CFG Financial Planning for Older Adults 5 — Questions and Answers
Question 1: Which of the following documents grants a trusted person legal authority to make financial decisions on behalf of an incapacitated older adult?
- Health care proxy
- Living will
- Durable power of attorney (Correct answer)
- Revocable living trust
Correct answer: Durable power of attorney
A durable power of attorney remains in effect (or becomes effective) during incapacity, allowing the named agent to manage financial affairs on the principal's behalf.
Question 2: An 80-year-old client is in very poor health and has a large traditional IRA. Which strategy may be MOST advantageous from an estate planning perspective?
- Convert the entire IRA to a Roth IRA immediately
- Name a charity as the IRA beneficiary to avoid income tax on distributions (Correct answer)
- Accelerate required minimum distributions to reduce the taxable estate
- Roll the IRA into a 401(k) to delay RMDs
Correct answer: Name a charity as the IRA beneficiary to avoid income tax on distributions
Naming a qualified charity as IRA beneficiary eliminates income tax on distributions because charities are tax-exempt, making IRAs one of the most tax-efficient assets to leave to charity.
Question 3: The SECURE 2.0 Act increased the required beginning date for RMDs. As of 2023, at what age must most individuals begin taking RMDs?
- 70½
- 72
- 73 (Correct answer)
- 75
Correct answer: 73
SECURE 2.0 increased the RMD starting age to 73 for individuals who turn 72 after December 31, 2022, with a further increase to 75 scheduled for 2033.
Question 4: Which type of annuity provides a guaranteed income stream for the life of the annuitant with NO remaining value for heirs upon death?
- Variable annuity with death benefit rider
- Life-only (straight life) annuity (Correct answer)
- Period-certain annuity
- Joint and survivor annuity
Correct answer: Life-only (straight life) annuity
A life-only annuity pays income for the annuitant's lifetime and ceases upon death, with no residual value, providing the highest monthly payment but no legacy.
Question 5: Which age-related physical change most commonly affects an older adult's ability to tolerate financial stress and make complex decisions?
- Decreased muscle mass
- Reduced processing speed and working memory (Correct answer)
- Diminished hearing acuity
- Lower bone density
Correct answer: Reduced processing speed and working memory
Age-related declines in processing speed and working memory are the cognitive changes most directly linked to difficulty with complex financial decision-making.
Question 6: A client aged 64 wants to retire but needs health insurance until Medicare eligibility at 65. Which option is MOST appropriate?
- Apply for Medicaid immediately
- Purchase COBRA continuation coverage or an ACA marketplace plan (Correct answer)
- Delay retirement until Medicare begins
- Use a health savings account (HSA) as the sole coverage
Correct answer: Purchase COBRA continuation coverage or an ACA marketplace plan
COBRA continuation or ACA marketplace plans are the standard bridge coverage options for early retirees who need health insurance before Medicare eligibility at 65.
Question 7: What is 'age banding' in the context of long-term care insurance pricing?
- Grouping policyholders by health status for underwriting purposes
- Setting premium rates based on the age at which the policy is purchased (Correct answer)
- Adjusting benefit payouts based on the claimant's current age
- Categorizing care facilities by quality tier for benefit eligibility
Correct answer: Setting premium rates based on the age at which the policy is purchased
Age banding means premiums for long-term care insurance are determined by the applicant's age at policy purchase, with younger buyers paying significantly lower premiums.
CFG Financial Planning for Older Adults 5
Which of the following documents grants a trusted person legal authority to make financial decisions on behalf of an incapacitated older adult?