Module 5: Retirement Planning
What Module 5 tests
Module 5 tests retirement goal analysis, inflation, longevity, accumulation and decumulation, pension and social security benefits, withdrawal sequencing, and risk management in retirement.
Core rules
- Retirement need is a cash-flow problem: living expenses, health care, debt, and taxes minus guaranteed income.
- Use real returns or inflate expenses consistently; do not mix nominal and real assumptions.
- Accumulation depends on savings rate, return, time, and fees. Decumulation depends on withdrawal rate, sequence of returns, longevity, and flexibility.
- Coordinate accounts and benefits: tax-deferred, tax-free, taxable, pensions, and government benefits. Claiming decisions can change lifetime value.
Worked example
A client wants $60,000 per year in retirement and expects $20,000 from a pension, leaving a $40,000 annual gap. Using a 4% initial withdrawal rate, required capital is $40,000 / 0.04 = $1,000,000. If the client has $700,000, the planner models additional savings for 10 years or a lower withdrawal rate. A 4% rule is a planning heuristic, not a guarantee; fees, taxes, and a poor early market can raise the required capital.
Traps
Ignoring inflation and health-care costs; assuming average returns hides sequence risk; underestimating longevity; starting withdrawals too high; forgetting taxes on withdrawals; failing to coordinate spousal benefits.