CRPC
6 Step Retirement Planning Process (EGAD I Made it) - ANS-1. Establish and Define
the Client-Counselor Relationship
2. Gather Client Data, Including Goals and Expectations
3. Analyzing Client Information to Determine Retirement Savings Need
4. Develop and Present Financial Planning Recommendations and/or Alternatives
5. Implement the Financial Plan Recommendations
6. Monitor the Financial Plan Recommendations
3 Current Trends in Retirement Planning - ANS--Businesses today are less likely to
offer defined benefit (DB) plans
-Increased focus on planning for longevity
-Expansion of employer sponsored financial wellness initiatives
-Expansion of plan distribution options
Challenges associated with the shift from defined benefit to defined contribution plans -
ANS-risks are borne by plan participants/employees rather than sponsors/employer as
many employees have little or no financial expertise
What is used to construct the personal "statement of financial position" or "balance
sheet" as of a specific date - ANS-Assets, Liabilities, and Net Worth
What two qualities should retirement goals have to make them useful in planning? -
ANS-Specific (event, amount, date/time) & Prioritized (first goal, second goal...)
4 Steps for determining a retirement savings need are as follows: - ANS-1. Calculate
net annual retirement income need
2. Adjust income deficit for inflation over preretirement period
3. Determine total retirement fund needed
4. Determine savings amount needed- level and serial payments
Serial Payment is also known as: - ANS-Inflation adjusted annuity
Capital Utilization Approach - ANS-When all capital is used through retirement period
Inflation Adjusted Return Formula: - ANS-((1+Rate of Return)/(1+Inflation Rate)-1)x100
Capital Preservation Approach - ANS-Living off only the cash flow of an asset pool
,Retirement Calculations - ANS-Unless otherwise indicated, retirement income payments
are assumed BEG of year while savings to build the retirement fund are deposited at
the END of the year
If future lump sum payments already inflation adjusted, when calculating income
payments use: - ANS-level savings approach
When future lump sum payment is inflation adjusted but you want to calculate based off
a serial savings approach you need to: - ANS-1. deflate the lump sum needed at
retirement into today's dollars using the inflation rate as the discount rate
2. calculate the payment using the discounted lump sum from step 1 as a future value
and an inflation adjusted return as the interest rate
3. once payment has been solved, it will need to be increased by inflation rate in order
to arrive at the end of the first year payment
Method for realizing/solving several competing financial goals - ANS-Prioritize and
sequence them
Investment Policy is: - ANS-a coherent set of guidelines for managing financial assets
and is in line with a client's goals and the realities of investment markets. This policy
provides overarching guidance in the implementation of asset allocation, portfolio
management, and investment strategy
The purpose of investment policy is twofold: - ANS-1. to provide a foundation of goals,
time horizons, and constraints on which the client portfolio is constructed
2. To provide a basis for review, performance evaluation, and adaptation to changing
conditions
Attributes of a Sound Investment Policy: - ANS-Realistic and have a long term
perspective
Essential Elements of an Investment Policy: - ANS-GRASP:
Goals, Risk, Asset allocation, Strategies/suitable investments, Periodic review
Real Return - ANS-Rate of Return-Inflation Rate
Unsystematic Risk - ANS-can be effectively eliminated by portfolio diversification such
as business risk, financial risk, credit Risk, default risk, liquidity risk, marketability risk,
event risk
, Reinvestment and Call Risk - ANS-Example: bond issuers can refinance at a lower rate
than coupon rate and exercise provision leaving investor to reinvest at lower interest
rates. Bonds that are likely to be called are said to have call risk
The longer the time until maturity of a bond: - ANS-the more volatile it's price will be
Credit Risk (default risk) - ANS-The uncertainty about a bond issuer's ability to make all
its required payments.
Investment-Grade Ratings - ANS-Bonds with ratings BBB and above
Coupon Rate (fixed regardless of interest rate) - ANS-The coupon rate is calculated with
numerator as coupon payment and denominator as the face value of the bond
Yield (Changes with Interest rate) - ANS-The yield rate is calculated with numerator as
the coupon payment and denominator as the market price of the bond
Price changes in the bond due to interest rate changes is calculated by: - ANS-Bond's
duration x the change in interest rates
Inflation Risk is: - ANS-the risk that inflation will reduce the purchasing power of the
fixed-income and fixed-principal payments when they are received
3 ways to measure Yields on Bonds - ANS-1. Current yield (bond's annual
interest/current price)
2. Yield to Maturity (factors in yearly interest along with the difference between the
bond's current price and its value at maturity. Thus is the standard yield normally quoted
for bonds)
3. Yield to call (factors in the yearly interest until the bond is expected to be called along
with the difference between the bond's current price and its call price (the price the
issuer will pay to the bondholder if it calls the bond prior to maturity)).
Money Market Instruments - ANS-Debt instruments issued with maturities of one year or
less
Advantages of Cash Equivalents - ANS--Liquidity
-generally, safety of principal
-low or no price volatility
6 Step Retirement Planning Process (EGAD I Made it) - ANS-1. Establish and Define
the Client-Counselor Relationship
2. Gather Client Data, Including Goals and Expectations
3. Analyzing Client Information to Determine Retirement Savings Need
4. Develop and Present Financial Planning Recommendations and/or Alternatives
5. Implement the Financial Plan Recommendations
6. Monitor the Financial Plan Recommendations
3 Current Trends in Retirement Planning - ANS--Businesses today are less likely to
offer defined benefit (DB) plans
-Increased focus on planning for longevity
-Expansion of employer sponsored financial wellness initiatives
-Expansion of plan distribution options
Challenges associated with the shift from defined benefit to defined contribution plans -
ANS-risks are borne by plan participants/employees rather than sponsors/employer as
many employees have little or no financial expertise
What is used to construct the personal "statement of financial position" or "balance
sheet" as of a specific date - ANS-Assets, Liabilities, and Net Worth
What two qualities should retirement goals have to make them useful in planning? -
ANS-Specific (event, amount, date/time) & Prioritized (first goal, second goal...)
4 Steps for determining a retirement savings need are as follows: - ANS-1. Calculate
net annual retirement income need
2. Adjust income deficit for inflation over preretirement period
3. Determine total retirement fund needed
4. Determine savings amount needed- level and serial payments
Serial Payment is also known as: - ANS-Inflation adjusted annuity
Capital Utilization Approach - ANS-When all capital is used through retirement period
Inflation Adjusted Return Formula: - ANS-((1+Rate of Return)/(1+Inflation Rate)-1)x100
Capital Preservation Approach - ANS-Living off only the cash flow of an asset pool
,Retirement Calculations - ANS-Unless otherwise indicated, retirement income payments
are assumed BEG of year while savings to build the retirement fund are deposited at
the END of the year
If future lump sum payments already inflation adjusted, when calculating income
payments use: - ANS-level savings approach
When future lump sum payment is inflation adjusted but you want to calculate based off
a serial savings approach you need to: - ANS-1. deflate the lump sum needed at
retirement into today's dollars using the inflation rate as the discount rate
2. calculate the payment using the discounted lump sum from step 1 as a future value
and an inflation adjusted return as the interest rate
3. once payment has been solved, it will need to be increased by inflation rate in order
to arrive at the end of the first year payment
Method for realizing/solving several competing financial goals - ANS-Prioritize and
sequence them
Investment Policy is: - ANS-a coherent set of guidelines for managing financial assets
and is in line with a client's goals and the realities of investment markets. This policy
provides overarching guidance in the implementation of asset allocation, portfolio
management, and investment strategy
The purpose of investment policy is twofold: - ANS-1. to provide a foundation of goals,
time horizons, and constraints on which the client portfolio is constructed
2. To provide a basis for review, performance evaluation, and adaptation to changing
conditions
Attributes of a Sound Investment Policy: - ANS-Realistic and have a long term
perspective
Essential Elements of an Investment Policy: - ANS-GRASP:
Goals, Risk, Asset allocation, Strategies/suitable investments, Periodic review
Real Return - ANS-Rate of Return-Inflation Rate
Unsystematic Risk - ANS-can be effectively eliminated by portfolio diversification such
as business risk, financial risk, credit Risk, default risk, liquidity risk, marketability risk,
event risk
, Reinvestment and Call Risk - ANS-Example: bond issuers can refinance at a lower rate
than coupon rate and exercise provision leaving investor to reinvest at lower interest
rates. Bonds that are likely to be called are said to have call risk
The longer the time until maturity of a bond: - ANS-the more volatile it's price will be
Credit Risk (default risk) - ANS-The uncertainty about a bond issuer's ability to make all
its required payments.
Investment-Grade Ratings - ANS-Bonds with ratings BBB and above
Coupon Rate (fixed regardless of interest rate) - ANS-The coupon rate is calculated with
numerator as coupon payment and denominator as the face value of the bond
Yield (Changes with Interest rate) - ANS-The yield rate is calculated with numerator as
the coupon payment and denominator as the market price of the bond
Price changes in the bond due to interest rate changes is calculated by: - ANS-Bond's
duration x the change in interest rates
Inflation Risk is: - ANS-the risk that inflation will reduce the purchasing power of the
fixed-income and fixed-principal payments when they are received
3 ways to measure Yields on Bonds - ANS-1. Current yield (bond's annual
interest/current price)
2. Yield to Maturity (factors in yearly interest along with the difference between the
bond's current price and its value at maturity. Thus is the standard yield normally quoted
for bonds)
3. Yield to call (factors in the yearly interest until the bond is expected to be called along
with the difference between the bond's current price and its call price (the price the
issuer will pay to the bondholder if it calls the bond prior to maturity)).
Money Market Instruments - ANS-Debt instruments issued with maturities of one year or
less
Advantages of Cash Equivalents - ANS--Liquidity
-generally, safety of principal
-low or no price volatility
