FREE CRPC Retirement Income and Management Questions and Answers

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What type of insurance is referred to as "pure" life insurance?

Correct! Wrong!

Explanation:
Term life insurance is often referred to as "pure" life insurance because it provides coverage for a specific term or period, such as 10, 20, or 30 years, without any cash value accumulation or investment component. It offers a death benefit payout to the beneficiaries if the insured individual dies within the term of the policy. Term life insurance is considered the simplest and most affordable form of life insurance, providing protection for a specified period at a fixed premium.

What SHOULD have an impact on your decision of when to receive Social Security benefits?

Correct! Wrong!

Explanation:
The decision of when to receive Social Security benefits should be influenced by factors such as the income benefit provided by Social Security, additional sources of income available (such as pensions, retirement savings, or employment income), and the condition of health. These factors can affect the overall financial stability and well-being during retirement, making them important considerations when deciding when to start receiving Social Security benefits.

What is a correct statement about the effect that income and asset ownership have on Social Security benefit payments?

Correct! Wrong!

Explanation:
Unearned income, such as income from investment assets, does not affect the amount of Social Security benefits paid to a worker. Similarly, the value of assets owned by the worker does not affect eligibility for Social Security benefits. Social Security benefits are primarily based on the worker's earnings history and contributions to the Social Security system.

When deciding how much to contribute to a Roth IRA, what is something you must always remember to consider about your client?

Correct! Wrong!

Explanation:
When deciding how much to contribute to a Roth IRA, it is crucial to consider the client's adjusted gross income (AGI). The IRS imposes income limits on who can contribute to a Roth IRA, and contributions may be phased out or disallowed entirely if the client's AGI exceeds certain thresholds. Therefore, understanding the client's AGI is essential in determining their eligibility and contribution limits for a Roth IRA.

What is a characteristic of a TIPS (Treasury Inflation-Protected Security)?

Correct! Wrong!

Explanation:
A key characteristic of TIPS is that their returns are tied to the consumer price index (CPI), which measures inflation. This means that the principal value of TIPS adjusts with inflation, providing protection against inflation. Additionally, any increase in principal is taxable each year, unless the TIPS are held in a tax-deferred account. TIPS are sold at par value and have maturities of up to 30 years.

What should have no impact on your decision of when to receive Social Security benefits?

Correct! Wrong!

Explanation:
The earnings of your dependents, such as your spouse or children, should not impact your decision of when to receive Social Security benefits. Social Security benefits are primarily based on your own earnings history and contributions to the system. Your dependents' income does not directly affect the amount of benefits you receive. Therefore, it should not be a factor in determining when to claim your benefits.

Regarding longevity annuities, why are payments larger than those received from a regular annuity?

Correct! Wrong!

Explanation:
Payments from longevity annuities are typically larger than those received from a regular annuity because of the delay in receipt of the actual payments. With a longevity annuity, you start receiving payments at a later age, often in your 80s or 90s, which allows for the accumulation of a larger sum of money over time. This delay in payments results in larger payouts when the annuity payments finally begin.

What is a deductible IRA?

Correct! Wrong!

Explanation:
A deductible IRA allows you to deduct your contributions on your tax return, which can lower your taxable income for the year. This deduction can result in a lower tax bill or a higher tax refund, depending on your tax situation. Deductible IRAs are subject to certain eligibility requirements and contribution limits, and withdrawals in retirement are typically taxed as ordinary income.

Net short-term capital gains are treated as what type of income?

Correct! Wrong!

Explanation:
Net short-term capital gains are treated as ordinary income for tax purposes. They are subject to the taxpayer's regular marginal tax rate, which means they are taxed at the same rate as other types of income such as wages or interest. Unlike long-term capital gains, which may qualify for preferential tax rates, short-term capital gains do not receive special tax treatment and are taxed at ordinary income tax rates.

What does Jensen's alpha tell you?

Correct! Wrong!

Explanation:
Jensen's alpha measures the performance of an investment manager by comparing the actual returns with the expected returns, based on the risk taken. A positive alpha indicates that the manager has outperformed the market on a risk-adjusted basis, while a negative alpha indicates underperformance.

Reverse mortgages can be used for what purpose?

Correct! Wrong!

Explanation:
Reverse mortgages allow homeowners aged 62 or older to borrow against the equity in their homes, converting a portion of their home equity into cash. This lump sum of cash can be used for various purposes, including funding long-term care expenses. Reverse mortgages can provide seniors with additional financial flexibility to cover healthcare costs, home modifications, or other expenses associated with aging.

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