Question 1

A person who is self-employed on a part-time basis can qualify for a Keogh account.

Accepted Answer

Keogh accounts are designed for self-employed individuals or sole proprietors, including those who work on a part-time basis.

Question 2

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

Accepted Answer

Studies have shown that many people tend to invest too conservatively in their retirement funds, which can result in a lower return on investment and potentially not having enough money saved for retirement.

Question 3

Today, more than 50% of all wage earners and salaried workers are covered by some type of employer-sponsored retirement or profit-sharing plan.

Accepted Answer

According to a survey conducted by the Employee Benefit Research Institute in 2020, 53% of all wage and salary workers participated in an employer-sponsored retirement plan.

Question 4

About 40% of people have not calculated how much they need to retire.

Accepted Answer

According to a 2019 survey by the Center for Financial Services Innovation, about 40% of Americans had not calculated how much money they need to save for retirement.

Question 5

The current trend in retirement plans is toward contributory plans.

Accepted Answer

Contributory plans, such as 401(k)s, are becoming more popular than traditional defined benefit plans in which the employer bears the primary responsibility for funding the plan.

Question 6

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

Accepted Answer

Profit-sharing plans allow employees to receive a portion of the profits earned by their employer, thus enabling them to directly benefit from the company's financial success.

Question 7

If Lisa, age 64, works part-time, she will be subject to an earnings test that limits the amount of income she can earn before she starts losing some of her Social Security benefits.

Accepted Answer

This is true. The earnings test applies to Social Security beneficiaries who have not reached full retirement age and are still working. If they earn over a certain limit, their benefits may be reduced. For the year 2021, the earnings limit is $18,960 for those under full retirement age.

Question 8

In long-term retirement planning, you decide on the required level of retirement income and funds needed over a 3- to 5-year series of intervals.

Accepted Answer

In long-term retirement planning, you decide on the required level of retirement income and funds needed over a period of several decades, not just a 3- to 5-year series of intervals.

Question 9

SEP plans are aimed at self-employed persons with no employees.

Accepted Answer

SEP plans, also known as Simplified Employee Pension plans, are intended for self-employed individuals without any employees.

Question 10

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 a longer time horizon for investment growth and compounding, resulting in larger savings. Waiting until age 45 may require a much larger percentage of income to be saved each year in order to achieve retirement goals.

Question 11

Self-employed workers pay twice as much for Social Security coverage compared to employed workers.

Accepted Answer

Self-employed workers are responsible for both the employer and employee portions of Social Security taxes, which is why they pay twice as much as employed workers.

Question 12

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

Accepted Answer

Contributions to employer-sponsored profit-sharing retirement plans are typically invested in a variety of securities, not just those issued by the employing firm. This helps to diversify the investment portfolio and reduce risk.

Question 13

Traditional defined benefit plans are better suited than cash-balance plans for a mobile workforce.

Accepted Answer

Cash-balance plans are generally considered better for a mobile workforce because they offer portability and the benefits are easier to understand and transfer when changing jobs, unlike traditional defined benefit plans which are typically more advantageous for long-term employees.

Question 14

Employees of state and local governments cannot participate in the Social Security system.

Accepted Answer

Most employees of state and local governments are required to participate in the Social Security system, with only a few exceptions such as certain elected officials and some public school teachers in certain states.

Question 15

Matching contributions by employers are more common with 403(b) and 457 plans than with 401(k) plans.

Accepted Answer

Matching contributions by employers are more common with 401(k) plans than with 403(b) and 457 plans, as 401(k)s are primarily used in the private sector where employer matches are more prevalent.

Question 16

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

Accepted Answer

Setting retirement goals is the first step in retirement planning. Without knowing what one wants to achieve in retirement, it is difficult to create a plan to reach those goals.

Question 17

If a covered worker dies, the surviving spouse can receive full survivor's benefits from Social Security if he or she is at least 60 years of age or has a dependent and unmarried child of the deceased worker in his or her care.

Accepted Answer

The answer of If a covered worker dies, the surviving...

Question 18

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

Accepted Answer

The age for full retirement benefits varies depending on the year of birth, but it is generally between age 66 and 67. Age 72 is not a factor in Social Security retirement benefits.

Question 19

The most popular type of supplemental retirement program is the 401(k) plan.

Accepted Answer

The 401(k) plan is widely regarded as the most popular type of supplemental retirement program, as it allows employees to contribute a portion of their pre-tax income towards their retirement savings.

Question 20

In recent years, earned income has accounted for a growing amount of total retirement income.

Accepted Answer

With the decline of traditional pension plans and the increase in popularity of defined contribution plans like 401(k)s, many retirees are relying more on their own savings and investments to supplement their Social Security benefits. This means that earned income (such as working part-time or starting a small business) is playing a larger role in total retirement income.

Quiz 14: Planning for Retirement