PART 4—STUDY QUESTIONS

(Questions followed by [A] are answered at the end of this section.)

1. Contrast the holistic approach to retirement planning with the approach that emphasizes only one point of view, such as investments.
(2.1–2.3)

 2. Describe two ways in which a spendthrift lifestyle during a client’s active working years makes retirement planning more difficult for him or her.
(2.4–2.5)

 3. Explain how each of the following may constitute important roadblocks preventing retirement saving:

a. failure to live according to a 90/10 spending ratio

b. unexpected expenses

c. divorce

d. frequent changes of employer

e. short-term financial goals

(2.5–2.8)

4. Explain how several of the variables affecting the amount a client will need to save in order to achieve his or her retirement goals can change due to forces largely beyond the client’s control.
(2.8)

 5. Identify several factors that make it likely that clients will have a lower annual federal tax burden after retirement than before retirement.
(2.9–2.10)

 6. Distinguish between the replacement ratio method and the expense method of determining how much income a client will need in the first year of retirement in order to achieve his or her goals.
(2.9–2.11)

7. Identify several categories of general living expenses that for most retirees will be

a. higher after retirement than before retirement

b. lower after retirement than before retirement

(2.11)

 

8. Create a brief set of financial facts for a hypothetical client. Then use those facts to complete the replacement ratio method work sheet that appears in the text.
(2.13–2.14) 

9. Define briefly

a. a defined-benefit plan versus a defined-contribution plan

b. a profit-sharing plan versus a pension plan

c. a qualified plan versus a Keogh plan

(2.17–2.19)

10. Describe several factors associated with defined-contribution plans that may result in inadequate retirement income for a client.
(2.18)

11. Describe two important factors that the retirement planner should keep in mind if his or her client is a participant in a profit-sharing plan.
(2.19)

12. Present a typical benefit formula of each of the following types that might be found in a qualified defined-benefit pension plan.

a. unit-benefit formula

b. flat-percentage-of-earnings formula

c. flat-amount-per-year-of-service formula

d. flat-amount formula

(2.20–2.21)

13. Describe the principal characteristics of

a. 401(k) plans

b. 403(b) plans

(2.22–2.24)

 

14. Describe the principal characteristics of IRAs with respect to

a. limitations on contributions

b. persons who are eligible to participate

c. deductibility of contributions

(2.25–2.27)

15. Assume that Theresa and Ron Thompson are a working married couple covered under their employer’s retirement plan and filing a joint federal income tax return. Their combined adjusted gross income for the year is $42,000. Calculate the maximum deductible amount each of them may make to an IRA account for the year. [A]
(2.26–2.27)

16. Identify several potential retirement planning problems that participation in a nonqualified plan may pose for a client.
(2.28–2.29)

17. Summarize the provisions of the social security program with respect to

a. who is eligible to receive retirement benefits

b. the effect of early and delayed retirement on retirement benefit amounts

(2.29–2.30)

 

18. Describe the major features of the medicare program with respect to

a. part A provisions

b. part B provisions

(2.30–2.32)

19. Explain how each of the following strategies can be used to maximize a client’s retirement income.