Question 1

In the year 2027, a person will have to be a minimum of _____ years to be able to retire with full social benefits.

Accepted Answer

The full retirement age for social security benefits in many countries, including the United States, is gradually increasing and is expected to be 67 for those born in 1960 or later.

Question 2

Social Security benefits (cash benefits)are funded by:

Accepted Answer

Social Security benefits are funded through compulsory contributions from employees, employers, and self-employed individuals, not through voluntary contributions, state and income taxes, charitable contributions, or federal income taxes directly. These contributions are made in the form of payroll taxes under the Federal Insurance Contributions Act (FICA).

Question 3

Many people tend to be too conservative when investing their retirement funds.

Accepted Answer

Many people fear losing their retirement savings, so they tend to invest in low-risk options, such as bonds or cash, rather than taking risks with stocks or other more volatile investments. However, this strategy can also mean missing out on potential gains that could result in a more secure retirement.

Question 4

The average level of Social Security benefits for retirees aged 67 and above is adjusted upward each year with subsequent increases in the:

Accepted Answer

Social Security benefits are adjusted upward each year to keep pace with the cost of living, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This ensures that the purchasing power of retirees' benefits remains constant over time.

Question 5

Retirement planning starts with:

Accepted Answer

Retirement planning should start with setting retirement goals. This will help determine the size of the required nest egg, the investment program, and other important aspects of retirement planning. Considering the longevity of the retiree and determining the interest on income-earning assets are also important factors, but they come after setting retirement goals.

Question 6

Profit-sharing plans enable employees to participate in the earnings of their employer.

Accepted Answer

Profit-sharing plans distribute a portion of the profits to eligible employees as a form of incentive compensation. This allows employees to share in the financial success of their employer and can lead to increased motivation and loyalty.

Question 7

Single premium annuities result in a lump-sum payment of benefits.

Accepted Answer

Single premium annuities involve a lump-sum payment into the annuity by the purchaser, but the benefits are typically distributed over time, not as a lump-sum payment.

Question 8

It really makes little difference whether you start retirement savings at age 25 or at age 45.

Accepted Answer

Starting retirement savings earlier allows for more time for compound interest to work in your favor, resulting in a larger nest egg at retirement. Waiting until age 45 means you have less time to save and accumulate wealth for retirement.

Question 9

Gordon and Lisa estimate that they will need $1,875,000 in 40 years for their retirement fund. If they can earn 8% annually on their funds, how much do they need to save annually? (Round to the nearest whole dollar.)

Accepted Answer

To find out how much Gordon and Lisa need to save annually, we can use the formula for the future value of an annuity: $FV = P \times \left(\frac{(1 + r)^n - 1}{r}\right)$, where FV is the future value, P is the annual payment, r is the annual interest rate, and n is the number of years. Rearranging the formula to solve for P gives us $P = FV \div \left(\frac{(1 + r)^n - 1}{r}\right)$. Plugging in the values: $P = 1,875,000 \div \left(\frac{(1 + 0.08)^{40} - 1}{0.08}\right)$, calculating this gives us approximately $7,238, which rounds to the nearest whole dollar.

Question 10

The first step in retirement planning is to identify retirement goals.

Accepted Answer

This statement is true. The first step in retirement planning is to identify retirement goals, as this will guide the rest of the planning process.

Question 11

The third step in retirement planning is to formulate an investment program.

Accepted Answer

Formulating an investment program is an important step in retirement planning as it helps to identify the types of investment vehicles that can help meet retirement goals.

Question 12

Your Social Security contribution depends on your current income and retirement income goal.

Accepted Answer

Your Social Security contribution depends on your current income, but not on your retirement income goal; it is determined by a fixed percentage set by law.

Question 13

One of the biggest financial benefits of starting early to save for your retirement fund is related to:

Accepted Answer

Compound interest allows your money to grow exponentially over time, which means that the earlier you start saving, the more time your money has to accumulate interest. This can result in a significant increase in your retirement fund over the years.

Question 14

Profit-sharing plans allow flexible employer contributions to the plans.

Accepted Answer

Profit-sharing plans are designed to be flexible, allowing employers to adjust their contributions based on the company's profitability each year.

Question 15

Planning for retirement over a series of short-run time frames requires:

Accepted Answer

Stating your retirement income objectives as a percentage of your present earnings is a crucial step in planning for retirement over a series of short-run time frames. This allows you to have a clear understanding of how much you need to save and invest to achieve your desired retirement income. Waiting until age 50 to start planning may not provide enough time to accumulate the necessary funds. Annual savings of at least $100,000 may not be feasible for many individuals. Investing retirement funds in riskier investments may not be appropriate for those who have a shorter time frame until retirement. Estimating the inflation factor accurately is important and should not involve reducing inflation projections.

Question 16

Workers who elect to retire early-at age 72-will receive reduced Social Security retirement benefits.

Accepted Answer

The retirement age for full Social Security benefits is currently 66 or 67, depending on the year you were born. However, you can choose to begin receiving reduced benefits as early as age 62. The statement incorrectly cites the retirement age as 72.

Question 17

Contributions to employer-sponsored profit-sharing retirement plans are invested only in securities issued by the employing firm itself.

Accepted Answer

Employer-sponsored profit-sharing retirement plans typically offer a variety of investment options for participants, including stocks, bonds, and mutual funds. While some plans may offer employer stock as an investment option, it is not the only investment option available and is often limited to a certain percentage of the total investment portfolio.

Question 18

An annual contribution of $3,000 to a retirement account that earns 6% will be worth approximately _____ in 20 years. (Use the table of future value annuity factors or a financial calculator. Round to the nearest whole dollar.)

Accepted Answer

To calculate the future value of an annuity (in this case, annual contributions to a retirement account), you can use the future value annuity formula: FV = P * [((1 + r)^n - 1) / r], where P is the payment amount, r is the annual interest rate (as a decimal), and n is the number of periods. Plugging in the values ($3,000 annual contribution, 6% interest rate, and 20 years), the calculation gives a future value of approximately $110,360.

Question 19

The purpose of the Social Security Act of 1935 was to create a basic program to:

Accepted Answer

The Social Security Act of 1935 was designed to provide a basic and adequate income to eligible retirees, ensuring financial support for Americans during retirement.

Question 20

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

Accepted Answer

The answer of Which of the following statements regarding Social...

Quiz 14: Planning for Retirement