[h] CPCU 556 – Module 6
[q] Factors that influence retirement funding losses
[a] Retirement funding losses are influenced by:
Sufficient accumulation of retirement funds.
[q] Objective of effective retirement planning
[a] To accumulate sufficient savings to satisfy an acceptable standard of living.
[q] Largest aggregate source of income for individuals age 65 or over
[a] Social Security benefits
[q] Resources used to supplement Social Security
[a] Resources used:
Personal savings and investments.
Individual retirement accounts (IRAs).
Cash value from life insurance policies.
[q] Sandwich generation
[a] A generation of people, typically in their 30s or 40s, responsible for bringing up their own children and for the care of their aging parents.
[q] Steps in the retirement planning process
[a] Steps (in order):
Determining retirement goals.
Analyzing financial needs.
Monitoring and revising the plan.
[q] Factors used to determine retirement savings needed
[a] Factors used to determine savings needed:
Amount of income needed at retirement.
Estimated retirement period.
Pension and Social Security estimates.
Estimated future value of existing resources.
Lump sum necessary to fund any shortfall.
Additional amount that must be saved annually.
[q] Section 401(k) plan
[a] A qualified retirement plan that permits employees to contribute to the plan with pre-tax dollars.
[q] Section 403(b) plan
[a] A tax-advantaged retirement plan sponsored by tax-exempt organizations. Permits employees to contribute to the plan with pre-tax dollars.
[q] Section 457 plan
[a] A deferred compensation arrangement sponsored by tax-exempt organizations. Permits employees to contribute to the plan with pre-tax dollars.
[q] Municipal bond
[a] A debt obligation of a state or local government that pays the investor tax-exempt interest income.
[q] Certificate of deposit
[a] A type of time deposit issued by a financial institution.
[q] Factors to consider when determining how often a retirement plan should be monitored
[a] Factors to consider:
Individual’s current financial situation.
Tax law changes.
Investment performance of retirement assets.
[q] Methods used to estimate retirement income needs.
[a] Methods used:
Income replacement ratio method.
[q] Income replacement ratio method
[a] A method used to estimate needed retirement income that applies a percentage (usually 60%-80%) to average income to approximate the income required in the first retirement year.
[q] Expense method
[a] A method that estimates an individual’s retirement income needs based on total estimated expenses in the first year of retirement.