Chapter 3: Basics Of Retirement Planning

Front 1

Ideally, retirement planning would begin at the point a person ________, which is the prime time to start saving for retirement

Back 1

begins working

Front 2

Retirement planning also continues throughout the ________, focusing on how to best distribute and preserve assets.

Back 2

retirement years

Front 3

As a retirement-planning practitioner, you help clients in a number of ways:

(3)

Back 3

1. by providing products to accumulate retirement assets and to distribute retirement income

2. by devising and helping to implement plans that address and cover the need for the late-life healthcare insurance

3. by plotting strategies for the prudent disbursement of assets during retirement and at death

Front 4

For you to adequately address the many facets of the planning process, you should be able to offer products, services, and advice that:

(3)

Back 4

- Help the client accumulate assets for retirement;

- Protect the client against financial risk; and

- Identify how to effectively distribute assets, both during retirement and at death

Front 5

6 Steps: Establishing an Investment Plan`

Back 5

1. Establish assumptions for the retirement plan

2. Estimate the annual retirement income need in future dollars

3. Apply pension benefits to the future retirement income need

4. Convert annual retirement need into a capital amount

5. Project the future value of any current retirement savings

6. Estimate annual savings/contributions needed to accumulate the retirement fund goal

Front 6

Step ____ : Establish assumptions for the plan with regard to...

- accumulation period

- length of retirement

- rate of inflation

- rate of return on invested assets

Back 6

Step 1: Establish assumptions for the plan

Front 7

Establish assumptions for the plan with regard to...

(4)

Back 7

- accumulation period

- length of retirement

- rate of inflation

- rate of return on invested assets

Front 8

the number of years to retirement

Back 8

accumulation period

Front 9

the individual's life expectancy and that of his or her spouse

Back 9

projected length of the retirement period

Front 10

the erosion of purchasing power

Back 10

the expected rate of inflation

Front 11

the return on invested assets

Back 11

time value of money

Front 12

- indicates whether time will be an ally/foe

- also indicates what kind of investment strategy a person can pursue

Back 12

accumulation period

Front 13

common retirement age; may be earlier/later

Back 13

60 or 62

Front 14

how long the retirement period will last;

should be conservative - can be projected to be 20, 25 or 30

Back 14

projected length of the retirement period

or Life expectancy

Front 15

- is the general increase in prices and the decline in purchasing power

- can erode purchasing power over time, even when the rate is low

Back 15

Inflation

Front 16

- working in opposition to inflation; growth of funds due to interest or growth earnings

- rewards those who start their retirement saving early

Back 16

time value of money

Front 17

significant adjunct to compounding

Back 17

tax deferral

Front 18

Step ____: Estimate the retirement income need in future dollars

- 2 methodologies typically used:

replacement ratio method

projected expenses method

Back 18

Step2: Estimate the annual retirement income need in future dollars

Front 19

(2) Methodologies typically used to estimate future income requirements

Back 19

Replacement ratio method

Projected expenses method

Front 20

this approach simply applies a percentage of pre-retirement income to estimate how much one will need during retirement

assumes that the income need during retirement will be of 70-90% of one's pre-retirement earnings

Back 20

replacement ratio

Front 21

approach more detailed than replacement ratio;

calculates the needed annual income according to current expenses on an item-by-item basis

Back 21

projected expenses

Front 22

retirement phase: first 8-10 years

pre- and post-retirement income needs are largely the same, client may continue to work and earn a wage

Back 22

Early period

Front 23

retirement phase: next 7-8 years

expenses typically decrease, as consumption is lower than that of early retirement

Back 23

Middle period

Front 24

retirement phase: period from 85+

client should address the possible need for potential long-term care

Back 24

Late period

Front 25

Step ____: Apply pension benefits to the future retirement income need

combined income sources determine how comfortable one's retirement years will be

Back 25

Step 3: Apply pension benefits to the future retirement income need

Front 26

(3) Primary sources for retirement income

Back 26

- government retirement pensions

- monthly registered pension-plan benefits

- personal savings, investments, and other sources (incl. registered retirement plans that the individual owns or to which he or she contributes)

Front 27

Step ____: Convert annual retirement need into a capital amount

Here, you attempt to determine that amount of money that will be needed in the future to adequately fund the retirement income need that is not covered by "promised" benefits

Back 27

Step 4: Convert annual retirement need into a capital amount

Front 28

3 key variables in step 4: Convert annual retirement need into a capital amount

Back 28

time

interest

assumed rate of inflation