CRPC Damage Control Mod: 4, 5, 6

Assuming that John, age 55, can earn 6% on his investment, how much will he need to contribute to his IRA at the end of each year in order to accumulate $500,000 by the time he retires at age 65?

$37,934 Solution: PMT = $37,934. Keystrokes in END mode: 500,000 FV, 6 I/YR, 10N, Solve for PMT.

As a retiring employee, Carla is slated to receive 3% of her average salary over her last three years with ABC Company times her years of service. Since her average salary during those last three years was $110,000 and she has put in 20 years of service, her annual retirement benefit will be

$66,000. Carla's retirement benefit is calculated as follows: $110,000 x 0.03 x 20 = $66,000.

Which one of the following is not a feature of health savings accounts (HSAs)? Contributions are tax-deductible. Funds may be used to pay for qualified medical expenses during retirement. Individuals who are enrolled in Medicare can continue to use HSA funds for qualified medical expenses. Individuals who are enrolled in Medicare can continue to make contributions.

Individuals who are enrolled in Medicare can continue to make contributions. Individuals who are enrolled in Medicare are not eligible to make tax-deductible contributions to an HSA. Otherwise, contributions are tax-deductible and withdrawals used to pay for qualified medical expenses are tax free. Individuals enrolled in Medicare may use funds remaining in an HSA, but can no longer make contributions to one.

Which one of the following is true regarding Medicare Part A? It pays doctor bills. It covers outpatient hospital care. It costs approximately $413 per month for most individuals. It helps pay for care in a skilled nursing facility.

It helps pay for care in a skilled nursing facility. Within certain parameters, Medicare Part A helps pay for care in a skilled nursing facility. Medicare Part A is free for most recipients (who have worked in covered employment for at least 40 quarters). Doctor bills and outpatient hospital care are covered by Medicare Part B. On the other hand, Medicare has only limited coverage for long-term care. Having Medicare does not mean a person has adequate LTC coverage.

Mark, age 54, funded a nonqualified annuity with a $1,000 deposit. His annuity is now worth $2,500. He would like to make a $500 withdrawal. How will this distribution be taxed?

It will be fully taxable and subject to an early withdrawal penalty. Lump sum distributions from an annuity are fully taxable until all earnings have been distributed; this is referred to as last-in, first-out. Because Mark is under age 59½, his distribution will be subject to a 10% early withdrawal penalty. If the contract were annuitized, payments would be taxed on a pro rata basis.

Jane Pascheon has contributed $1,000 each year to a Roth IRA, beginning with an initial payment of $500 on December 31, 2014. At which date will she meet the requirement that qualifies her for tax-free distributions of gains in her account?

January 1, 2019 A Roth IRA owner is required to hold the account for a minimum of five years to qualify for tax-free distributions, starting on January 1st of the year the first contribution is made. The clock started on January 1, 2014, so five years will have elapsed on January 1, 2019. In addition, the owner must be at least age 59½.

All the following are health plan options under Medicare Advantage plans except Medicaid provider plans (MPPs). health maintenance organizations (HMOs). preferred provider organizations (PPOs). private fee-for-service plans.

Medicaid provider plans (MPPs). There is no such entity as a Medicaid provider plan. All other options are available under Medicare Advantage plans.

A standardized Medigap plan is designed to cover

Medicare-approved charges that are not paid by Medicare. Medigap insurance is designed to supplement Medicare's benefits by filling in some of what Medicare does not cover, such as deductibles and coinsurance; it covers only Medicare-approved charges. Standardized Medigap plans pay only for long-term care while the beneficiary qualifies for benefits from Medicare, and is limited to paying the coinsurance from the 21st through 100th days.

Which of the following is not true regarding the tax-deductibility of qualified long-term care insurance (QLTCI) premiums? Individuals and couples filing jointly can deduct medical expenses that exceed 10% of adjusted gross income (AGI). QLTCI premiums qualify as medical expenses. Self-employed individuals can deduct QLTCI premiums as a business expense. Partners can deduct QLTCI premiums as a business expense. QLTCI premiums are deductible for this year only, after which they are no longer deductible.

QLTCI premiums are deductible for this year only, after which they are no longer deductible. The deductibility of QLTCI premiums does not expire after the current year. There are no known plans for such an expiration date to be implemented.

Sam, age 62, retired two years ago and is currently relying on his Social Security retirement benefit for income. Faced with a tight budget, Sam is considering going back to work. Which one of the following would not be true if he returned to work? -He may be eligible for employer-paid health care coverage. -Regardless of the income he earns, he will continue to receive his full Social Security benefit. -When he fully retires he will have fewer years of retirement to finance. -He could establish and fund an IRA with his earned income.

Regardless of the income he earns, he will continue to receive his full Social Security benefit. Old-age benefits of Social Security recipients may be reduced if the client earns income from wages and salary during retirement prior to Social Security's full retirement age. Benefits paid to persons in the years prior to attaining full retirement age are reduced by $1 for every $2 earned over the limit.

Earned income, as defined by the Internal Revenue Code, includes all of the following except alimony. salary. bonuses. Social Security income.

Social Security income. Earned income only includes salary, fees, bonuses, commissions, and taxable alimony.

Which one of the following statements applies to fixed annuities? Their objective is to outpace inflation. The premiums are invested in the company's general account. A rider can be added so that the value at death is guaranteed to be at least equal to the amount of the premium investment. Premium contributions purchase units of separate accounts.

The premiums are invested in the company's general account. The premiums in a fixed annuity are invested in the company's general account. The other statements are applicable to variable annuities.

Trends in retirement have changed over the years with more people working past traditional retirement age. Which one of the following is a reason for these changes in recent decades? The mandatory retirement age was decreased by legislation. Defined benefit plans largely replaced defined contribution plans. Workers near normal retirement age (63 to 67 years old) are more likely to find jobs in periods of high unemployment. There has been a decline in employers offering retiree health care insurance.

There has been a decline in employers offering retiree health care insurance. There has been a decline in employers offering retiree health care insurance. Legislation passed in 1986 outlawed mandatory retirement almost entirely yet age discrimination is alive and well; as compared to their younger peers, workers in the 63- to 67-year-old age range are less likely to find jobs and more likely to be passed over for promotions. Defined contribution plans continue to supplant defined benefit plans.

Which one of the following is correct regarding Medicare Part D? Individuals can select from among 10 plans labeled A through N. Medicare Part D is often included with Medicare Advantage Plans. The of the "donut hole" results in significantly reduced out-of-pocket costs for individuals. These plans are available through private companies under contract with Medicare.

These plans are available through private companies under contract with Medicare. These plans are available through private companies under contract with Medicare. The applicable premium is means-tested and costs an average of $33.50 per month in 2019. Medicare Part D is often included in Medicare Advantage plans and not purchased in addition to them. The donut hole only gives credit for actual out-of-pocket expenses for generic drugs. Name brand drugs, however, credit the individual for both the out-of-pocket expenses and also a manufacturer discount. This lowers the actual amount paid by the individual when the "out-of-pocket maximum" is reached.

Which is true of Medicare benefits? They vary depending on an individual's AGI. They vary depending on an individual's age. They are not available until Social Security full retirement age. They are available even if a client continues to work after age 65.

They are available even if a client continues to work after age 65. It is true that Medicare benefits are available even if a client continues to work after age 65. The only difference is that they would need to file an application if not yet receiving Social Security benefits. Individuals become eligible for Medicare at age 65; the change in Social Security's FRA does not change the age an individual may be eligible for Medicare. Also, unlike Social Security, Medicare benefits are not affected by an individual's earnings or the amount he or she has paid into the system over the years.

All of the following are true regarding Roth 401(k)s except if an individual starts contributing to a Roth 401(k) and has an existing Roth IRA, each account will have its own separate five-year clock. required minimum distributions apply. the regular deferral limit is $19,000 in 2019. a $1,000 catch-up provision is available to individuals age 50 and older.

a $1,000 catch-up provision is available to individuals age 50 and older. In 2019, participants age 50 and older can contribute an additional $6,000 as a catch-up provision; this is in addition to the regular deferral limit of $19,000.

All of the following are true statements about the use of life insurance as a retirement savings vehicle except life insurance cost basis can be withdrawn tax-free. loans are available and repayment is not required. investing under a life insurance wrapper is expensive. a cash value life insurance contract is always an appropriate vehicle for saving additional dollars for retirement.

a cash value life insurance contract is always an appropriate vehicle for saving additional dollars for retirement. A cash value life insurance contract may be an appropriate vehicle for saving additional dollars for retirement. A number of things must be considered including the expenses and a client's need for the underlying life insurance coverage.

Which power of attorney is the most effective tool for incapacity planning?

a springing durable power of attorney A durable power of attorney continues after a principal's incapacity, but would also be in place prior to incapacity, so it can get the job done, but is not the most effective tool. To most effectively transfer decision-making authority in the event of incapacity, adding a springing requirement is best because it only begins when the principal becomes incapacitated. The general power of attorney is not an effective tool for incapacity planning for a simple reason: The agent's authority ceases when the principal either dies or becomes incapacitated.

Each of the following are riders that are available on long-term care policies except an inflation rider. a waiver of premium for disability rider. a restoration of benefits rider.

a waiver of premium for disability rider. Waiver of premium for disability riders apply to life insurance policies and take effect in the event of disability. Many LTC policies include a waiver of premium clause in the policy once benefits begin as a part of the policy, but it is not based on disability, but rather qualifying for benefits. Some LTC policies offer a restoration of benefits rider that provides for the total benefit amount available to be restored if the insured recovers from the need for care for a period of time, such as six months. Inflation riders allow for the benefit to increase over time.

Before employing a pension maximization strategy, a retiree needs to consider which of the following? his age and the age of his spouse health and insurability the cost of taking a joint life versus a single life annuity all of the above

all of the above Before employing a pension maximization strategy, a retiree needs to consider his age and that of his spouse, his health and insurability, the cost of taking a joint life versus a single life annuity, his tax bracket and financial situation, and whether health insurance benefits will be impacted, among other things.

Which one of the following classes of employees is protected from early mandatory retirement laws? police officers airline pilots executives blue-collar employees

blue-collar employees Police officers and airline pilots are not protected against early mandatory retirement. This is due to the danger and physical demands of keeping us safe. Also subject to mandatory early retirement are high-level executives, and "high policy-making" employees—positions that require significant mental skill.

Exceptions to the 10% early withdrawal penalty for distributions taken from a 401(k) prior to age 59 ½ include all of the following except distributions resulting from a QDRO. distributions as part of a series of substantially equal payments. distributions for a first-time home purchase, up to $10,000. distributions to cover large unreimbursed medical expenses.

distributions for a first-time home purchase, up to $10,000. Distributions for a first-time home purchase and qualified higher education expenses are exempt from the 10% early withdrawal penalty only in IRAs. The other options pertain to 401(k)s as well as IRAs.

Custodial care helps individuals perform activities of daily living (ADLs). ADLs do not include bathing. transferring. dressing. driving.

driving. Driving is not an ADL. Dressing, bathing, eating, toileting, continence, transferring, and feeding oneself are considered ADLs.

It would not be appropriate for individuals whose sources of income are insufficient for retirement to take which of the following actions? postponing retirement eliminating health insurance coverage planning for part-time work reducing lifestyle expectations

eliminating health insurance coverage By working longer, individuals can save more, reduce the number of years over which retirement income will be required, and increase their benefits from company plans and Social Security. Other options include working part-time and reducing expectations regarding your lifestyle in retirement. Eliminating health insurance coverage would be a short-term solution for cash flow problems. Ultimately, many illnesses will require much more out-of-pocket expense than the insurance premiums required to cover them.

Early retirement programs typically may not offer severance benefits. health and insurance benefits. pre-retirement and tax counseling. enhancement of pension benefits in excess of ERISA regulations.

enhancement of pension benefits in excess of ERISA regulations. Early retirement programs may offer enhanced pension benefits, but these benefits cannot exceed ERISA regulations. ERISA limits the enhancements so that they do not favor highly compensated individuals. Such programs typically do provide lump-sum payouts equivalent to a multiple of the retiree's salary; continuation of health, dental, and life insurance; and pre-retirement and tax counseling to enable retirees to make informed decisions in these areas.

Which of the following is not an acceptable strategy for filling gaps between actual costs and Medicare coverage? -purchasing Medigap policies from private vendors -enrolling in Medicare Advantage and purchasing a coordinating Medigap policy -maintaining coverage through an employer-provided health plan -for low-income seniors, qualifying for Medicaid

enrolling in Medicare Advantage and purchasing a coordinating Medigap policy People who enroll in a Medicare Advantage plan cannot also maintain a Medigap insurance policy. Purchasing Medigap insurance, maintaining coverage through an employer-provided health plan, and qualifying for Medicaid are all plausible strategies to fill gaps between actual costs and Medicare coverage.

At age 56, Frank Sutton began taking substantially equal payments from his IRA using the fixed amortization method. Two years later, Frank now wants to take smaller IRA distributions because the value of his account has declined by 40% during the recent bear market. If he switches to the required minimum distribution method, all of the following are true except he will avoid the 10% penalty on premature distributions. he must continue to take substantially equal payments using a method approved by the IRS for five years or until age 59½, whichever comes later, or he will trigger the 10% penalty on previous payments. he cannot change his distribution method until he is 61.

he cannot change his distribution method until he is 61. As a general rule, an individual must continue payments using the same distribution method for five years or until age 59½, whichever comes later. If an individual is receiving payments under either the fixed amortization or the fixed annuitization method, he or she may make a one-time change to the required minimum distribution method in a subsequent year (For further details, see IRS revenue ruling 2002-62). Once such a change is made, it must be followed until the above-described restriction ends. Frank is required to continue the payments for at least five years to avoid triggering the 10% penalty.

All of the following are true about the deductibles that apply to health insurance except health insurance deductibles apply per incident. a deductible is the amount that the insured must pay before the plan pays anything. the deductible for catastrophic and bronze plans will be larger than for gold or platinum plans. deductibles do not apply to many forms of preventive care.

health insurance deductibles apply per incident. Unlike a homeowners or automobile policy, a health insurance deductible is an annual amount, not a per incident amount. Preventive care and wellness benefits, such as mammograms and well-baby care, are often paid 100% by the insurance company without a required deductible.

In long-term care insurance policies, "benefit trigger" refers to an event or condition that must occur before benefits can be paid. These include all of the following except inability to bathe. inability to dress inability to work. inability to reason.

inability to work. Benefit triggers may be physical (e.g., inability to bathe, dress, or eat) or cognitive (e.g., inability to think, reason, or orient). Normally, insurers require that more than one impairment exist before benefits are triggered. Inability to work does not trigger benefits in a long-term care policy.

All of the following may prompt companies to offer early retirement programs except buyouts and mergers. outsourcing of company functions. moving a business unit to another state. increasing profits.

increasing profits. Declining profits may prompt companies to offer early retirement programs when reductions in personnel become a condition of business survival. Buyouts and mergers may prompt early retirement programs, as mergers can make certain departments or functions redundant. Outsourcing of company functions may prompt companies to offer early retirement programs, as outsourcing will eliminate many internal positions. Finally, moving a business unit may prompt companies to offer early retirement programs because it is often cheaper to offer such a program than it is to move employees to a new location.

An individual is not considered an "active participant" in an employer-sponsored defined contribution plan if they receive only which one of the following annual additions? interest employee contributions forfeitures

interest Only employee and employer contributions and forfeitures result in active participant status. Investment earnings credited to an individual's account do not.

The amount paid from a reverse mortgage can come in any of the following forms except lump sum. tenure payments. term payments. interest only.

interest only. The amount paid from a reverse mortgage can come in the form of a lump sum, monthly payments for as long as the individual resides in the home (tenure payments), a term payment (a certain amount paid out over a specified period of time), or even a line of credit. Interest only payments are not an option.

Whole life policies feature -level premiums and a flexible death benefit. -flexible premiums and a level death benefit. -level premiums and a level death benefit for a specific time period. -level premiums and a level death benefit for the insured's entire life.

level premiums and a level death benefit for the insured's entire life. Whole life policies are designed to provide for level premiums, a guaranteed death benefit no matter when the insured dies, and guaranteed cash value.

Tin parachutes apply to: blue collar workers. middle-management employees. upper-management executives.

middle-management employees. Tin parachutes apply to middle-management employees, and golden parachutes apply to upper-management executives.

Coverage under Part A of Medicare includes all of the following except inpatient hospital care. hospice care. psychiatric hospital care. physician services.

physician services. Physician services are covered by Part B of Medicare. Part A covers up to 190 days of psychiatric care, 90 days on inpatient hospital care per benefit period (with a 60-day lifetime reserve), and unlimited hospice care.

Which of the following costs is not normally covered by Medicare Part B? physician services home health care prescription drugs preventive care

prescription drugs Medicare Part B does not normally cover eyeglasses, cosmetic surgery, most prescription drugs, and other types of expenses. Note that preventive care is covered under Part B.

Inpatient hospital care under Medicare Part A coverage includes all the following costs except meals. private rooms. operating and recovery rooms. inpatient prescription drugs.

private rooms. Inpatient hospital care includes costs for semiprivate rooms, meals, operating and recovery rooms, and prescription drugs. It does not cover the cost of private rooms.

All of the following are true regarding COBRA-mandated continuation of group medical coverage for terminated employees except proof of insurability is required. continued coverage must be made available for at least 18 months. the terminated employee must pay full premiums including up to a 2% increase.

proof of insurability is required. COBRA requires employers to provide continued group medical coverage without proof of insurability. Continued coverage must be made available for at least 18 months, and for up to 36 months in certain circumstances. Terminated employees are required to pay full premiums and up to a 2% administrative cost.

Which one of the following is not an option for a retiree who has lost medical coverage due to employment termination? seeking continued group coverage under COBRA provisions securing coverage through a spouse's plan purchasing a group policy on the health care exchange converting the group plan to an individual plan

purchasing a group policy on the health care exchange Retirees may seek coverage by purchasing an individual policy; purchasing a group policy would not be an option if unemployed. Other options include seeking coverage through a spouse's plan or COBRA or converting the existing group plan to an individual plan.

"Golden parachute" agreements may include all of the following, except cash. company stock. medical and life insurance. reduced pension benefits.

reduced pension benefits. Golden parachute agreements may include various combinations of cash, company stock, medical and life insurance, extra pension benefits, and other benefits.

Sara is ready to annuitize her contract. She would like to receive the largest lifetime monthly income possible. Which one of the following income options should she select? single life annuity fixed period annuity life income with refund pension maximization

single life annuity A single-life annuity will provide the largest lifetime monthly income. Pension maximization is a strategy using a pure life annuity, but is not an income option per se.

All of the following are correct about the surrender charges associated with an annuity, except -a typical surrender charge period is four to nine years. -surrender charges are a way for the insurance company to recoup expenses associated with the establishment of the contract. -surrender charges are a way for the insurance company to recoup expenses associated with the cost of the contract guarantees. -surrender charges are typically a flat dollar amount that is applied over the life of the contract.

surrender charges are typically a flat dollar amount that is applied over the life of the contract. Surrender charges are typically a percentage of the principal, most often starting at a higher percentage and declining over time.

All of the following are true regarding living wills except they must be signed. they must be witnessed by people who are not heirs of the maker. they allow the maker to dictate what life-sustaining measures may be taken if the maker becomes incapable of consenting to treatment. they apply to routine illnesses.

they apply to routine illnesses. Living wills apply only when the maker has a terminal illness and death is imminent.

All of the following apply to voluntary early retirement programs except they rarely result in lawsuits against the companies offering the programs. they provide a set of incentives to reduce corporate headcount. they present pluses and minuses for the eligible employee. they should be analyzed based on their future value.

they should be analyzed based on their future value. Voluntary early retirement incentives provide a set of incentives to reduce corporate headcount. They present pluses and minuses for the eligible employee that should be evaluated based on their net present value. Such arrangements rarely result in lawsuits because employees select themselves for termination. They should be analyzed based on their present value.

All of the following apply to voluntary early retirement programs except they rarely result in lawsuits against the companies offering the programs. they provide a set of incentives to reduce corporate headcount. they present pluses and minuses for the eligible employee. they should be analyzed based on their future value.

they should be analyzed based on their future value. Voluntary early retirement incentives provide a set of incentives to reduce corporate headcount. They present pluses and minuses for the eligible employee that should be evaluated based on their net present value. Such arrangements rarely result in lawsuits because employees select themselves for termination. They should be analyzed based on their present value.

All of the following are true regarding Medicare Advantage plans except individuals with end-stage renal disease (ESRD) are not eligible. beneficiaries must live in the service area of a health plan. to qualify, the beneficiary normally must be covered by Medicare Part A. Coverage for Part B is optional. Medigap plans are available to help with the out-of-pocket costs Medicare Advantage plans leave to individuals.

to qualify, the beneficiary normally must be covered by Medicare Part A. Coverage for Part B is optional. To qualify, beneficiaries normally must be covered by parts A and B of Medicare and live in the plan's service area. Individuals with ESRD are not eligible for Medicare Advantage Plans; however, ESRD beneficiaries currently in a Medicare health plan can remain in the plan. Individuals enrolled in Part C of Medicare (Medicare Advantage) cannot purchase and do not need Medigap policies.

Flexibility is the key word that describes whole life. variable life. term life. universal life.

universal life. The key word for term life is low-cost (relative to other options). The key word for whole life is guaranteed. For variable life, the key term is variable. Universal life offers a significant degree of flexibility.

Which one of the following does not represent a possible retirement income source for people contemplating retirement? Social Security benefits company pensions use assets personal savings

use assets Use assets are not a retirement resource unless they are sold. Assets such as automobiles and clothes should be used for their intended purposes, not as income-generating sources. Social Security old age benefits are a source of retirement income. For many people, these benefits are the only retirement resource. Company pensions, Social Security, and personal savings can all be sources of retirement income.