking some distributions from the tax deferred account and converting them to a Roth IRA. A. I only B. II only C. Both I and II D. Neither I nor II
50. The answer is B. I is incorrect since it is generally more tax efficient to take some withdrawals from the taxable account, and withdraw tax-deferred accounts only to the extent that they can be withdrawn at a lower-than-normal tax rate.
51
51. Which of the following represent(s) common flaws in an existing estate plan? (LO 4-2-1) I. Failure to have executed documents called for in the plan. II. Beneficiary designations for an IRA naming the spouse as beneficiary. A. I only B. II only C. Both I and II D. Neither I nor II
51. The answer is A. II is incorrect as a spouse is a common and appropriate choice as a beneficiary that has a number of advantages under the marital deduction and minimum distribution rules.
52
52. Which of the following statements concerning lifetime gifts in an estate plan is (are) correct? (LO 4-2-1) I. A donee may not always be ready to receive a substantial gift. II. Property with built-in loss potential should be gifted as the loss can be deducted by the donee. A. I only B. II only C. Both I and II D. Neither I nor II
52. The answer is A. II is incorrect because gifting property with built-in loss potential means losing the opportunity for deducting the loss.
53
53. Which of the following statements concerning a charitable gift annuity is (are) correct? (LO 4-2-2) I. Payments from a charitable gift annuity funded with cash will be partially tax-exempt until the annuitant reaches his or her life expectancy. II. The annuitant bears a risk of nonpayment from the issuing charity as well as from inflation. A. I only B. II only C. Both I and II D. Neither I nor II
53. The answer is C. Both I and II are correct
54
54. Which of the following statements about planning for longevity risk is/are correct? (LO 5-1-1) I. Many will plan for living to 100 as one in four live that long. II. The risk can be transferred by purchasing deferred income annuities. A. I only B. II only C. Both I and II D. Neither I nor II
54. The answer is B. Only one in 10 live to 95 so fewer than that would live to one hundred. One in four live to age 90 making it realistic to expect that many would plan for that contingency.
55
55. Which of the following strategies is (are) appropriate for addressing longevity risk? (LO 5-1-1) I. Increasing sources of income that are paid for an indefinite time period like choosing a tenure option with a reverse mortgage or dividend paying stock. II. Increasing sources of income that are paid for a lifetime by deferring Social Security benefits and/or choosing an annuity form of payment from an employer sponsored retirement plan. A. I only B. II only C. Both I and II D. Neither I nor II
55. The answer is C. Both statements are correct
56
56. Which of the following statements concerning withdrawal rate risk is (are) correct? (LO 5-1-3) I. Systematic withdrawal strategies provide for flexibility as well as the temptation of taking out more than is realistic when family or other needs arise. II. A withdrawal rate of 4 percent of the initial portfolio value with increases for inflation each year guarantees that the portfolio will last through retirement. A. I only B. II only C. Both I and II D. Neither I nor II
56. The answer is A. B is incorrect as there are no guarantees with a systematic withdrawal approach
57
57. Which of the following statements concerning planning to address frailty risk is (are) correct? (LO 5-2-3) I. Living trusts and powers of attorney are both appropriate mechanisms for transferring control over decisions for an incapacitated older retiree. II. Simplifying finances through automatic deposit and bill paying, and financial products such as income annuities can help an older retiree with diminishing capacity. A. I only B. II only C. Both I and II D. Neither I nor II
57. The answer is C. Both statements are correct.
58
58. Which of the following statements concerning sequence of returns risk is (are) correct? (LO 5-3-2) I. Sequence of return risk is reduced by increasing the percentage of holdings in equities. II. Sequence of return risk is exacerbated by defining the withdrawal rate as a percentage of the current year’s portfolio value. A. I only B. II only C. Both I and II D. Neither I nor II
58. The answer is D. I is incorrect as increasing holdings in equities will generally increase volatility which increases sequence of return risk. II is incorrect as sequence of return risk is eliminated by defining the withdrawal rate in this way.
59
59. Which of the following is (are) example(s) of public policy risk? (LO 5-6-2) I. Inflation was much higher during retirement for a person who retired in 1974 than for someone who retired in 1986. II. The local taxing authority raises property taxes on a retiree’s home. A. I only B. II only C. Both I and II D. Neither I nor II
59. The answer is B. I is an example of timing risk
60
60. Retirement income planning should meet which of the following client goals? (LO 6-1-1) I. Maintaining the client’s purchasing power throughout retirement. II. Adapting the client’s budget to their changing needs throughout retirement. A. I only B. II only C. Both I and II D. Neither I nor II
60. The answer is C both statements are correct.
61
61. Which of the following statements comparing the different approaches to retirement income planning is/are correct? (LO 6-1-1) I. According to one study, the approach that forced clients to alter their standard of living the most after the Great Recession of 2008 was the systematic withdrawal approach. II. Even though the bucket approach segments investments, the bucket approach may lead to the same portfolio allocation that was envisioned in the original systematic withdrawal portfolio approach. A. I only B. II only C. Both I and II D. Neither I nor II
61. The answer is B. Statement I is incorrect because the approach that forced clients to alter their standard of living the most after the Great Recession of 2008 was the flooring approach
62
62. Which of the following statements about the systematic withdrawal approach to retirement income planning is/are correct? (LO 6-2-1) I. Annuity, Social Security, and pension income do not factor into what a reasonable withdrawal rate is for the client. II. The client should invest less than 20 percent of their income in equity investments. A. I only B. II only C. Both I and II D. Neither I nor II
62. The answer is D. Statement I is incorrect because under the systematic withdrawal approach to retirement income planning annuity, Social Security, and pension income all factor into what a reasonable withdrawal rate is for the client. Statement II is incorrect because according to the research underlying the systematic withdrawal approach to retirement income planning asset allocation is typically 50 to 75% in equity (fixed over the retirement period).
63
63. Which of the following statements concerning the time horizon used in the systematic withdrawal approach is/are correct? (LO 6-2-2) I. 30 years is the industry standard that is typically used. II. The planner should avoid making the time horizon client specific. A. I only B. II only C. Both I and II D. Neither I nor II
63. The answer is A. Statement II is incorrect. The time horizon should become client specific
64
64. Which of the following statements about the bucket approach is/are correct? (LO 6-3-1) I. Under the bucket approach to retirement income planning the third bucket (assets to be used at the end of retirement) is invested more aggressively than the first bucket (money used for near-term expenses) because the retiree has a longer time period to ride out market swings. II. The bucket approach always waits for one bucket to be consumed before the income in the first bucket is reallocated. A. I only B. II only C. Both I and II D. Neither I nor II
64. The answer is A. Statement II is incorrect because in some cases planners end one bucket before starting another. However, another approach suggested in the Principal Group study allows buckets to be redistributed over time. At a regular frequency, the first bucket will need to draw from the second to continue to meet its intended use of covering expenses over the next five-year period and the second bucket will be replenished by the third bucket.
65
65. Which of the following are rationales for using the bucket approach to retirement income planning rather than the systematic withdrawal approach? (LO 6-3-1) I. If the portfolio has one required rate of return under the systematic withdrawal method, there is a mismatch between term risk and portfolio return which does not occur in the bucket method, which accounts for matching up term risk and portfolio return. II. Bucket approach investing works better from the behavioral economics standpoint than systematic withdrawal investing. A. I only B. II only C. Both I and II D. Neither I nor II
65. The answer is C. Both statements are correct
66
``` 66. Traditional equity and blended mutual fund products are appropriate in which of the following retirement income approaches? (LO 7-1-4) I. The Bucket Approach II. Systematic Withdrawal Approach A. I only B. II only C. Both I and II D. Neither I nor II ```
66. The answer is C. Mutual funds lend themselves towards the bucket approach and systematic withdrawal approaches. Both approaches require a diversified portfolio with some equity components
67
67. Retirement income planners should be aware that there are differences between the traditional financial planning process and the retirement income planning process. These differences may occur for all of the following reasons EXCEPT (LO 1-1-1) A. The length of life in retirement is unknown and expenses are uncertain. For example, working clients have an easier time matching up income and expenses when they build their budget. B. The risks clients face in retirement in some cases are different than the risks they face before retirement. For example, longevity risk becomes a prevalent concern in retirement. C. Adaptation to retirement lifestyle must be addressed in the retirement income plan. For example, clients may find it difficult to visualize what their lives will look like in the future, making it difficult to clarify goals and objectives. D. The nature of building relationships with a client is different in retirement. For example, the planner will often be called upon in retirement to ignore the needs of the retired parents to meet the needs of the working children.
67. The answer is D. Planners may have to bring the family into the decision process with the client’s permission, however, the retired parents are still the client and the planner’s obligation is central to them, not the children
68
68. All the following statements concerning retirement readiness based on the EBRI study is (are) correct EXCEPT (LO 1-2-2) A. People who used an online calculator to calculate how much they need to save for retirement improved their retirement readiness. B. People who guessed how much to save for retirement reduced their retirement readiness. C. People with higher education levels have higher levels of retirement readiness. D. People who are covered under a defined contribution plan are no more ready for retirement than those who do not.
68. The answer is D. Coverage under any type of retirement plan has been shown to improve retirement readiness significantly
69
69. All of the following are steps in the retirement income process EXCEPT (LO 1-3-1) A. Determining an appropriate strategy for addressing how to keep expenses constant over retirement. B. Identifying sources of income and assets available to generate retirement income. C. Determining an appropriate strategy for addressing a retirement income shortfall. D. Identifying and prioritizing retirement goals.
69. The answer is A. Expenses do not stay constant over retirement
70
70. When building a retirement income practice the retirement income planner should do all of the following EXCEPT (LO 1-4-1) A. Define the products that they will offer. B. Create an ideal client profile. C. Identify the target market. D. Replace the need for the planner to use other advisors
70. The answer is D. Planners often consult with experts and work in teams to solve client problems
71
71. All of the following statements concerning Monte Carlo simulation software are correct EXCEPT (LO 1-4-2) A. It allows the planner to make predications of successful and unsuccessful outcomes for a retirement funding scenario. B. It can be used in both the retirement accumulation process and the retirement income planning process (decumulation). C. It cannot provide the probabilities of success for two or more different alternative courses of action. D. It can allow planners to use either historical returns or project future returns
71. The answer is C. Answer C is incorrect. The strength of this approach can be that it can simplify a situation by providing probabilities of success for two or more different alternative courses of action.
72
72. All of the following statements concerning gathering data about your client’s current situation for retirement income planning are correct EXCEPT (LO 2-1-1) A. Demographic information about family may be important for estate planning purposes but not retirement income planning. B. Asking questions about experiences with past financial advisors may help you understand what your client wants from the advisor. C. Questions about assets should include information about cost basis and how assets are titled. D. Questions about liabilities should include determining when any installment debts will be repaid.
72. The answer is A. The number of people in the family and whether the client has financial obligations to a family member are very important to the retirement income plan.
73
73. All of the following are advantages of a tool like Ready-2-Retire EXCEPT (LO 2-1-2) A. It can help clients begin to identify goals before sitting down with the advisor. B. It can help clients visualize what they would like to spend time doing in retirement. C. It can help educate clients about the risks faced in retirement. D. It can help inventory assets and income sources available to meet retirement needs
73. The answer is D. Ready-2-Retire identifies retirement goals; it is not a retirement calculator
74
``` 74. All of the following are reasons for a client’s risk tolerance to change with time EXCEPT (LO 2-1-3) A. Advancing age B. Risk capacity remains constant C. Declining health D. Sharp market decline ```
74. The answer is B. If a client’s risk capacity stays constant it is unlikely to have an impact on the client’s risk tolerance
75
75. All of the following statements concerning estimating Social Security benefits as part of the retirement income plan are correct EXCEPT (LO 2-2-1) A. An individual eligible for multiple benefits will only be eligible to receive one benefit at a time. B. Since benefit statements have been suspended, it is almost impossible to find out an individual’s retirement benefits. C. Benefits will generally increase over time since they are eligible for cost of living increases. D. Benefits could be cut back somewhat in the future if the funding shortfall is not resolved
75. The answer is B. Online calculators make it easy to get an estimate of retirement benefits
76
76. All of the following statements concerning assets that can be used to generate retirement income are correct EXCEPT (LO 2-2-2) A. The future value of a qualified profit-sharing benefit at retirement age is easy to determine. B. Some financial assets may not be available to meet retirement needs as they are earmarked for other purposes. C. Nonqualified deferred compensation may be at some risk if the company has financial difficulties. D. Qualified defined-contribution plans may offer an annuity distribution option at a favorable annuity rate.
76. The answer is A. It is difficult to determine the future value as both the rate of return and the amount of future contributions is uncertain
77
77. All of the following statements concerning retirement age is correct EXCEPT (LO 2-3-1) A. Early retirement may be a result of a company offering a golden handshake benefits. B. The exposure to inflation can be somewhat reduced by deferring retirement age. C. Some retirees are willing to live on less in order to be able to retire early. D. The eligibility date for Medicare benefits encourages individuals to retire early.
77. The answer is D.
78
78. All the following statements concerning software programs used for calculating whether a client has sufficient resources to meet retirement needs are correct EXCEPT (LO 2-3-2) A. Some software programs provide the opportunity to choose different inflation assumptions for different types of expenses. B. Most of the freely available online calculators provide enough detail for a professional tool. C. The choice of program should consider whether the output effectively communicates the information to the client. D. Regardless of the software chosen retirement need calculations should be rerun on a regular basis
78. The answer is B.
79
79. All of the following are good candidates to choose a Roth Election in a 401(k) plan EXCEPT (LO 3-3-2) A. Ralph, who is working part-time this year because he has gone back to school at night B. Jean, who is earning much more this year than usual due to royalties from a book C. Sandy, who has all of her savings in tax-deferred accounts and expects to be in the same tax bracket in retirement D. Larry, who is trying to maximize his tax advantaged savings this year
79. The answer is B.
80
80. Deferring Social Security retirement benefits has the following benefits EXCEPT (LO 3-4-1) A. Deferring results in a higher percentage of retirement income that is inflation protected. B. Deferring increases the percentage of earnings replaced by Social Security. C. The benefit increases continue as long as the worker defers Social Security. D. Deferring Social Security benefits increase the worker’s benefit as well as the widow(er) benefit.
80. The answer is C. Social Security benefit increases cease at age 70.
81
81. All of the following statements concerning IRA beneficiary designations are correct EXCEPT (LO 4-1-3) A. Under the required minimum distribution rules, the beneficiary chosen will impact how long distributions can be stretched out after the death of the participant. B. If a beneficiary form is not completed the plan will provide for a default beneficiary. C. Plans generally do not allow contingent beneficiaries. D. A charitable beneficiary can be a way to eliminate income taxes on distributions paid to the charity after the death of the participant.
81. The answer is C. Contingent beneficiaries are an important part of the beneficiary planning process
82
82. All of the following statements about the merits of charitable unitrusts (CRUT) compared to those of the charitable annuity trusts (CRAT) are correct EXCEPT (LO 4-2-2) A. The CRAT provides less risk of investment loss than does the CRUT. B. The CRUT is simpler to administer than the CRAT. C. The CRUT offers less risk of its payments being diminished by inflation. D. The CRUT provides more flexibility than the CRAT in structuring the timing of the payment to the noncharitable beneficiaries.
82. The answer is B. B is incorrect since the CRUT must be revalued annually; the CRAT does not have such a requirement. The statements in A, C, and D are correct
83
83. All of the following statements concerning incapacity planning for financial decisions are correct EXCEPT (LO 4-3-2) A. Incapacity may be an appropriate time to convert a term life insurance policy to a permanent product. B. A special needs trust is an appropriate vehicle for managing incapacity for an older client. C. Some qualified plan trustees will not be willing to make benefit payments to a participant’s power of attorney D. A powerful combination of tools for incapacity planning is a power of attorney combined with a revocable living trust.
83. The answer is B. Special needs trusts cannot be created for an individual who has attained age 65. The tool can be useful, however, as part of Medicaid planning if the older client wants to gift assets to a disabled heir.
84
84. All of the following statements concerning planning for covering the costs of health care in retirement are correct EXCEPT (LO 5-2-1) A. Many retirees underestimate the out of pocket costs of health care in retirement. B. Medicare has no cap on out-of-pocket costs for beneficiaries. C. The costs of health care in retirement can vary tremendously from retiree to retiree. D. Supplemental Medicare insurance (also called Medigap) is primarily to address prescription drug expenses in retirement.
84. The answer is D. Medicare supplemental insurance primarily covers the gaps in Medicare coverage including deductibles and co-pays.
85
85. All of the following statements concerning controlling health care costs in retirement are correct EXCEPT (LO 5-2-1) A. Some choose to obtain medical coverage outside of the United States as other countries may have state of the art medical care at significantly lower costs. B. Since drug expenses only make up 5 percent of retirement costs changing to generic brands generally has little effect on overall health care costs. C. Preventative care and living a healthy lifestyle can reduce health care costs in retirement. D. Shopping carefully for the best supplemental Medicare insurance and Part D coverage can impact out-of-pocket medical expenses in retirement.
85. The answer is B. Drug costs make up 25 percent of retiree health care costs and choosing generic brands can have a significant impact on overall costs
86
86. All of the following statements concerning planning for long-term care risk are correct EXCEPT (LO 5-2-2) A. A plan to address long-term care needs should include consideration of who will provide care, where care will be provided, and the funding mechanism. B. Purchasing long-term care insurance is best deferred until the 60’s to minimize long-term premiums. C. A continuing care retirement community may provide some long term care services. D. A funding alternative to long-term care insurance is a hybrid annuity and long-term care policy
86. The answer is B. Purchasing long-term care insurance earlier in the 50’s results in lower premiums and maybe more important it increases the likelihood of qualifying to purchase coverage.
87
87. All of the following statements represent ways that the systematic withdrawal approach is managed EXCEPT (LO 6-1-1) A. Take an initial withdrawal of the portfolio at retirement and then adjust the initial amount withdrawn each subsequent year for inflation regardless of the current value of the portfolio. B. Take an initial withdrawal and then maintain that amount until the death of the first spouse, at which time the withdrawals will be cut in half. C. Take an initial withdrawal of the portfolio at retirement and then adjust the initial amount withdrawn each subsequent year for inflation regardless of the current value of the portfolio. However, if the remaining portfolio value is more or less than a specified value, make adjustments to the percentage withdrawn accordingly. D. Take an initial withdrawal of the portfolio at retirement and make that the “salary” each year for the client. There is no adjustment for inflation
87. The answer is B. There is no such rule for systematic withdrawals. In addition, any adjustment at the death of the first spouse would not be as drastic as 50%.
88
88. All of the following statements about the “Financial Adviser Retirement Income Planning Experiences, Strategies, and Recommendations” research study are correct EXCEPT (LO 6-1-2) A. The overwhelming majority of clients getting decumulation advice are considered validators (do-it-yourselfers who want an advisor to give second opinions and occasional advice). B. There is an increased demand for retirement income services. C. The most popular approach to providing retirement income to clients is the systematic withdrawal approach. D. Many surveyed advisors adjust the amount of the systematic withdrawal on an on-going basis using various dynamic withdrawal strategies
88. The answer is A. The overwhelming majority of clients getting decumulation advice are considered deemed delegators (clients who know they need to participate in the process but expect their advisor to take primary responsibility for their financial success) as opposed to “validators
89
89. All of the following statements about the safe withdrawal rate are correct EXCEPT (LO 6-2-1) A. Using a safe withdrawal rate of 4 percent means that 96 percent of the time the client will have their principal left over. B. Using a safe withdrawal rate of 4 percent means that at the median level wealth is increased by a factor of 1.6. C. The safe withdrawal rate research should be interpreted to indicate that clients need to save enough money to only draw down 4 percent per year, adjusted annually for inflation. D. The safe withdrawal rate approach to retirement income planning focuses on making the client’s assets last for the specified period (e.g., 30 years) under a worst case scenario for investments.
89. The answer is C. The safe withdrawal rate research has often been misinterpreted to indicate that clients need to save enough money to only draw down 4 percent per year adjusted annually for inflation
90
90. All of the following statements concerning the bucket approach to retirement income planning are correct EXCEPT (LO 6-3-1) A. The bucket approach breaks up retirement into distinct time increments and then investments are chosen that deliver specified outcomes at different times. B. The assets needed for the near term time segment may be invested in laddered bonds or they may use some other liquid or cash position. C. Under the bucket approach, the planner and client think of the overall portfolio as separate buckets that are invested according to when the money will be distributed. D. As the client ages, the total portfolio would be adjusted to move slowly toward a more aggressive approach overall as assets shift from conservative buckets to more aggressive buckets
90. The answer is D. As the client ages, the total portfolio would be adjusted to move slowly toward a more conservative approach overall as assets shift from one bucket to another
91
91. All of the following statements about the different phases of retirement are correct EXCEPT (LO 6-3-2) A. Changing from one phase of retirement to the next always occurs gradually. B. The phases of retirement may be defined by changes in health, changes in physical capability, or changes in family status. C. Changing from one phase of retirement to another can be planned or unplanned. D. Changing from one phase of retirement to the next should always account for the non-financial side of retirement.
91. The answer is A. Statement A is incorrect because changes during retirement can be sudden or gradual
92
92. All of the following are reasons that the bucket approach to retirement income planning may appeal to the client from a behavioral economics standpoint EXCEPT (LO 6-3-2) A. A bucket strategy can address the client’s preference for smaller simplified issues. B. The bucket strategy helps take a large problem and parcel it into manageable pieces. C. The bucket strategy solves the inflation risk problem for the client. D. The bucket strategy links money directly with goals
92. The answer is C. The bucket strategy may help with, but it does not solve the inflation risk problem for a client.
93
93. All of the following reasons a fixed immediate life annuity may be used to provide for the floor in the flooring approach to retirement income planning are correct EXCEPT (LO 6-4-2) A. These annuities defeat mortality risk because the client is given a stream of income for as long as they live. B. These annuities prevent a client from consuming assets too quickly and are an excellent way to cope with excess withdrawal risk. C. These annuities suit clients with a low level of risk tolerance because they eliminate the volatility of investing the client’s assets. D. These annuities are flexible and allow the client to maintain liquidity and investment control.
93. The answer is D. An immediate annuity does not allow the client to maintain liquidity and investment control.
94
94. All of the following are alternative ways to invest in equities internationally EXCEPT (LO 7-1-2) A. American Depository Receipts B. U.S. Multinational Stocks C. International Mutual Fund Shares D. Purchasing foreign equities in their home market
94. The answer is D. Purchasing foreign equities in their home market is not an alternative way to invest internationally. It is the direct way to gain international equity exposure.
95
95. All of the following statements concerning the asset allocation model used when the systematic withdrawal approach is followed are correct EXCEPT (LO 7-2-1) A. A large percentage in equities will help the client with inflation and longevity risk, but may hurt the client with market risk. B. At any given point in time, the planner should be able to determine which assets will be targeted to provide current income. C. ETFs should not be used with systematic withdrawals because the surrender charges involved with this product make them undesirable to provide current income. D. If a client owns enough asset classes, it is more likely they will be able to sell a “winner” to fund current income
95. The answer is C. ETFs have become popular because of the granularity that these products provide
96
96. All of the following statements about investment products used with clients who are following the systematic withdrawal approach are correct EXCEPT (LO 7-2-1) A. Deferred variable annuities may be appropriate for the equity side of the portfolio that is held to provide income in the later years. B. Growth equity funds may be appropriate for the equity side of the portfolio that is held to provide income in the later years. C. Bond unit investment trusts (Bond UITs) can give the clients target maturity dates. D. Clients should link their bond holdings to positively correlate with equity markets (when equities go up, bonds go up).
96. The answer is D. Planners should avoid bond holdings that are likely to suffer the most when equities suffer because they will not be helpful to provide sustainable withdrawals
97
97. All of the following statements concerning working with clients through the process of building a retirement income plan are correct EXCEPT (LO 7-3-1) A. There may be many questions that clients cannot answer about their future retirement lifestyle. B. Once the planning moves to facts and figures it can be difficult to get back to a discussion of goals and aspirations. C. If tradeoffs are required, a good way to frame the issue is to give the client the choice of meeting two of their three objectives. D. Communicating the plan is best accomplished through a formal presentation of the final results
97. The answer is D. Since the planning continues through the presentation, having a conversation versus a formal presentation encourages dialogue.
98
98. All of the following statements concerning client participation in the retirement income solution are correct EXCEPT (LO 7-3-2) A. The plan should address how the client feels and not just the analytics. B. The client should weigh in on the importance of income guarantees in relationship to investment flexibility. C. The focus should be on value of assets and not on the client’s income needs. D. The product solutions need to address the client’s stated objectives and address the various risks faced in retirement
98. The answer is C. It is much easier to get clients to relate to income than to the value of assets
99
99. All of the following statements concerning the RisQuotient calculation used to monitor the client’s retirement income plan are correct EXCEPT (LO 7-4-1) A. If the RisQuotient is too high, the client may want to consider spending less. B. If the RisQuotient is too high, the client may want to reduce portfolio volatility. C. If the RisQuotient is too low, the client may be able to spend more. D. If the RisQuotient is too low, the client should then use a Monte Carlo analysis.
99. The answer is D. The RisQuotient calculation does not incorporate in a Monte Carlo simulation
100
100. All of the following statements concerning the SORDEX tool used to stress test a retirement income portfolio are correct EXCEPT (LO 7-4-2) A. Pensions and annuities in the portfolio make it less likely the client will have a SORDEX alert. B. The SORDEX is a ratio which compares the client’s current situation to the client’s past situation (or vice versa). C. The SORDEX is based on the theory that our traditional economic model cannot predict our current situation. D. A high SORDEX ratio means the planner should monitor the client more frequently.
100. The answer is B. The SORDEX first analyzes the client’s current situation and then compares it to an extreme circumstances analysis
HS 353
flashcards
Decks in class (8)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions