Retirement Planning Flashcards

A client is evaluating long-term care insurance. Which benefit feature provides the greatest inflation protection over a 20-year retirement?

Answer: 5% compound inflation protection

5% compound inflation protection doubles the daily benefit roughly every 14 years, providing the strongest hedge against rising long-term care costs over a lengthy retirement.

Under the pro-rata rule, when does a Roth IRA conversion become fully tax-free?

Answer: When the client has no other traditional IRA balances

The pro-rata rule aggregates all traditional IRA balances to determine the taxable portion of a conversion; a conversion is fully tax-free only if all pre-tax IRA dollars have been eliminated.

Which Monte Carlo simulation output metric is most commonly used to assess retirement plan sustainability?

Answer: Probability of success (not running out of money)

The probability of success—the percentage of simulated scenarios in which the portfolio lasts the full retirement horizon—is the primary Monte Carlo metric for retirement sustainability.

A 401(k) plan that passes the ADP test allows higher-paid employees to contribute more. What does ADP stand for?

Answer: Actual Deferral Percentage

ADP stands for Actual Deferral Percentage; the test compares average deferrals of highly compensated employees to non-highly compensated employees to prevent discrimination.

What is a primary disadvantage of electing Social Security benefits at age 62 compared to waiting until full retirement age?

Answer: Benefits are permanently reduced by up to 30% for those with a FRA of 67

Claiming at 62 with a FRA of 67 results in a permanent 30% reduction in monthly benefits, and this reduction applies for the rest of the beneficiary's life.

A client rolled over a 401(k) to an IRA and now wants to contribute to that IRA. What rule applies?

Answer: The client may still make regular IRA contributions subject to annual limits and income rules

Rolling funds into an IRA does not affect the client's ability to make regular annual contributions; standard eligibility rules (earned income, income limits for Roth) still apply independently.

Which of the following describes the 'glide path' in a target-date retirement fund?

Answer: The automatic shift from higher equity to higher fixed-income allocation as the target date approaches

A glide path is the pre-determined gradual shift from growth-oriented equities toward capital-preserving fixed income as the investor approaches and enters retirement.