A finished FIN-355 Topic 8 lump sum election review example, testing a client's three reasons for taking a pension lump sum and finding which of them survive the numbers. Searches like "fin 355 topic 8 assignment example", "fin355 topic 8 sample" and "fin-355 topic 8 example" land here.
What a finished FIN-355 Topic 8 lump sum election review looks like
The finished review states his reasons in his own words first: he wants something to leave his children, he fears the employer could fail, and he expects to earn 7 percent. The bequest reason holds, since the pension ends at the second death and the lump sum does not. The failure reason is found weak, because a benefit this size sits inside the federal guarantee ceiling the case gives. The return reason gets the arithmetic. To pay 2,400 a month for thirty years, until his wife is 92, the lump sum must earn about 5.7 percent every year after fees. At a steady 7 percent, drawing 28,800 at the start of each year, it lasts thirty years with about 286,000 left. One 20 percent loss in year one, then steady 7 percent, leaves it unable to fund year twenty.
How a FIN-355 Topic 8 example is structured
One test per reason makes up the review, followed by a verdict on the decision as a whole. It opens by restating the election, the two payment forms on offer and the client's three reasons, acknowledging that the choice belongs to him and his wife. The bequest test compares what heirs receive under each form if both spouses die early, noting that about fourteen and a half years of payments equal the lump sum before any return. The insurer test describes the federal guarantee in general terms. The return test states the rate needed to replicate the pension, then runs the lump sum through a steady path and an early-loss path. A section addresses the wife directly, because her signature waives a survivor income she would otherwise keep. The verdict records which reasons survive and pairs the lump sum with a later Social Security claim.
Three reasons tested one at a time
The bequest, the fear of employer failure and the expected return each get a separate test, so the review can accept one reason while rejecting another.
The bequest reason holds
Pension payments stop at the second death while an unspent lump sum passes to heirs, and the review grants that advantage to the client without qualification.
A required return of about 5.7 percent
Replicating 2,400 a month for thirty years takes about 5.7 percent a year after fees, and it has to be earned in every year, not on average.
One bad first year changes the answer
A 20 percent loss at the start, followed by steady 7 percent years, leaves the lump sum unable to fund year twenty, when he would be 84.
The wife's consent treated as her decision
Waiving the survivor pension requires her written consent, and the review speaks to her directly because the income she gives up would matter only if he dies first.
A floor rebuilt through Social Security
Delaying his claim toward 70 raises a lifetime, inflation-adjusted benefit and the survivor benefit she would inherit, restoring part of what the pension provided.
Where marks go in FIN-355 Topic 8
Reviews that simply endorse the client's choice because it is already made score poorly, since agreeing with a decision is not the same as testing it. The reverse, a review written to talk him out of it, ignores that one of his reasons is sound and treats his judgment as an error. Testing the return at 7 percent on one path accepts the assumption under review; the early-loss path shows how far the decision depends on sequence. Papers that raise the employer failure fear without mentioning the federal guarantee leave the weakest reason unchallenged. Omitting the spousal consent requirement misstates the plan rules and forgets the person who gives up the most. A verdict that never says which reasons held, or what would make the decision safer, leaves the file with an opinion and no finding.
Get a FIN-355 Topic 8 example written to your instructions
Send the FIN-355 Topic 8 instructions and your classroom rubric, with the client case and the decision your section's scenario has already settled. We write a custom example to them, with each of the client's reasons tested separately, the required return computed, an early-loss path run and the spousal consent rules applied, in 24 to 48 hours. The first one is free.
FIN-355 Topic 8 questions, answered
Why does the wife have to consent to a lump sum?
Because federal pension law protects a married participant's spouse by making a survivor annuity the default form of payment. Choosing a lump sum or a single-life payment waives that protection, so the plan requires the spouse's written consent, witnessed by a notary or a plan representative. The review treats her signature as a decision in its own right, since the survivor income she gives up is hers.
How is the required return of 5.7 percent found?
By asking what rate makes the present value of the pension's payments equal to the lump sum. At 2,400 a month for thirty years, the rate that discounts those payments to 420,000 is about 5.7 percent a year. If the lump sum earns less, net of fees, it runs out before the pension would have stopped; if the payments would last fewer years, the required rate falls.
Does the review say taking the lump sum is wrong?
No. It finds that one reason holds, one is weak and one depends on the order of returns, and it names the step that would make the decision safer. The couple, the pension and the figures are composites for a FIN-355 assignment, not advice about any real election. Actual pension choices depend on plan terms, health and the law in force, and deserve a qualified adviser.