Retirement Planning & Strategies Flashcards

A retiree is concerned about inflation eroding purchasing power over a 30-year retirement. Which asset class has historically provided the best long-term inflation protection within a retirement portfolio?

Answer: Equities (stocks)

Equities have historically outpaced inflation over long periods, making them an essential component of a retirement portfolio designed to last 30+ years.

A client uses their primary residence's equity as part of their retirement strategy. Which product converts home equity to retirement income without requiring monthly mortgage payments?

Answer: Home Equity Conversion Mortgage (HECM) reverse mortgage

A Home Equity Conversion Mortgage (HECM), the FHA-insured reverse mortgage, allows homeowners age 62+ to receive income or a line of credit against home equity with no required monthly mortgage payments.

In retirement income planning, which concept describes the coordination of asset withdrawals to minimize taxes by drawing from accounts in a tax-efficient sequence?

Answer: Tax bracket management (withdrawal sequencing)

Withdrawal sequencing (tax bracket management) strategically orders withdrawals from taxable, tax-deferred, and tax-free accounts to minimize lifetime taxes and preserve assets.

A 70-year-old retiree receives $2,000/month from Social Security and is in the 22% federal tax bracket. What percentage of their Social Security benefit is potentially subject to federal income tax?

Answer: Up to 85% of the Social Security benefit

Up to 85% of Social Security benefits are taxable when combined income (AGI + nontaxable interest + half of SS) exceeds $34,000 for single filers or $44,000 for married filing jointly.

What is the key difference between a 'defined benefit' pension and a 'defined contribution' plan from a retirement income planning perspective?

Answer: A defined benefit plan guarantees a specific monthly income for life; a defined contribution plan's income depends on account balance and investment performance

Defined benefit pensions provide guaranteed lifetime income determined by a formula, while defined contribution plans (401k, 403b) shift investment and longevity risk to the employee.

A client asks about the 'stretch IRA' strategy. Under current law (post-SECURE Act), which beneficiary can still use the stretch IRA over their lifetime?

Answer: Eligible designated beneficiaries, including surviving spouses and minor children

The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries, but 'eligible designated beneficiaries' (surviving spouses, minor children, disabled individuals, and those within 10 years of the decedent's age) can still stretch distributions over their lifetime.

A retiree wants to protect against a prolonged stock market decline early in retirement. Which strategy specifically addresses this concern?

Answer: Using a rising equity glidepath that starts with a conservative allocation and increases equity exposure over time

A rising equity glidepath (starting conservative and increasing equity over time) has been shown to reduce sequence-of-returns risk because the portfolio is less exposed to early losses when account balances are highest.