CRC I - Review

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CRC I - Review Fundamentals of Retirement
Planning Chapters 1 and 2
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Chapter 1 Retirement Planning Across the Life
Cycle
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Life Cycle

• Lifecycle
• Predictable
• Unpredictable
• Relationship between lifecycle and expenses and
  income
• Relationship of life cycle to retirement

1/1-7
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Retirement and the Life Cycle

• While working
• Early-, mid-, late-career
• End of formal career/full-time work
• Early-, mid-, late-retirement
• Transition between stages

1/7-8
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Challenges to Retirement Education Initiatives/

• Diverse audience at various stagesall at the
  same time!
• Age
• Gender
• Educational level
• Earning power
• Culture

1/9-15
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ChallengesGeneration X

• Always a tomorrow
• Postpone current consumption in return for a
  secure retirement
• Strategy
• Develop and use good savings habits
• Living beneath ones income
• Treasure of time
• Biggest enemy to success procrastination

1/10-11
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Challenges Mid-Generation

• Biggest issue competing goals
• Strategy
• Saving even small amounts
• Concretize goals
• Acknowledgement of multiple financial demands
• Importance of setting multiple financial goals

1/12-15
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Planning for the Unexpected

• Unexpected events prior to retirement impact
  planning for retirement
• Caveat loans from qualified plans
• Insurance protects against many of the unexpected
  events
• Elder care
• Disability
• Natural disaster

1/16-20
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Planning for the Unexpected

• Financial challenges of divorce
• Value of distributed assets
• Cash flow/income of parties after a divorce
• Issues with defined benefit plan
• Use of a QDRO (Qualified Domestic Relations Order)

1/17
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Planning for the Unexpected

• Termination of employment
• Vesting of retirement assets
• Disposition of company-sponsored
• retirement plans
• Insurances
• COBRA
• Continuation as a personal policy

1/21-23
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Life Cycle Comparison Chart

• Compare and contrast across categories and life
  cycles
• Note specific financial tasks at each stage
• Identify key challenges at each stage

1/24-37
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Chapter 2 Retirement Readiness Its Not Just
About Money
2/1
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RetirementMyth and Fact

• Myth of the leisure retirement
• Economic life hypothesis
• Three phases of the life cycle
• Retirement signified by shift of living from
  earnings to savings
• Expanding definition of the retirement
• Interdisciplinary
• Trans life cycles

2/4-9
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Financial Planning/Retirement Planning

• Relationship offinancial planning--retirement
  planning--retirement counseling--
• Distinctions among the three

2/10-11
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Retirement Readiness

• Diverse meanings of readiness
• Traditional retirement income adequacy
• What is relationship of money
• to retirement readiness?
• Link to gerontology

2/12
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Retirement Readiness Well-Being

• Cross disciplines
• Strengths-based approach
• Beyond survival to maximizing well-being in
  retirement
• Geo-financial
• Bio-medical
• Psycho-social
• Best practice approach
• Why use an approach based on an integrative model?

2/13-18
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Career Stage Retirement Readiness

• Usefulness of retirement information
• Application of knowledge
• Difference between wanting to retire and being
  prepared to retire involves non-financial
  criteria

2/19
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Worksheets and Checklists

• Identify various distinctions among each type
• Geographical readiness
• Financial readiness
• Biological readiness
• Medical readiness
• Psychological readiness
• Social readiness
• Complete each worksheet for yourself

2/20-31
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CRC I - Review Fundamentals of Retirement
Planning Chapters 3 and 4
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Chapter 3 Basic Principles of Effective
Counseling and Communication
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Effective Communication

• Understand the generational zeitgeist
• Silent generation
• Born before 1946
• Baby boomers
• Early born between 1946-1955
• Late born between 1956-1964
• Identify personal style of communication
• Yours
• Clients

3/4-5
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Zeitgeist of the Generation
Silent Generation
Baby Boomers

• Individualistic
• Anti-institution
• Work thru retirement
• Personal meaning
• Role of leisure
• Financial savvy

• Financial help
• Leisure
• Housing
• Duty/obligation
• Role of leisure
• Work hard, get ahead

3/5-10
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Zeitgeist of the Generation
Silent Generation
Baby Boomers

• Disappointment in mythof getting ahead/hard work
• Widowhood
• Label of aging
• Problems associated withlongevity

• Institutional mistrust
• Skepticism of institutions
• Need to control
• More savvy about investments

3/5-10
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Effective Communication

• Generational traits combine with personal traits
• Impacts both listening and speaking

3/11-12
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Effective Communication

• Build trust and receptivity with clients
• Two-way nature of communication
• Understand your own style
• Understand the style of the other
• Ability to adapt your communication style to the
  listening style of the other

3/11
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Effective Communication

• Communication strengths are the flip side of
  communication weaknesses
• Staying on task vs. Addressing spontaneous
  issues as they arise
• Warm, welcoming vs. Responding to a problem

3/12-17
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Effective Communication

• Assessing the style of the other person and
  matching your style to their pattern
• Determine the pace of the other person
• Speak, listen, respond
• Be aware of the other persons priorities
• Balance between relationship-oriented and
  task-oriented
• Be willing to adjust your communication stylenot
  vice versa!

3/17-22
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Chapter 4 Retirement Mindsets and Behavioral
Finance
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Money Personalities

• Various ways of dealing with moneyspending,
  saving, planning
• Awareness of the personality
• types may provide direction
• for planning and
• communication

4/3-4
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Role of Behavioral Finance

• Attempt to understand the investor and financial
  markets from a psychological perspective
• How clients think about their money
• How they behave with their money
• How to deal with irrational investor behavior
• Use of behavioral investor types
• Help professionals make rapid, insightful
  judgments about clients

4/4-17
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Retirement Mindset

• Permeates an individuals life and career and
  evidenced by the choices made during that life
• Retirement stages
• Based on proximity to actual date of retirement
• Changing priorities
• Background vs. Foreground

4/18-19
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Communication Paper Trail

• Updated and detailed record keeping of
  client/counselor interactions
• Clarify when education-related duties create a
  fiduciary responsibilities

4/19-20
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Communication Paper Trail

• Documentation is part of professional self-care
• Time date of interaction
• Who was present
• Reason for interaction
• Topics discussed
• Recommendations
• Responsibilities for implementation
• Exchange of written information

4/20
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Safe Harbors

• Information that is generallyregarded as NOT
  creatingfiduciary responsibility
• Plan information
• General financial and investment information
• Asset allocation models
• Interactive investment materials

4/20, 22
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ERISA 404(c) and You

• What must a fiduciary do to be protected by
  404(c)?
• Exercise prudence in selecting and monitoring
  advisors and educators
• Same prudence as exercised with any other plan
  function
• Must act solely on behalf of plan participants
  and beneficiaries
• Determine whether education, advice, counseling

4/21
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ERISA 404(c) and You

• Can a fiduciary offer investment advice and still
  be protected from liability?
• 404(c) does not require that investment advice be
  provided
• Question How do employees make
• competent decisions without advice?
• Difference between education and advice?
• Guidance found in the Department of Labor
  Interpretive Bulletin 96-1

4/21
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404(c) and Safe Harbors

• Education not Advice
• No liability if certain rules are met
• Safe harbors protect counselors and employers and
  provide scope of education activities
• General plan information
• General financial concepts
• Asset allocation information
• Interactive investment materials

4/22-23
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Nature of Advice

• Advice is specific to individuals
• Telling someone what they should do with their
  investments

4/23
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Ongoing Discussion

• Some individual rulings given for companies who
  provide investments to plans can also provide
  advice for those investments
• Exception rather than the rule
• Important to stay current
• Older view Providing education was a liability
• Recent view Not to provide education is a
  liability

4/23-25
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Caveat for Counselors

• Counselor/employee relationship different from
  planner/client
• Complete facts may not be available
• One-side representation (employee)
• Insufficient time to gather adequate information

4/23-25
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Regulations Proposed in 2008 for 401(k) Plans and
IRAs

• Certified unbiased computer model may be used
• Information delivered via an adviser compensated
  on a level fee basis with fees disclosed

4/23-25
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CRC I - Review Fundamentals of Retirement
Planning Chapters 5, 6, and 7
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Chapter 5 Budgeting
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BudgetingFirst Step

• Nitty gritty topic and not glamorous
• Transform the perception
• Means to an end not an end in itself
• Way to achieve financial goals
• Requires that goals be set

5/1
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Tools for Planning

• Budget
• Plan for cash in/cash out
• Personal balance sheet
• Where client is presently
• Cash flow statement
• Where client has been in the past

5/4-8
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Balance SheetSnapshot in Time

• What you own (minus) what you owe
• Categories of assets and liabilities
• Increase in net worth
• When income exceeds expenditures
• When value of assets increase

5/5-7
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Cash Flow Statement

• Where does the money go?
• Specific to a period of time
• Net gain/loss amount remainingafter expenses
  are subtractedfrom income

5/8-11
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Tools for Planning

• Too much spending
• Too little saving
• State of investments
• Amount of income from investments
• Provide data for financial ratios

5/9-11
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Creating a Budget

• Personal
• Spending categories must fit personal spending
  patterns
• Utilize existing formats
• Important to categorize Savings
• Understand opportunity cost when allocating
  spending/saving
• Good record keeping helps to make
• good decisions about future spending
• Use subordinate budgets
• Is the budget working?

5/11-18
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Wise Use of Credit

• Encumber future income to pay for current
  consumption
• Annual Percentage Rate (APR)
• Most, but not all, fees included in APR
• Distinguish between carry-forward balances and
  convenience purchases
• Caveat emptor
• Teaser rates
• Cash advances

5/19-20
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Credit and Your Clients

• Basics of planning Credit and budget
• Note APRs being paid by clients
• Match source of credit to use of funds
• Installment credit manages debt
• Asset-to-debt ratio should increase as client
  approaches retirement

5/20-22
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Credit and Your Clients

• Look for the danger signals
• of too much debt
• Borrowing from retirement plans
• Reducing amounts contributed toretirement plans
• Create a debt reduction plan
• Pay off highest APR
• Pay off smallest debt and move to next highest,
  etc.
• Utilize Consumer Credit Counseling

5/23-25
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Chapter 6 Risk Management
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Risk and Loss

• Uncertainty
• Not the same as the commonlyunderstood
  definition of odds, chance, probability
• If it will occur and
• the magnitude of loss

6/1
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Insurance and Risk

• Speculative risk
• Pure risk
• Risk management
• Identify exposure to risk and potential loss\
• Evaluate potential loss that might occur
• Decide upon the best way to handle risk/loss
• Implement the risk management program

6/3-4
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Risk Management

• Avoid
• Retain
• Control
• Transfer
• Reduce
• Through insurance and the law of large numbers

6/4
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Focus on Risk Management

• Especially relevant for retirement planning
• Premature death
• Health-related
• Unable to work and earn a living
• Property and casualty

6/1
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Life Insurance

• Protects against financial loss due to death of
  the insured
• Need for insurance greater when savings are low
• Private insurance companies and Social Security
• Utilize the Needs Approach to determine the
  appropriate amount of life insurance
• Cash value vs. Term insurance

6/5-10
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Health Care Insurance

• Indemnity plan
• Managed care plan
• Preferred Provider (PPO)
• Health Maintenance Organization (HMO)
• Variations on HMO
• Point-of-service (POS)
• Individual Practice Association (IPA)
• Medical care supplement (Medigap)

6/11-12
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Government Health Care Insurance

• Medicare
• Federal program for hospital, surgical, medical
  care for individuals over age 65
• Medicaid
• Federally funded and state/county administered
  program to provide health care to the indigent

6/12
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General Health Care Provisions

• Limit payment for covered expenses
• Item
• Episode
• Time period
• Maximum lifetime benefits
• Deductibles()
• Co-payment
• Coinsurance()
• Pre-existing conditions

6/13
69
COBRA

• Consolidated Omnibus Reconciliation Bill of 1985
• Continuation of coverage after loss of employment
• Unemployed person pays 102 of premium
• Usually available for 18 months
• Convert to individual plan
• Purchase own coverage
• Coverage under another employer

6/14
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Long Term Care Insurance

• Provides reimbursement for care received in
  nursing home or at home
• Key features
• Type of care
• Per day indemnification benefit
• Age when policy is purchased
• Benefit period
• Waiting period before benefiters begin
• Inflation protection

6/14-15
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Disability Income

• Replace income lost due to illness or accident
• Available through Social Security
• Eligible workers and dependents
• Disability to last 12 full months or until death
• 5-month waiting period for benefits
• Social Security definition of disability
• Available through private insurers
• Premium related to various factors

6/16-17
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Chapter 7 Elder Care
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Older Americans

• Increasingly larger percentage of general
  population
• More prosperous
• Healthier
• Increasing cost of health care

7-1-3
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Concerns of the New Agers

• Where to live
• Maintaining health
• Cognitive health
• Fall reduction
• Wellness programs
• Death and dying

7/5-17
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CRC I - Review Fundamentals of Retirement
Planning Chapters 8, 9, and 10
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Chapter 8 Income Tax Strategies
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TaxesEven in Retirement

• Unique opportunities to plan
• tax minimization
• Withdrawals from qualified plans and IRAs
• Important to understand the general rules and
  process regarding taxation
• Taxes due as income accrues
• Possibility of quarterly estimates
• Progressive tax system

8/1-3
78
Arriving at Taxable Income

• Incometaxable and exclusions
• Interest earned on sate/local bonds
• For some, Social Security benefits
• Life insurance proceeds
• For some, disability insurance benefits
• Capital gain exclusion on the sale of a house if
  certain requirements are satisfied

8/4-5
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Arriving at Taxable Income

• Adjustments to income above the line
  deductions
• Alimony
• Qualified moving expenses
• 50 of self-employment tax
• Portion of health insurance premium paid by
  self-employed
• Results in Adjusted Gross Income (AGI)

8/5
80
Arriving at Taxable Income

• Income tax deductions reduce total amount of
  taxable income
• Schedule A Itemized deductions
• Medical
• Taxes
• Interest
• Charitable contributions
• Theft/casualty loss/certain business expenses
• OR
• Standard deduction
• Higher for taxpayers over age 65 and the blind
• Standard deduction different for each filing
  status
• Married/filing jointly
• Single
• Head of household
• Married, filing separately

8/6-7
81
Arriving at Taxable Income

• Personal exemptions
• Reduce taxable income by a specific amount per
  taxpayer, spouse, dependent
• Amount is indexed and subject to annual changes

8/7
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Arriving at Taxable Income

• Tax bracket
• Declare a filing status
• Progressive tax system
• As income increases, higher percentage of income
  is taxed

8/8-9
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Arriving at Taxable Income

• Tax credit reduces the actual tax owed
• Refundable tax credit
• Earned Income Credit
• Non-refundable credit
• Adoption expenses
• Child and dependent care expenses to caregivers
  can work or attend school
• Savers Credit

8/10-11
84
Additional Taxes

• Self-employment
• Excise taxes on early withdrawals from IRAs and
  qualified plans
• 10 penalty on early withdrawals (plus regular
  taxation!)
• Alternative Minimum Tax (AMT)
• Used by taxpayers whose net tax liability is too
  low
• State and local taxes

8/11-13
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Reduce Taxes

• Reducing taxable income
• Participating in company benefit plans
• Shift or gift income
• Converting ordinary income into capital gains
• Timing of taxable events
• Direct tax reduction
• Child tax credit
• In addition to personal exemption
• Not the Child and Dependent Care Credit
• Saver's credit

8/14-17
86
Tax Planning in Retirement

• Taxable defined benefit pension income
• Withdrawals from IRAs and qualified plans
• Required distributions at age 70 ½
• Use of Roth IRAs
• Possible taxation of Social Security benefits

8/17
87
Early Distribution Penalty

• Prior to age 59 ½ for qualified plans and IRAs
• Special exceptions exist for both types
• IRAs
• Purchase of a residence
• Higher education expenses

8/18-19
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Required Minimum Distributions

• Minimum amount be distributed beginning at age 70
  ½
• All qualified plans, 403(b) and 457 plans
• Must begin by April 1 of the year following the
  later of
• The year the participant turns 70 ½
• OR
• The year the participant retires
• Regular IRA owners must begin no later than April
  1 of the year the owner turns age 70 ½
• 50 excise tax (penalty) imposed on money that
  should have been withdrawn, if not withdrawn

8/20-22
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Chapter 9 Estate Planning
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Purpose of an Estate Plan

• Assets distributed to heirs
• Reduces/minimizes estate taxes
• Streamlines process of estate administration

9/1
91
Titling of Accounts

• Indicates how the asset is owned
• Sole ownership
• Joint tenants with rights of survivorship
  (JTWROS)
• Joint tenants/tenants in common
• Assets may avoid probate
• JTWROS
• Beneficiary
• Trust

9/4-5
92
Probate

• Guided by a will
• May minimize length of probate and shorten time
  to distribute assets
• Does not result in reduced estate and gift taxes

9/6-8
93
Estate Planning Documents

• Will
• Roadmap through probate
• Trusts
• Inter vivos trust (living trust)
• Testamentary trust (at death)
• Revocable vs. Irrevocable
• Multiple purposes
• Save time and costs
• Control assets
• Minimize taxes

9/8-10
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Advance Directives

• Power of attorney (POA)
• Narrow in scope temporary
• Maker must be competent when POA is exercised
• Durable power of attorney (DPOA)
• Act when the maker is incapacitated
• Living will
• Used at final illness or when death is imminent
• Health care power of attorney
• Identify a health care surrogate to make
• medical decisions

9/10-12
95
Gifts and Estate Planning

• Unified Federal Gift and Estate Tax
• After 2002 exemption amounts varied for gifts
  made during life and at death
• Gift is a completed transfer made during life
• Gifts in any amount can be given to anybodywith
  some strings
• Gifts over the annual gift tax exclusion require
  a gift tax return except between spouses
• Gift splitting for married couple
• Recipient of gift received the cost basis
• Gift tax returns considered when estate tax is
  computed

9/12
96
Transfers at Death

• Federal Gift and Estate Tax
• Tax assessed on gifts (made during lifetime) and
  at death
• Exemption amount allowed to be gifted during life
  or passed on at death
• No tax due on the exempted amount
• Tax computed on amount over the exemption
• Exemption for estate purposes has increased to
  3.5 million
• Exemption for lifetime gifts remains at 1
  million

9/13-14
97
Estate Tax Calculation

• Gross estate
• Valuation date/Alternative valuation date
• Gifts over the annual gift exclusion brought back
  into computation
• Deductions
• Taxable estate
• Subtract estate credit
• Estate tax credit translates into an estate tax
  credit
• Net tax liability
• Filed within nine months after the date of death

9/14-18
98
Retirement Plan Assets

• Best practice is to name a beneficiary so assets
  pass directly without going through the estate
• If no beneficiary named, assets will pass through
  the estate and be divided as directed in the will

9/18
99
Strategies

• Proper distribution of an estate based
• on individuals wishes
• Dilemma for retirement planning
• Balance of assets and income
• Balance of estate tax liability and assets to
  heirs
• Special attention to distribution issues for
  surviving beneficiaries of qualified plans and
  IRAs
• Be sure beneficiary designations are current

9/19-22
100
Chapter 10 Ethical Issues in Retirement
Counseling
101
Ethics

• Choices made when confrontedwith moral decisions
• Not absolute standards
• Law is a minimum standard of behavior
• Motivation for ethical behavior
• External
• Internal

10/1-5
102
Core Ethical Values

• Follow a set of ethical standards
• Adopt the golden rule
• Develop a no harm perspective
• Develop a do good perspective
• Be trustworthy
• Develop a willingness to be supervised
• Learn from past decisions and mistakes

10/6-8
103
Role of the Employer

• Herd mentality
• Ethical standards as part ofthe companys vision
• Ethics officer or committee
• Ethics training

10/8
104
External Regulatory Agencies

• Use of designations and titles with the term
  Senior, Elder, Retirement, Retiree
• FINRA and NASAA involvement to create a more
  uniform national regulatory environment
• Formal accreditation of designations

10/9-11
105
InFRE Professional Code of Ethics

• Comply with the letter and spirit of all state
  and federal laws.
• Act always in the best interest of plan
  participants.
• Never disclose confidential information.
• Be truthful in all communications.

10/11-13
106
InFRE Professional Code of Ethics

• Perform all services competently and diligently.
• Conduct activities under the highest standards of
  integrity.
• Disclose source of compensation.
• Supply material information relating to
  transactions or services.

10/13-15