TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING
11th Edition
College Course Materials
Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®
Associate Professor
CFP® Program Director
Personal Financial Planning Department
University of Missouri-Columbia
Please Note: Correct answers for each question are indicated in bold type. After each question,
the number of the page containing information relevant to answering the question is given. When a
calculation is necessary or the reasoning behind a given answer may be unclear, a brief rationale
for the correct answer is also given.
Part A: Retirement Planning
Government Benefits
Chapter 2: Planning for Retirement Needs
True/False
2.1
The amount that a client has invested in real estate is not included in an assessment of
retirement income need.
2.2
Retirement planning must consider current or future alimony and child support payments.
2.3
When helping a client plan for retirement, it is far more important to use an estimation
process that is accurate as opposed to one that the client understands.
Answer:
2.1
2.2
False [p. 18]
True [ p.18 – payment of liabilities reduces the amount of funds available for retirement
so these must be considered when estimating funds available for retirement savings]
False [p. 19 – although it is important to be as accurate as possible, there is no perfect
method. It is better to use a simple approach that a client understands and thus will be
more likely to implement than a more accurate method that simply leaves the client
bewildered.]
2.3
Multiple Choice
2.4
Which of the following would not be included in a retirement ‘fact finder’?
a.
b.
c.
d.
e.
balance in profit sharing plan
expected Social Security income
amounts invested in mutual funds
amount of last year’s tax refund
client goals and objectives in retirement
Answer: D [p. 18]
2.5
Which of the following is not an acceptable method for overcoming a retirement shortfall?
a. cut back on expenses before retirement
b. invest a large portion of a retirement portfolio in a high risk investment to obtain a
higher return
c. increase pre-retirement savings
d. retire later
e. tap into home equity
Answer: B [ p. 22 – High risk investments can lead to large losses, making a large investment in
them inappropriate in a retirement account. Also, having a large portion of a portfolio invested in
any one asset violates the rule of ‘asset diversification’ in prudent investing.]
Application
2.6
Cathy Atwater is 60, 5 years away from retirement. The most accurate method for her to
use in calculating her income needs during retirement is
a. expense method
b. replacement ratio method
Answer: A [pp. 19-20 – The closer a client is to retirement, the more accurate a count of current
expenses will be.]
2.7
Gene and Norma Alton are both age 65 and will retire later this year. Their financial
planner evaluated their financial situation and found that the Altons are going to be
approximately $100 per month short of what they need to sustain their desired lifestyle.
The Altons should consider:
a. adjusting their expenses downward before and during retirement and saving more
b. placing the bulk of their retirement assets into one or two risky assets with good
potential for a high yield
c. continuing to work and contribute to a retirement plan for a few more years
d. a and b
e. a and c
Answer: E [p. 22]
2.8
William Best is completing a retirement plan for a client. Which of the following sources of
his client’s income would William ignore when estimating client’s income sources?
a.
b.
c
d.
e.
current and future asset income
pension income from a former employer
rent from a duplex owned by the client
income tax refunds
Social Security income
Answer: D [p. 20 – Although they constitute a flow of dollars into the client’s hands, income tax
refunds are typically quite small and simply represent a refund rather than income, per se.]
2.9
Tom Closten is the owner of a closely held business. Tom’s financial planner told Tom that
developing a retirement plan for him will be much simpler than developing a retirement
plan for non-business owners who do not have the bulk of their assets tied up in one place.
The statement of Tom’s financial planner is:
a. true
b. false
Answer: B [p. 18 – Retirement planning for a small business owner is very complex.]