FFC Retirement and Estate Planning Flashcards

What is the 'sequence of returns risk' that financial coaches must address with clients near or in retirement?

Answer: The risk that poor investment returns early in retirement can permanently deplete a portfolio even if long-term averages are acceptable

Sequence of returns risk occurs when large losses early in retirement, combined with ongoing withdrawals, reduce the portfolio base so severely that later gains cannot fully recover it.

Which estate planning document specifies an individual's wishes regarding life-sustaining medical treatment if they become unable to communicate?

Answer: Advance healthcare directive (living will)

An advance healthcare directive or living will outlines a person's wishes for end-of-life medical care and may also designate a healthcare proxy, ensuring their preferences are honored.

A 55-year-old client separates from their employer. Under which rule can they take penalty-free distributions from their 401(k) in that plan?

Answer: Rule of 55

The Rule of 55 allows employees who separate from service at age 55 or older to take penalty-free distributions from that employer's 401(k) plan, though ordinary income tax still applies.

What is the primary purpose of a 'stretch IRA' strategy prior to the SECURE Act of 2019?

Answer: To allow non-spouse beneficiaries to take RMDs over their own life expectancy, prolonging tax-deferred growth

Before the SECURE Act, non-spouse beneficiaries could 'stretch' IRA distributions over their own life expectancy, maximizing tax-deferred growth; the SECURE Act largely eliminated this by requiring full distribution within 10 years.

Which strategy allows a retiree to lock in predictable income for a portion of their retirement while keeping the remainder invested for growth?

Answer: Bucket strategy

The bucket strategy divides assets into short-term (cash/stable), medium-term, and long-term (growth) segments, providing predictable near-term income while allowing long-term assets to grow.

When a financial fitness coach reviews a client's estate plan, why is it critical to periodically update beneficiary designations on retirement accounts and life insurance?

Answer: Because outdated designations can result in assets passing to unintended recipients, overriding the current will

Beneficiary designations supersede will instructions; outdated forms can inadvertently leave assets to ex-spouses, deceased individuals, or bypass intended heirs, creating legal and financial complications.