CRPC Retirement Needs Analysis 2 — Questions and Answers
Question 1: A 58-year-old client wants to retire at 62 with $80,000/year in today's dollars. Using a 3% inflation rate, what is the approximate income needed at retirement?
- $80,000
- $87,000
- $90,000 (Correct answer)
- $95,000
Correct answer: $90,000
Inflating $80,000 at 3% for 4 years yields approximately $90,061 using the future value formula.
Question 2: Which method of estimating retirement income needs assumes spending will decrease significantly in later retirement years?
- Straight-line method
- Declining spending method (Correct answer)
- Wage replacement ratio method
- Present value annuity method
Correct answer: Declining spending method
The declining spending method accounts for the observed pattern of reduced discretionary spending in later retirement years.
Question 3: A client's Social Security benefit is $2,000/month at age 67. If she claims at age 62, the benefit is reduced by approximately what percentage?
- 20%
- 25%
- 30% (Correct answer)
- 35%
Correct answer: 30%
Claiming Social Security 5 years early (at 62 vs. FRA of 67) reduces the benefit by approximately 30%.
Question 4: When projecting retirement needs for a married couple, a CRPC practitioner should primarily base longevity planning on which life expectancy?
- The husband's life expectancy
- The wife's life expectancy
- The longer of the two life expectancies (Correct answer)
- The average of the two life expectancies
Correct answer: The longer of the two life expectancies
Planning should cover the longer of the two life expectancies to ensure income lasts for the surviving spouse.
Question 5: What is the primary purpose of a 'Monte Carlo simulation' in retirement planning?
- To calculate exact tax liabilities in retirement
- To model the probability of portfolio success under varied market conditions (Correct answer)
- To determine optimal Social Security claiming ages
- To project Medicare premium increases
Correct answer: To model the probability of portfolio success under varied market conditions
Monte Carlo simulations run thousands of scenarios with varying returns to estimate the probability that a portfolio will sustain withdrawals.
Question 6: A client needs $1.5 million at retirement to fund income needs. She currently has $400,000 saved and will retire in 20 years. Assuming 7% annual growth, how much must she save annually?
- Approximately $18,000
- Approximately $24,000
- Approximately $29,000 (Correct answer)
- Approximately $35,000
Correct answer: Approximately $29,000
After growing the existing $400,000 at 7% for 20 years (~$1,547,000 exceeds the goal alone, but the shortfall depends on the exact future value), the additional annual savings needed is approximately $29,000.
Question 7: Which of the following best describes the 'replacement ratio' approach to estimating retirement income needs?
- Projecting total lifetime medical expenses
- Estimating retirement income as a percentage of pre-retirement income (Correct answer)
- Calculating the present value of all future Social Security benefits
- Matching portfolio withdrawals to the CPI each year
Correct answer: Estimating retirement income as a percentage of pre-retirement income
The replacement ratio approach estimates the percentage of pre-retirement income needed to maintain a similar lifestyle in retirement, typically 70–90%.
CRPC Retirement Needs Analysis 2
A 58-year-old client wants to retire at 62 with $80,000/year in today's dollars.
Using a 3% inflation rate, what is the approximate income needed at retirement?