CRPC 2025 LATEST UPDATE
Diversification - ANSWER Acquiring assets with low or negative correlations to each
other with the goal of lowering overall risk
Correlation - ANSWER - a relative measure of the degree to which the returns of two
assets move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Asset allocation - ANSWER - the apportioning of available funds among a number of
asset classes in a way that meets the needs of a particular client, dampens the effects
of periodic market fluctuations, and meets investment goals
Four steps in the asset allocation process - ANSWER 1) select asset classes to be
represented
2) determine the percentage that each asset class should represent in the total portfolio
3) Select individual securities
4) Review and rebalance
Strategic Asset Allocation - ANSWER - determine asset mix that provides optimal
balance of expected risk and ROR
- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Tactical Asset Allocation - ANSWER - used to develop short term strategies to exploit
changes in market conditions
- ofter viewed as a contrarian strategy
- periodic revisions of asset mix; moving funds from over valued investments to
undervalued investments
- market timing strategy
Core-Satellite asset allocation - ANSWER 70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector funds or
alt investments like hedge funds
Contrarian Strategy - ANSWER
Dollar-Cost averaging - ANSWER - investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - ANSWER Ratio of 1= fair value
Ratio > 1= overvalued
,Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
Bond Investment strategies (2) - ANSWER 1) Ladder: Owning equal amounts of bonds
along with maturities of equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10
year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex. 100k of
bonds with 10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20 year maturities
Systematic Risk - ANSWER P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured - ANSWER - having 10 years of employment covered by
social security; expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
- fully insured workers are also eligible for disability if he has earned at least 20 work
credits in last 10 years
Social Security- currently insured - ANSWER - individual must has at least 6 quarters of
coverage in the 13-quarter period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are available if a
worker is only currently insured at death
Components of SS calculation - ANSWER - age he starts
- earnings history
SS calculation before full retirement age - ANSWER - Payment reduced by 5/9th of 1%
for each month filed before FRA, up to 36 months
- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36
months
SS calculation after full retirement age - ANSWER - Payment increases by about 8%
each year they delay, until maximum year 70
- actual math is 2/3 for each month
Social Security milestones - ANSWER Ages
50: disabled survivors can start receiving benefits
60: nondisabled survivors can start receiving
62: earliest one can start receiving benefits at reduced rate
65-67: FRA, depending on birth year
70: delayed retirement age
,Social Security income cap - ANSWER $15,720
- Those who are under FRA and working will lose $1 SS benefit for every $2 they earn
above $15,720
- At FRA it is reduced to $1 for every $3 earned
After FRA there is no reduction
Max provisional income for SS - ANSWER Single or head of househouse:
Tax-free if provisional income is less than 25k
Filing jointly:
Tax free if provisional income is less than 32k
Provisional income - ANSWER Provisional income=AGI(excluding SS) +Nontaxable
interest(muni bonds) + 1/2(SS benefit)
Single provisional income SS taxable % - ANSWER 25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable % - ANSWER 32k-44k: 50%
44k+:85%
maximum taxable SS amount - ANSWER 85% of Total SS benefit
Spousal benefit - ANSWER - Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - ANSWER Payroll taxes; FICA
What is the FICA tax; how is it split up - ANSWER 15.3%; The employer and employee
each pay 6.2% for old-age, survivors and disability insurance (OASDI) and 1.45% each
for hospital insurance
Social Security Wage Base - ANSWER $118,500
Covered employment - ANSWER Any position that participates in social security
system
Excluded
- Railroad employees
- Fed gov employees hired before 1984
Average SS benefit - ANSWER $1300 pm
Max benefit - ANSWER $2639 pm
Quarter of Coverage - ANSWER earned after $1260 of earnings in year
- most you can earn in 1 year is 4 credits in year
, = $5040 in year
need 40 quarters of credit
Fully insured - ANSWER Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured - ANSWER have earned at least 6 credits during previous 13
quarters before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings - ANSWER used to determine the amount of ss you
will receive
- TOP 35 years of earnings/420 (months in 35 years) =AIME
** if client doesn't have 35 years, any missed years will be factored as 0's
Full Retirement Age (FRA) - ANSWER born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
Primary Insurance Amount (PIA) - ANSWER Benefit received at full retirement age
- higher earners receive a smaller percentage of their AIME than low-wage earners-
smaller "replacement rate"
- Annual COLA based on CPI
IRA statutory requirements - ANSWER - individual must have compensation (earned
income)
- must be established exclusively for an individual
- must be established as a custodial account or a trust set up in the US
- documents must be in writing
- contributions must be made in cash
- max contribution cannot exceed 100% of compensation or 5500
- contributions for given year must be made before April 15th tax deadline
- cannot be invested in life insurance
- RMDs must begin by april 1 in the year following turning 70.5
Penalty tax on excess contribution to IRA - ANSWER - 6% penalty tax unless excess
contribution and its earnings are withdrawn by tax return filing due date
Single taxpayer IRA phase out range; if the individual is an active participant in a
company-maintained retirement plan - ANSWER $61,000-$71,000
Allowable IRA deduction limit equation - ANSWER IRA contribution limit x ((Upper
Limit-AGI)/phaseout range)
Joint tax filer ira phase out range; if both are active participants - ANSWER 98k-118k
Diversification - ANSWER Acquiring assets with low or negative correlations to each
other with the goal of lowering overall risk
Correlation - ANSWER - a relative measure of the degree to which the returns of two
assets move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Asset allocation - ANSWER - the apportioning of available funds among a number of
asset classes in a way that meets the needs of a particular client, dampens the effects
of periodic market fluctuations, and meets investment goals
Four steps in the asset allocation process - ANSWER 1) select asset classes to be
represented
2) determine the percentage that each asset class should represent in the total portfolio
3) Select individual securities
4) Review and rebalance
Strategic Asset Allocation - ANSWER - determine asset mix that provides optimal
balance of expected risk and ROR
- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Tactical Asset Allocation - ANSWER - used to develop short term strategies to exploit
changes in market conditions
- ofter viewed as a contrarian strategy
- periodic revisions of asset mix; moving funds from over valued investments to
undervalued investments
- market timing strategy
Core-Satellite asset allocation - ANSWER 70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector funds or
alt investments like hedge funds
Contrarian Strategy - ANSWER
Dollar-Cost averaging - ANSWER - investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - ANSWER Ratio of 1= fair value
Ratio > 1= overvalued
,Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
Bond Investment strategies (2) - ANSWER 1) Ladder: Owning equal amounts of bonds
along with maturities of equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10
year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex. 100k of
bonds with 10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20 year maturities
Systematic Risk - ANSWER P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured - ANSWER - having 10 years of employment covered by
social security; expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
- fully insured workers are also eligible for disability if he has earned at least 20 work
credits in last 10 years
Social Security- currently insured - ANSWER - individual must has at least 6 quarters of
coverage in the 13-quarter period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are available if a
worker is only currently insured at death
Components of SS calculation - ANSWER - age he starts
- earnings history
SS calculation before full retirement age - ANSWER - Payment reduced by 5/9th of 1%
for each month filed before FRA, up to 36 months
- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36
months
SS calculation after full retirement age - ANSWER - Payment increases by about 8%
each year they delay, until maximum year 70
- actual math is 2/3 for each month
Social Security milestones - ANSWER Ages
50: disabled survivors can start receiving benefits
60: nondisabled survivors can start receiving
62: earliest one can start receiving benefits at reduced rate
65-67: FRA, depending on birth year
70: delayed retirement age
,Social Security income cap - ANSWER $15,720
- Those who are under FRA and working will lose $1 SS benefit for every $2 they earn
above $15,720
- At FRA it is reduced to $1 for every $3 earned
After FRA there is no reduction
Max provisional income for SS - ANSWER Single or head of househouse:
Tax-free if provisional income is less than 25k
Filing jointly:
Tax free if provisional income is less than 32k
Provisional income - ANSWER Provisional income=AGI(excluding SS) +Nontaxable
interest(muni bonds) + 1/2(SS benefit)
Single provisional income SS taxable % - ANSWER 25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable % - ANSWER 32k-44k: 50%
44k+:85%
maximum taxable SS amount - ANSWER 85% of Total SS benefit
Spousal benefit - ANSWER - Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - ANSWER Payroll taxes; FICA
What is the FICA tax; how is it split up - ANSWER 15.3%; The employer and employee
each pay 6.2% for old-age, survivors and disability insurance (OASDI) and 1.45% each
for hospital insurance
Social Security Wage Base - ANSWER $118,500
Covered employment - ANSWER Any position that participates in social security
system
Excluded
- Railroad employees
- Fed gov employees hired before 1984
Average SS benefit - ANSWER $1300 pm
Max benefit - ANSWER $2639 pm
Quarter of Coverage - ANSWER earned after $1260 of earnings in year
- most you can earn in 1 year is 4 credits in year
, = $5040 in year
need 40 quarters of credit
Fully insured - ANSWER Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured - ANSWER have earned at least 6 credits during previous 13
quarters before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings - ANSWER used to determine the amount of ss you
will receive
- TOP 35 years of earnings/420 (months in 35 years) =AIME
** if client doesn't have 35 years, any missed years will be factored as 0's
Full Retirement Age (FRA) - ANSWER born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
Primary Insurance Amount (PIA) - ANSWER Benefit received at full retirement age
- higher earners receive a smaller percentage of their AIME than low-wage earners-
smaller "replacement rate"
- Annual COLA based on CPI
IRA statutory requirements - ANSWER - individual must have compensation (earned
income)
- must be established exclusively for an individual
- must be established as a custodial account or a trust set up in the US
- documents must be in writing
- contributions must be made in cash
- max contribution cannot exceed 100% of compensation or 5500
- contributions for given year must be made before April 15th tax deadline
- cannot be invested in life insurance
- RMDs must begin by april 1 in the year following turning 70.5
Penalty tax on excess contribution to IRA - ANSWER - 6% penalty tax unless excess
contribution and its earnings are withdrawn by tax return filing due date
Single taxpayer IRA phase out range; if the individual is an active participant in a
company-maintained retirement plan - ANSWER $61,000-$71,000
Allowable IRA deduction limit equation - ANSWER IRA contribution limit x ((Upper
Limit-AGI)/phaseout range)
Joint tax filer ira phase out range; if both are active participants - ANSWER 98k-118k
