CRPC 2024 COMPREHENSIVE QUESTIONS AND
VERIFIED ANSWERS STUDY GUIDE /EXAM PRACTICE
GET IT 100% CORRECT GRADE A+
Social Security- currently insured
- 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
- age he starts
- earnings history
Diversification
Acquiring assets with low or negative correlations to each other with the goal of lowering overall
risk
Correlation
- 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
- 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
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
Systematic Risk
P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured
- 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
SS calculation before full retirement age
,- 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
- Payment increases by about 8% each year they delay, until maximum year 70
- actual math is 2/3 for each month
Strategic Asset Allocation
- 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
- 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
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
Dollar-Cost averaging
- investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy
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)
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
Social Security milestones
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
$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
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
Provisional income=AGI(excluding SS) +Nontaxable interest(muni bonds) + 1/2(SS benefit)
Single provisional income SS taxable %
25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable %
32k-44k: 50%
44k+:85%
maximum taxable SS amount
85% of Total SS benefit
Spousal benefit
- Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund
Payroll taxes; FICA
What is the FICA tax; how is it split up
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
$118,500
Covered employment
Any position that participates in social security system
Excluded
- Railroad employees
- Fed gov employees hired before 1984
Average SS benefit
$1300 pm
Max benefit
$2639 pm
Quarter of Coverage
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
Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured
, have earned at least 6 credits during previous 13 quarters before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings
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)
born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
Primary Insurance Amount (PIA)
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
- 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
- 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
$61,000-$71,000
Allowable IRA deduction limit equation
IRA contribution limit x ((Upper Limit-AGI)/phaseout range)
Joint tax filer ira phase out range; if both are active participants
98k-118k
Joint tax filers IRA phase out range If one is an active participant and the other is not
Active: 98k-118k
Nonactive: 184k-194k
What retirement plans must be considered when determining if a client has active
participation status?
5
1. Qualified pension, profit sharing, or stock bonus plan
2. qualified annuity plans under code Section 403b TSA
3. Simplified employee pension (SEP)
4. Simple IRA
5. Government plans (not including SS, railroad, or 457)
VERIFIED ANSWERS STUDY GUIDE /EXAM PRACTICE
GET IT 100% CORRECT GRADE A+
Social Security- currently insured
- 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
- age he starts
- earnings history
Diversification
Acquiring assets with low or negative correlations to each other with the goal of lowering overall
risk
Correlation
- 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
- 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
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
Systematic Risk
P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured
- 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
SS calculation before full retirement age
,- 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
- Payment increases by about 8% each year they delay, until maximum year 70
- actual math is 2/3 for each month
Strategic Asset Allocation
- 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
- 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
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
Dollar-Cost averaging
- investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy
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)
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
Social Security milestones
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
$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
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
Provisional income=AGI(excluding SS) +Nontaxable interest(muni bonds) + 1/2(SS benefit)
Single provisional income SS taxable %
25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable %
32k-44k: 50%
44k+:85%
maximum taxable SS amount
85% of Total SS benefit
Spousal benefit
- Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund
Payroll taxes; FICA
What is the FICA tax; how is it split up
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
$118,500
Covered employment
Any position that participates in social security system
Excluded
- Railroad employees
- Fed gov employees hired before 1984
Average SS benefit
$1300 pm
Max benefit
$2639 pm
Quarter of Coverage
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
Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured
, have earned at least 6 credits during previous 13 quarters before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings
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)
born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
Primary Insurance Amount (PIA)
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
- 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
- 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
$61,000-$71,000
Allowable IRA deduction limit equation
IRA contribution limit x ((Upper Limit-AGI)/phaseout range)
Joint tax filer ira phase out range; if both are active participants
98k-118k
Joint tax filers IRA phase out range If one is an active participant and the other is not
Active: 98k-118k
Nonactive: 184k-194k
What retirement plans must be considered when determining if a client has active
participation status?
5
1. Qualified pension, profit sharing, or stock bonus plan
2. qualified annuity plans under code Section 403b TSA
3. Simplified employee pension (SEP)
4. Simple IRA
5. Government plans (not including SS, railroad, or 457)
