Deck 15: Retirement Planning

Question 1

Most employees in the United States today are covered by an employer funded defined-benefit plan.

Answer 1

False

Question 2

For most people,there is really no reason to save for retirement since Social Security will provide retirement benefits until you die.

Answer 2

False

Question 3

An employee's Social Security contributions are invested in a general fund account and will be made available for the employee at retirement.

Answer 3

True

Question 4

The system of Social Security is based on young working people paying taxes to support older retired people.The dependency ratio is the number of workers to retirees.Forty years ago it was 16 workers for every one retiree.What will happen to this ratio by the year 2048?

A) It will reverse so that there will be more retirees than workers.
B) It will increase, because there will be more young workers than retirees.
C) It will decline to 2 workers for every 1 retiree.
D) Nothing, since the ratio of young people to old people does not change.

Question 5

To be eligible for Social Security benefits,you receive one credit for every $1,200 in wages that you earn,up to 4 credits per year.How many total credits do you need to qualify for benefits?

A) 4
B) 20
C) 30
D) 40

Question 6

Which of the following benefits is not provided by Social Security?

A) Death
B) Disability
C) Education
D) Health
E) Retirement

Question 7

Many older companies have changed from a defined-benefit plan to a(n)________,which is a retirement plan where workers are credited with a percentage of their pay each year,plus a predetermined rate of interest.

A) funded pension plan
B) cash balance plan
C) unfunded pension plan
D) percentage plus inflation plan
E) none of the above

Question 8

Social Security is a mandatory insurance program that provides a base level of protection for all of the following occurrences except one.Choose that one.

A) Death
B) Disability
C) Health problems
D) Retirement
E) Job loss

Question 9

Under a defined benefit plan you receive a promised or "defined" benefit payout at retirement.

Question 10

Social Security is a system where current workers' pay taxes that are used to pay current retirees' benefits.How is Social Security funded?

A) Income taxes by all Americans
B) Payroll taxes on employees up to a salary cap
C) Payroll taxes on employers up to a salary cap
D) All of the above are correct.
E) Only B and C are correct.

Question 11

Social Security is a plan where current workers' contributions pay for current retiree's benefits.

Question 12

How is the size of a person's Social Security retirement benefits determined?

A) It depends on the number of credits earned in a person's lifetime.
B) It depends on the average level of earning over a person's lifetime.
C) It depends on the number of years a person has paid Social Security taxes.
D) All of the above are correct.
E) Only B and C are correct.

Question 13

Robin was born after 1960,therefore,the retirement age for her to receive full Social Security benefits is 65.

Question 14

Under a funded pension plan,the employer makes regular contributions to a trustee who collects and invests the retirement funds.

Question 15

Social Security is a health care,retirement,disability income,and life insurance plan.

Question 16

The Federal Insurance Contributions Act isn't an investment,but rather a mandatory insurance plan that one pays into through salary deductions.

Question 17

Today,the typical American worker will receive a defined-benefit retirement plan from their employer.

Question 18

The size of your Social Security benefits are determined by your number of years of earnings,your average level of earnings,and an adjustment for inflation.

Question 19

Which of the following statements is true regarding Social Security retirement benefits?

A) It attempts to replace 42% of your average earnings.
B) Not all occupations are covered.
C) Some people's benefits may be taxed.
D) You may retire beginning at age 62 with reduced benefits.
E) All of the above

Question 20

One of the drawbacks to defined-benefit plans are their lack of portability,meaning that if you leave the company the value of the pension is not likely to go with you.

Question 21

How does Uncle Sam determine our Social Security monthly retirement check for all practical purposes?

Question 22

Your company pays retirement benefits to current retirees out of current earnings,on a pay-as-you-go basis.This is an example of a(n)

A) unfunded pension plan.
B) funded pension plan.
C) cash balance plan.
D) none of the above.

Question 23

A ________ is defined by the fact that your employer provides all the funds for the retirement plan,without any contribution from you.

A) defined-benefit plan
B) noncontributory retirement plan
C) contributory retirement plan
D) portable
E) none of the above

Question 24

Explain why we do not invest in Social Security.What are the four basic benefits for those who are qualified?

Question 25

As of 2014,the average monthly Social Security benefit for retired workers was

A) $959.
B) $1,150.
C) $1,294.
D) $1,677.

Question 26

Why have many companies switched from traditional defined-benefits plans to cash-balance plans?

A) They want to shower their employees with money
B) Regulatory reform made it necessary.
C) They save money with them as a result of reduced future benefits for older workers.
D) All of the above are correct.
E) Only B and C are correct.

Question 27

With a ________,you,and usually your employer,pay funds into your retirement plan.

A) deducted-benefit plan
B) noncontributory retirement plan
C) contributory retirement plan
D) none of the above

Question 28

Defined-benefit pension plans are generally ________ and they lack ________.

A) contributory; divesting
B) noncontributory; divesting
C) contributory; portability
D) noncontributory; portability
E) vested; portability

Question 29

One of the first steps in planning for your retirement is figuring out just what you want to do when you retire.

Question 30

Social Security benefits are very nice to get and help many current retirees live above the poverty line.Why should someone who is 25 years old today not count on receiving the same type of Social Security benefits when they retire in 45 years from now?

Question 31

According to the Employee Benefit Research Institute,one-third of U.S.households between the ages of 30 and 59 won't have enough money for retirement,even if they work until they're 70.

Question 32

One of the best things about retirement is that retirees don't have to pay income taxes once they retire.

Question 33

Which of the following is a problem associated with many defined-benefits programs?

A) Lack of portability
B) Failure to adjust for inflation once payments begin
C) Many are unfunded.
D) All of the above
E) A and C only

Question 34

Relate the pros and cons of defined-benefit plans.

Question 35

How will you access in an accurate manner the amount of your retirement income?

Question 36

If your pension fund contained a provision that allowed employees who were leaving the company to retain and transfer any pension benefits earned to another pension plan,it would be said to have

A) transference.
B) releasability.
C) transportance.
D) portability.
E) none of the above.

Question 37

When an employer makes pension fund contributions directly to a trustee who holds and invests those funds,the plan is said to be a(n)

A) defined-contribution plan.
B) funded pension plan.
C) unfunded pension plan.
D) cash balance plan.
E) none of the above.

Question 38

Since the 2000s,the average personal savings rate in the U.S.has decreased.

Question 39

Because inflation makes goods and services cost more over time,one would be wise to always plan for inflation when planning one's retirement.

Question 40

Frank is considering a new job.However he is concerned about his pension fund.He knows that ________ which is the requirement that he must work for his firm for a specified period of time prior to gaining ownership of the retirement contributions made by his employer has to be met first.

A) tenuring
B) certifying
C) vesting
D) validating
E) none of the above

Question 41

It is a good idea to start saving for retirement as early as possible to take advantage of compounding returns on your savings.

Question 42

A 401(k)plan is a tax-deferred retirement savings plan in which employees of private corporations may contribute a portion of their wages up to a maximum amount set by law.

Question 43

Discuss the basic considerations when facing retirement.

Question 44

The only difference between a defined-benefit plan and a defined-contribution retirement plan is the tax deduction for the defined-contribution plan.

Question 45

If all contributions to your IRA are tax deductible,then all withdrawals from your IRA will be taxed,unless you're just moving your money into another IRA.

Question 46

According to the author,401(k)plans are actually do it yourself variation of a profit-sharing/thrift plan.

Question 47

Suppose that you have estimated that,to provide for your retirement income,you will need $2,250,000 on deposit in your retirement account when you retire.You believe that you will earn an average of 11% on your retirement investments until you retire in 35 years.What must your annual deposits be to accumulate this total?

A) $21,991.14
B) $6,586.85
C) $5,904.84
D) $6,878.77
E) None of the above

Question 48

Individual retirement arrangements (IRAs)are personal savings accounts that give you tax advantages for saving for retirement.

Question 49

Anyone can open up an IRA account but not everyone may get tax-advantages from it because there are income limitations.

Question 50

By law,everyone must contribute the maximum amount into their 401(k)plans at work.

Question 51

Like many Americans you know that you must plan your retirement funds carefully because there may be a discrepancy between the funds that you will need to survive on during retirement and the income that you will have available during retirement.What will likely be the relationship between fund needs and income available during retirement for MOST Americans?

A) They will match.
B) They will be close.
C) They will not be close - income will be greater than needs.
D) They will not be close - needs will be greater than income.

Question 52

You have determined that you will need to accumulate $1,000,000 in your retirement account in order to cover your inflation-adjusted shortfall.Which of the following is closest to the amount of money you would need to put into a tax-deferred retirement account every year if you plan on retiring in 40 years? Assume an 8% average return on this account,and that it is empty today.

A) $1,458
B) $3,860
C) $5,957
D) $8,444

Question 53

________ of workers feel confident they will have enough money to live comfortably in retirement,only ________ have actually tried to calculate how much they will need when in retirement.

A) 50 percent; 33 percent
B) 70 percent; 43 percent
C) 85 percent; 53 percent
D) 90 percent; 73 percent

Question 54

Relate the 7 steps to funding your retirement needs.What is the hardest part?

Question 55

Under a defined-contribution plan,your employer alone or you and your employer together contribute directly to an individual account set aside specifically for you.

Question 56

You should take advantage of any matching your company is willing to do for your 401(k).

Question 57

The Keogh plan is a retirement plan for individuals who work for large multinational corporations.

Question 58

The big disadvantage with a defined-contribution plan is that you don't know in advance exactly how much money you can plan on for retirement income.

Question 59

Contributions to a traditional IRA are always tax deductible.

Question 60

What investment goals should a person have when determining where to put their 401k monies in their account?

Question 61

Why have employers switched to defined-contribution plans instead of defined-benefits plans for most companies?

A) They remove the financial risk for future pension costs away from the company and pass it on to the employee.
B) The employer doesn't want to do any bookkeeping for the retirement plan.
C) Employers care deeply about what employees eventually receive from their plan.
D) All of the above are correct.
E) Only A and B are correct.

Question 62

Why does a tax-deferred retirement account accumulate more money than a taxable account,assuming the same amount is contributed every year and the accounts earn the same return every year?

A) There are different investment options available for tax-deferred accounts.
B) You can take bigger risks with assets that generate higher returns in a tax-deferred account.
C) With tax-deferred accounts, there are no income or capital gains tax liabilities on account activity.
D) All of the above are correct
E) Only A and B are correct.

Question 63

The main advantage of the Roth IRA over the traditional IRA is the employer matching funds.

Question 64

A(n)________ is a tax-deferred retirement plan that is essentially the same as a 401(k)plan,except that it is aimed at employees of schools and charitable organizations.

A) 404(a)
B) 402(b)
C) 403(b)
D) 007(a)
E) none of the above

Question 65

You are participating in a pension plan where the company's contributions vary from year to year,depending on the firm's performance.This is an example of a(n)

A) variable contribution plan.
B) earnings establishment plan.
C) performance retirement plan.
D) profit-sharing plan.
E) none of the above.

Question 66

Brian works for Walmart.Walmart contributes company stock into his retirement account instead of cash.This is called a(n)

A) ESOP.
B) thrift.
C) EFLP.
D) stock-contribution plan.
E) none of the above.

Question 67

Contributions to Roth IRAs are tax deductible.

Question 68

If you have a defined-benefit retirement plan,you're considered an "inactive participant."

Question 69

A Coverdell Education Savings Account works just like the Roth IRA for qualified education expenses,except with respect to contributions.

Question 70

A(n)________ is a pension plan in which you and your employer or your employer alone contribute funds directly to a retirement account set aside specifically for you.

A) defined-benefit plan
B) cash balance plan
C) defined-contribution plan
D) percentage plus inflation plan
E) none of the above

Question 71

The Roth IRA does not require that distributions begin by age 70 1/2.

Question 72

One of the advantages to a traditional IRA is that it allows you to make a penalty-free withdrawal to purchase your first home.

Question 73

A person may have more than one qualified retirement plan open at the same time.

Question 74

Burt Reynolds has changed jobs.His last retirement plan's contributions depended on how well the company performed and he shared in the earnings.His present employer allows him ownership in the firm,although this is the riskiest plan.Burt's former plan was a(n)________ and his current plan is a(n)________.

A) ESOP; money purchase plan
B) profit-sharing plan; ESOP
C) ESOP; 401(k)
D) profit-sharing plan; thrift and savings plan
E) ESOP; profit sharing plan

Question 75

The Savers Tax Credit is designed to encourage low to moderate income workers contribute to their retirement accounts.

Question 76

A 'self-directed' retirement plan is one in which a plan administrator determines how much your contributions will be and what investment options you will have available.

Question 77

With a traditional IRA and a Roth IRA,you can make withdrawals at any time with no penalties.

Question 78

With an IRA your investment choices include stocks,bonds,mutual funds,CDs and real estate.

Question 79

For someone wanting to minimize the taxes they are paying now,a Roth IRA would be preferable to a traditional IRA.

Question 80

With a Roth IRA,after five years you can make withdrawals before age 59 1/2 without a penalty but you must pay taxes on the withdrawals.