Retirement Planning & Strategies Flashcards

A client has both a pension (defined benefit plan) and a 401(k). Which retirement income planning concept describes using the pension as a 'floor' of guaranteed income?

Answer: Floor-and-upside (or flooring) approach

The floor-and-upside approach uses guaranteed income sources (pension, Social Security, annuities) to cover essential expenses, while investment portfolios fund discretionary spending.

Under SECURE 2.0 Act (2022), to what age was the required beginning date for RMDs from traditional IRAs ultimately raised?

Answer: 73, with a further increase to 75 for those born in 1960 or later

SECURE 2.0 raised the RMD starting age to 73 for individuals born 1951–1959 and to 75 for those born 1960 or later.

A non-spouse beneficiary inherits a traditional IRA from someone who died in 2023. Under the 10-year rule, when must all funds be distributed?

Answer: By December 31 of the 10th year following the year of the original owner's death

The SECURE Act's 10-year rule requires non-eligible designated beneficiaries to fully distribute inherited IRA assets by December 31 of the 10th year after the owner's death.

Which strategy helps a retiree reduce income taxes by donating IRA distributions directly to charity without recognizing taxable income?

Answer: Qualified Charitable Distribution (QCD)

A Qualified Charitable Distribution (QCD) allows IRA owners age 70½+ to transfer up to $105,000 annually directly to charity, satisfying RMDs without the amount being included in taxable income.

A couple retires at 60 with no pension. Before Medicare eligibility at 65, what is typically their biggest financial risk to plan for?

Answer: Healthcare costs and the coverage gap before Medicare

The five-year gap between early retirement and Medicare eligibility (age 65) exposes retirees to high individual market health insurance premiums and out-of-pocket costs.

What is the primary advantage of using a 'dynamic withdrawal strategy' over a fixed-percentage withdrawal strategy in retirement?

Answer: It adjusts withdrawals based on portfolio performance, reducing the risk of depleting assets in poor markets

Dynamic withdrawal strategies (e.g., Guyton-Klinger guardrails) increase or decrease withdrawals in response to portfolio performance, extending portfolio longevity through market volatility.

When is it generally advantageous for a retiree to delay taking Social Security past age 62 and instead use portfolio withdrawals to cover expenses?

Answer: When the portfolio is large enough to sustain withdrawals and the retiree has average or above-average life expectancy

Delaying Social Security increases the guaranteed inflation-adjusted benefit by 6–8% per year; this 'bridge' strategy using portfolio assets is optimal when life expectancy supports collecting a larger benefit for more years.