Question 1

Annabelle works at Acme Cleaning Company. When she retires, her employer's health insurance plan and Medicare should cover all of her medical expenses.

Accepted Answer

The statement is false because it depends on the specific health insurance plan and Medicare coverage offered by Acme Cleaning Company, and whether Annabelle chooses to enroll in them.

Question 2

A salary-reduction plan for a nonprofit organization is called a 401(k) plan.

Accepted Answer

A 401(k) plan is a type of retirement savings plan offered by for-profit companies, while a salary-reduction plan for a nonprofit organization is usually referred to as a 403(b) plan.

Question 3

The best time to begin planning for retirement is at age 27.

Accepted Answer

While it is never too early to start saving for retirement, age 27 is not necessarily the best time to begin planning. The best time to plan for retirement varies depending on an individual's personal circumstances and financial goals. Some may need to start planning earlier or later depending on factors such as income, debt, and lifestyle choices.

Question 4

The SEP IRA is the simplest type of retirement plan if a person is self-employed.

Accepted Answer

The SEP IRA, or Simplified Employee Pension Individual Retirement Account, is a retirement plan designed specifically for self-employed individuals or small business owners. It is simple to set up and has low administrative costs, making it a popular choice among the self-employed. Therefore, the statement is true.

Question 5

When Social Security was established, it was never intended to provide 100% of one's retirement income.

Accepted Answer

Social Security was established in 1935 as a safety net to prevent elderly Americans from falling into poverty. It was never intended to fully replace one’s income in retirement, but rather to serve as a supplement to other sources of income, such as pensions and personal savings.

Question 6

About one out of every three Americans currently collects some form of Social Security benefit.

Accepted Answer

The answer of About one out of every three Americans...

Question 7

Cindy's net worth should increase each year as she moves closer to her retirement.

Accepted Answer

As Cindy saves more money and continues to invest in her retirement accounts, her net worth should naturally increase over time. This assumes that she is not taking on high levels of debt or making poor financial decisions that could negatively impact her net worth.

Question 8

Eight years ago, Thomas began investing in his Roth IRA. He is now purchasing his first home. He may withdraw some money from his Roth IRA tax-free and penalty-free for this purchase.

Accepted Answer

According to IRS rules, Thomas may withdraw up to $10,000 from his Roth IRA tax-free and penalty-free for the purchase of his first home, as long as he has had the account for at least five years.

Question 9

If you were born in 1960 or later, you will first become eligible to receive Social Security benefits at age 67.

Accepted Answer

The answer of If you were born in 1960 or...

Question 10

The four primary sources of retirement income are employer pension plans, personal retirement plans, annuities, and public pension plans.

Accepted Answer

Employer pension plans, personal retirement plans, annuities, and public pension plans are considered the four primary sources of retirement income.

Question 11

Housing and life insurance are so important to your retirement income that other investments can be ignored as you review your assets.

Accepted Answer

While housing and life insurance are important components of retirement planning, other investments should not be ignored. Diversification is key in preserving and growing retirement income, and neglecting other investment opportunities can lead to missed growth potential and financial vulnerabilities.

Question 12

Because of the potential effect of inflation, individuals should underestimate the amount of money needed for retirement.

Accepted Answer

Underestimating the amount of money needed for retirement can lead to financial shortfalls due to inflation reducing the purchasing power of saved funds over time. It's important to account for inflation in retirement planning to ensure sufficient savings.

Question 13

When Paul leaves his job at Acme Bending Company, he may choose to move his 401(k) balance to a plan called a rollover IRA.

Accepted Answer

Paul can choose to transfer his 401(k) balance to a rollover IRA account, which allows him to maintain the tax-deferred status of his retirement savings and gives him more investment options and control over his funds.

Question 14

Social Security covers 97% of all workers in America.

Accepted Answer

Social Security covers the vast majority of workers in America, with 97% estimated to be enrolled in the program as of 2021 according to the Social Security Administration.

Question 15

Bruce and Christopher are both retiring from Best Conditioning Company. They both should have the same amount of money in their retirement funds regardless of the lifestyle they expect during retirement.

Accepted Answer

The amount of money in their retirement funds can differ based on various factors such as the amount they contributed over time, the investment choices they made, and the fees associated with their retirement accounts, regardless of their expected lifestyle during retirement.

Question 16

An example of a defined-contribution plan is a stock bonus plan.

Accepted Answer

A stock bonus plan is a type of defined-contribution plan where the employer contributes company stocks to the employees' retirement accounts.

Question 17

Only people who are retired can receive a benefit from Social Security.

Accepted Answer

Not only retired people can receive a benefit from Social Security. Others, such as people with disabilities, surviving spouses, and dependent children, may also be eligible for benefits.

Question 18

A benefit of an employer pension plan is that taxes are eliminated.

Accepted Answer

An employer pension plan provides tax-deferred retirement savings, meaning that taxes on contributions and/or investment earnings are delayed until the money is withdrawn from the account in retirement. Taxes are not eliminated, they are postponed.

Question 19

When Don retires, his transportation expenses will likely increase.

Accepted Answer

The statement suggests that Don's transportation expenses will increase when he retires, but the opposite is typically true. Once Don retires, he may no longer need to commute to work, which could lead to a decrease in transportation expenses.

Question 20

A defined-benefit plan specifies the benefits that you will receive at retirement age.

Accepted Answer

A defined-benefit plan guarantees a specific benefit amount to participants at retirement age based on factors such as years of service and earnings history, whereas a defined-contribution plan specifies the amount of contributions made to the plan but does not guarantee a specific benefit payment at retirement.

Quiz 14: Starting Early: Retirement and Estate Planning