Retirement Planning
Retirement Planning tests how a client converts earnings, savings, and entitlements into a sustainable lifetime income stream. The exam emphasizes funded status, decumulation mechanics, and the interaction of Social Security, pensions, and qualified accounts rather than product sales.
Core rules and concepts
- A retirement plan starts with a funded-status projection: required annual spending minus guaranteed income (Social Security, pensions, annuities), divided by a sustainable withdrawal rate. Stress-test the gap with inflation, longevity, and poor early returns.
- Sequence-of-returns risk matters most in the first decade of withdrawals: a market decline plus fixed withdrawals permanently impairs capital. Bucket or guardrail strategies can reduce, not eliminate, this risk.
- Social Security benefits depend on claiming age. Full retirement age is 66–67 by birth year; claiming earlier permanently reduces benefits, while delayed retirement credits add 8% per year up to age 70. Up to 85% of benefits can be taxable based on provisional income.
- Under SECURE 2.0, qualified-plan RMDs generally begin at age 73 (age 75 if born in 1960 or later). The first RMD may be delayed to April 1 of the following year, but the second is still due that December 31. Roth IRAs have no lifetime RMDs for the owner.
Worked example
A client has a $1,000,000 traditional IRA balance on the prior December 31 and turns 73 this year. Using the Uniform Lifetime Table divisor of 26.5, the RMD is $1,000,000 ÷ 26.5 = $37,736. That amount is ordinary income and cannot be rolled over or converted to Roth. If the client also converts $20,000, the conversion must be in addition to the RMD.
Traps
Confusing the RMD age with 70½; assuming the April 1 extension avoids two RMDs; treating a Roth conversion as free because it is “after-tax”; ignoring Medicare IRMAA’s two-year lookback; and comparing a pension lump sum with an annuity using nominal rather than present-value dollars.