AAMS Module 6 Solved 100% Correct
A client can best estimate his or her old age Social Security benefits by - ANSWER-
obtaining an estimate of future benefits directly from the Social Security Administration.
The Social Security Administration is the best source for an estimate of Social Security
old-age benefits.
Advantages of tax deferred retirement arrangements - ANSWER-Clients can invest
more within tax-deferred arrangements because the amount deposited (with some
exceptions) is not currently subject to income taxation; investments grow more quickly
because the earnings on investments in such plans are tax deferred; and the investor
may be in a lower tax bracket when the funds are withdrawn and are subject to income
taxation during retirement
Disadvantages to using tax deferred arrangements - ANSWER-limitations on the types
of investments offered and allowed; generally, the entire distribution will be taxed as
ordinary income (although Roth IRA distributions can be tax-free and nondeductible IRA
distributions are taxed only on earnings received) even if some of it came from capital
gains (that is, from appreciation rather than from reinvested income; and tax penalties
are charged if withdrawals are too early or too late; distributions must start as
designated in the IRC, regardless of need. With IRAs, SEPs, or SIMPLE IRAs,
distributions must begin by April 1 following the year the owner attains age 70 1/2. With
qualified plans or 403b plans, distributions must begin by April 1 following the later of
the participant attaining age 70 1/2, or retirement (For 5% owners, distributions from
qualified plans must begin by April 1 following the year the owner attains age 70 1/2)
Explain how some economists view the effect of inflation on a retired person's income
needs, focusing on the areas of housing and medical care - ANSWER-Some
economists believe that inflation's impact is less severe on the elderly population than
on the younger population. They reason that housing, which is a major component of
inflation measures, is largely paid for prior to retirement, and that older people tend to
sell their homes at higher prices rather than purchase homes at higher prices. They also
note that medicare benefits, like social security old age benefits, are adjusted with cost
of living increases. However this ignores the fact that Medicare deductibles and co
payment amounts increase for the medicare participant and that there are many
coverage gaps in medicare. Most long term care for example, is not covered by
Medicare.
How are preretirement income replacement percentages used to assess a client's
retirement needs - ANSWER-Typically households at most income levels need 70% to
80% (although some advisers are currently recommending up to 100% but generally it
is about 85%) of preretirement income to maintain their standard of living during
retirement. Studies conducted during the last decade indicate that at higher income
levels, replacement percentages to be filled from the retiree's retirement plan and
A client can best estimate his or her old age Social Security benefits by - ANSWER-
obtaining an estimate of future benefits directly from the Social Security Administration.
The Social Security Administration is the best source for an estimate of Social Security
old-age benefits.
Advantages of tax deferred retirement arrangements - ANSWER-Clients can invest
more within tax-deferred arrangements because the amount deposited (with some
exceptions) is not currently subject to income taxation; investments grow more quickly
because the earnings on investments in such plans are tax deferred; and the investor
may be in a lower tax bracket when the funds are withdrawn and are subject to income
taxation during retirement
Disadvantages to using tax deferred arrangements - ANSWER-limitations on the types
of investments offered and allowed; generally, the entire distribution will be taxed as
ordinary income (although Roth IRA distributions can be tax-free and nondeductible IRA
distributions are taxed only on earnings received) even if some of it came from capital
gains (that is, from appreciation rather than from reinvested income; and tax penalties
are charged if withdrawals are too early or too late; distributions must start as
designated in the IRC, regardless of need. With IRAs, SEPs, or SIMPLE IRAs,
distributions must begin by April 1 following the year the owner attains age 70 1/2. With
qualified plans or 403b plans, distributions must begin by April 1 following the later of
the participant attaining age 70 1/2, or retirement (For 5% owners, distributions from
qualified plans must begin by April 1 following the year the owner attains age 70 1/2)
Explain how some economists view the effect of inflation on a retired person's income
needs, focusing on the areas of housing and medical care - ANSWER-Some
economists believe that inflation's impact is less severe on the elderly population than
on the younger population. They reason that housing, which is a major component of
inflation measures, is largely paid for prior to retirement, and that older people tend to
sell their homes at higher prices rather than purchase homes at higher prices. They also
note that medicare benefits, like social security old age benefits, are adjusted with cost
of living increases. However this ignores the fact that Medicare deductibles and co
payment amounts increase for the medicare participant and that there are many
coverage gaps in medicare. Most long term care for example, is not covered by
Medicare.
How are preretirement income replacement percentages used to assess a client's
retirement needs - ANSWER-Typically households at most income levels need 70% to
80% (although some advisers are currently recommending up to 100% but generally it
is about 85%) of preretirement income to maintain their standard of living during
retirement. Studies conducted during the last decade indicate that at higher income
levels, replacement percentages to be filled from the retiree's retirement plan and
