Retirement Planning & Income Strategies Flashcards

Under a joint-and-survivor annuity paying 100% to survivor, the initial payment compared to a life-only annuity on the same annuitant will be:

Answer: Lower, because the insurer must fund a potentially longer payment period

Covering two lives extends the expected payment duration, so the insurer reduces the initial monthly payment to maintain actuarial equivalence.

A client converts a traditional IRA to a Roth IRA at age 62, planning to retire at 67. The 5-year rule requires that the Roth IRA be at least 5 years old before qualified distributions can be taken tax-free. When can this client take qualified tax-free distributions?

Answer: At age 67, provided 5 years have passed since the conversion

Each Roth conversion starts a separate 5-year clock; the converted amount qualifies for tax-free earnings distributions only after that 5-year period and age 59½.

Which withdrawal sequencing strategy minimizes lifetime tax liability for a retiree with taxable, tax-deferred, and tax-free accounts?

Answer: Draw taxable accounts first, then tax-deferred, then Roth

Conventional wisdom sequences withdrawals: taxable (capital gains rates) first, then traditional IRA/401(k) (ordinary income), then Roth last (tax-free), to minimize overall tax burden.

An annuity with a guaranteed minimum withdrawal benefit (GMWB) rider differs from a GLWB rider primarily in that GMWB:

Answer: Guarantees return of principal through withdrawals but does not guarantee lifetime income

A GMWB guarantees the owner can withdraw at least 100% of premiums paid over time, but income stops once principal is returned; a GLWB guarantees income for life even after the account is depleted.

Healthcare cost inflation in retirement planning is typically projected at a rate that is:

Answer: Higher than general CPI inflation, often estimated at 5–7% annually

Healthcare costs historically inflate faster than general CPI, commonly estimated at 5–7% per year, making them one of the largest financial risks in retirement.

A client who retires at 55 and needs income before age 59½ can avoid the 10% early withdrawal penalty from a 401(k) under which IRS rule?

Answer: The age-55 rule allowing penalty-free 401(k) withdrawals after separation from service

The age-55 rule (IRC §72(t)(2)(A)(v)) allows penalty-free withdrawals from a 401(k) if the participant separates from service in or after the year they turn 55.

A retiree with a $2,000/month fixed annuity payment and 3% annual inflation will see their purchasing power cut in half in approximately how many years?

Answer: 24 years

Using the Rule of 72, dividing 72 by the 3% inflation rate gives approximately 24 years for purchasing power to be halved.