CFG Financial Planning for Older Adults 3 — Questions and Answers
Question 1: Which of the following is a key feature of a reverse mortgage (HECM)?
- Monthly principal and interest payments are required
- The loan becomes due when the borrower permanently leaves the home (Correct answer)
- The borrower must be at least 55 years old
- Proceeds are counted as taxable income
Correct answer: The loan becomes due when the borrower permanently leaves the home
A Home Equity Conversion Mortgage (HECM) becomes due and payable when the last surviving borrower permanently vacates, sells, or passes away.
Question 2: What is the 'widow's penalty' in the context of Social Security taxation?
- Widows lose survivor benefits if they remarry before age 60
- A surviving spouse filing as single faces lower income thresholds for Social Security taxation (Correct answer)
- Widows must repay half of their deceased spouse's benefits
- Survivor benefits are reduced by the widow's own retirement benefit
Correct answer: A surviving spouse filing as single faces lower income thresholds for Social Security taxation
After a spouse dies, the survivor files as single, which means lower income thresholds triggering Social Security taxation compared to married filing jointly.
Question 3: A fiduciary financial planner working with older clients is MOST obligated to:
- Recommend products with the highest commissions to offset service costs
- Act in the client's best interest at all times (Correct answer)
- Follow only the suitability standard required by FINRA
- Prioritize products from affiliated companies when suitable
Correct answer: Act in the client's best interest at all times
A fiduciary is legally and ethically required to act solely in the client's best interest, which is a higher standard than the suitability requirement.
Question 4: Which Social Security claiming strategy involves one spouse claiming spousal benefits while the other spouse's benefit continues to grow?
- File and suspend
- Restricted application (Correct answer)
- Deemed filing
- Delayed retirement credit rollup
Correct answer: Restricted application
A restricted application allows an eligible spouse (born before January 2, 1954) to claim only the spousal benefit while their own retirement benefit continues accruing delayed credits.
Question 5: What is the primary risk of using a 4% withdrawal rate in retirement planning?
- It is too conservative and may leave too much wealth to heirs
- It may not be sustainable over a 30+ year retirement in low-return environments (Correct answer)
- It violates IRS required minimum distribution rules
- It exposes the portfolio to too much fixed-income risk
Correct answer: It may not be sustainable over a 30+ year retirement in low-return environments
The 4% rule was derived from historical US market data and may fail in prolonged low-return or high-inflation environments, especially over retirements lasting more than 30 years.
Question 6: An 80-year-old client with moderate cognitive decline should be assessed for which planning concern FIRST?
- Roth conversion opportunities
- Decision-making capacity and the need for a durable power of attorney (Correct answer)
- Aggressive growth investments to outpace inflation
- Reducing estate size through charitable giving
Correct answer: Decision-making capacity and the need for a durable power of attorney
Assessing decision-making capacity and ensuring legal documents like a durable power of attorney are in place is the most urgent planning priority for a client with cognitive decline.
Question 7: Which type of trust is commonly used to provide for a surviving spouse while preserving assets for children from a prior marriage?
- Spendthrift trust
- Qualified Terminable Interest Property (QTIP) trust (Correct answer)
- Charitable remainder trust
- Special needs trust
Correct answer: Qualified Terminable Interest Property (QTIP) trust
A QTIP trust provides income to a surviving spouse for life while the grantor controls who ultimately inherits the remaining assets, often protecting children from a prior marriage.
CFG Financial Planning for Older Adults 3
Which of the following is a key feature of a reverse mortgage (HECM)?