PFS Retirement Planning 5

Question 1

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

Accepted Answer

5% compound inflation protection

Answer

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.

Question 2

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

Accepted Answer

When the client has no other traditional IRA balances

Answer

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.

Question 3

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

Accepted Answer

Probability of success (not running out of money)

Answer

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.

Question 4

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

Accepted Answer

Actual Deferral Percentage

Answer

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

Question 5

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

Accepted Answer

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

Answer

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.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Retirement Planning 5