Question 1

When estimating retirement needs,you should estimate

Accepted Answer

When estimating retirement needs, it is important to consider all relevant factors including retirement expenses, sources of retirement income, and additional retirement savings needed to meet financial goals. Therefore, all of the choices (A, B, and C) are important to consider when estimating retirement needs.

Question 2

Translating your current required annual retirement savings amount into a percentage of total income and then investing that same percentage throughout your working life will help you build a retirement savings fund that keeps up with Social Security.

Accepted Answer

Investing a consistent percentage of your total income throughout your working life helps to ensure that your retirement savings grow at a rate that keeps pace with inflation, maintaining the purchasing power of your savings over time.

Question 3

Financial experts estimate that retirees need at least ____ percent of their preretirement income to live comfortably.

Accepted Answer

Financial experts commonly estimate that retirees need between 80 to 100 percent of their preretirement income to maintain their standard of living and live comfortably in retirement. This range accounts for the reduction in certain expenses but also the potential increase in others, such as healthcare.

Question 4

Women need to save more money for retirement than men because they

Accepted Answer

All of these are factors that contribute to women needing to save more money for retirement than men. Women typically receive lower Social Security benefits due to lower lifetime earnings, and they also tend to have lower employer retirement benefits. Additionally, women generally live longer than men, meaning they need to save more money to cover a longer retirement period.

Question 5

The main purpose of using a tax-sheltered retirement account to invest for retirement is to

Accepted Answer

The main purpose of using a tax-sheltered retirement account is to let you accumulate more money for retirement. By contributing pre-tax dollars, your money grows tax-free until you withdraw it in retirement, allowing you to potentially accumulate more money over time. This can help ensure a more secure financial future for you in retirement.

Question 6

The best way to get an estimate of future Social Security benefits is to

Accepted Answer

Ordering your Social Security Estimate online from the Social Security Administration is the best choice for getting an estimate of future Social Security benefits. This official tool considers your earnings record and provides a personalized estimate of your future benefits. Contacting an accountant or looking it up in a manual may not provide the most accurate information, and calculating it based on personal data may be prone to errors.

Question 7

The primary purpose of the Employee Retirement Income Security Act (ERISA) is to

Accepted Answer

The Employee Retirement Income Security Act (ERISA) was enacted to regulate employer-sponsored pension plans and protect the rights of plan participants and beneficiaries. ERISA sets standards for reporting, disclosure, fiduciary responsibility, and vesting requirements for pension plans. It also established the Pension Benefit Guaranty Corporation, which provides insurance to protect pensions in case of plan termination. ERISA does not collect taxes on retirement benefits or require employer-sponsored pension plans for large companies, as stated in options C and D.

Question 8

Making tax-deferred deposits into a retirement account means that the funds are

Accepted Answer

Tax-deferred deposits into a retirement account means that the money is not taxed when it is deposited, but it will be taxed later when it is withdrawn. This is because the money in a retirement account is intended for use in your retirement, when your income and tax bracket are likely to be lower than during your working years. By deferring taxes until withdrawal, you get the advantage of tax-free growth on your investments, which allows your savings to compound more quickly over time.

Question 9

Which descriptor below indicates that the funds in that type of retirement account will be eligible for a tax-free withdrawal?

Accepted Answer

Roth accounts, such as Roth IRAs, allow for tax-free withdrawals in retirement because contributions are made with after-tax dollars.

Question 10

The amount of one's retirement account value depends directly on the success of investments in the retirement fund if your retirement account is a ____ retirement plan.

Accepted Answer

In a defined-contribution retirement plan, such as a 401(k) or IRA, the amount of money you have at retirement depends on the performance of the investments in the account. With a defined-benefit plan, your retirement benefit is predetermined and not based on investment performance. Cash-balance plans combine features of both defined-benefit and defined-contribution plans, and vested simply refers to the employee's ownership of their retirement benefits.

Question 11

How many years are you allowed for correcting any errors in your earnings history as listed in your Social Security Estimate?

Accepted Answer

The Social Security Administration allows you three years to correct any errors in your earnings history.

Question 12

An employer-sponsored retirement plan in which the employer or the employee puts money in a retirement account for the employee,and the amount of the retirement benefit depends on how well the investment yields,is called a

Accepted Answer

In a defined-contribution plan, the amount of money that an employee contributes to their retirement fund is known, but the future retirement benefits are uncertain and depend on how well the investments perform. This is different from a defined-benefit plan, where the employer guarantees a specific retirement benefit to the employee. A tax-sheltered annuity is a type of retirement plan that lets employees save for retirement on a tax-deferred basis, often offered by non-profit organizations. A profit-sharing plan is a type of retirement plan where the employer contributes a portion of the company's profits to the plan and the amount of retirement benefits received by employees depends on how much the employer contributes.

Question 13

To account for inflation,the income you earn over the years is ____ in order to calculate your Social Security benefits.

Accepted Answer

In order to account for inflation, the income you earn over the years is indexed, meaning that it is adjusted to reflect changes in the cost of living. This adjusted income is then used to calculate your Social Security benefits, ensuring that your benefits keep up with the rising cost of living over time.

Question 14

If deductible,the funds deposited into a tax-sheltered retirement account are

Accepted Answer

If funds are deposited into a tax-sheltered retirement account with a deductible option, it means that the contribution is made with pretax money, which reduces the taxable income in the year the contribution was made. Therefore, the correct answer is B - pretax money.

Question 15

Employer-sponsored retirement plans that are approved by the IRS are said to be

Accepted Answer

Employer-sponsored retirement plans that are approved by the IRS are referred to as qualified plans. These plans receive certain tax benefits and typically require employees to meet certain eligibility criteria in order to participate.

Question 16

____ means that on termination of employment,an employee can keep his or her savings in a tax-sheltered account by transferring the retirement funds from the employer's account to another account without penalty.

Accepted Answer

Portability refers to the ability of an employee to transfer their retirement savings or benefits from one employer's plan to another's or into an individual retirement account (IRA) without losing their accumulated benefits or facing penalties. This is crucial for maintaining the continuity of retirement savings, especially for employees who change jobs frequently.

Question 17

You can set up your retirement plan account to go to a designated heir upon your death outside of your will by completing a

Accepted Answer

The best choice is to complete a beneficiary designation form because it specifies who will receive the retirement plan account upon the account holder's death. This designation supersedes any instructions in the account holder's will.

Question 18

The age at which retirees born in 1960 or later will be able to receive full Social Security benefits

Accepted Answer

The full retirement age for those born in 1960 or later is 67.

Question 19

In a tax-sheltered retirement plan which of the following is always true?

Accepted Answer

The answer of In a tax-sheltered retirement plan which of...

Question 20

Upon termination of employment,an employee can keep his or her savings in a tax-sheltered account by transferring the retirement funds from the employer's account to another account without penalty in a protection called

Accepted Answer

The protection that allows an employee to transfer retirement funds from an employer's account to another account without penalty is called portability. This allows the employee to keep their savings in a tax-sheltered account even after termination of employment. Severance refers to the compensation or benefits that an employee receives upon termination, while vesting refers to the process by which an employee becomes entitled to a certain percentage of their employer's contributions to a retirement plan over time. Sheltering is not a term commonly used in this context.

Quiz 17: Retirement and Estate Planning