Question 1

As people reach retirement age, what is the most likely housing choice they would make? Assume they are moving to a new geographic area.

Accepted Answer

As people reach retirement age, they often prefer to move to a house that is close to the city bus line or other modes of public transportation. This makes it easier for them to get around without having to drive. Additionally, they may want to be close to amenities such as shopping, healthcare, and entertainment, which are typically found in urban or suburban areas. A split-level house with two sets of stairs may not be ideal for older individuals who may have mobility issues, and a large, remote property may be difficult to maintain. A rental apartment may be a good option for some retirees, but many prefer to own their own home in retirement.

Question 2

Karen Endicott is planning for her retirement. She knows that after she retires she will no longer need her own single family dwelling. She plans on buying a condominium in Chicago, close to the bus and train line and close to a grocery store. What step in the retirement planning process is Karen completing?

Accepted Answer

Karen is evaluating her retirement housing by planning to buy a condominium in a specific location that meets her needs.

Question 3

What is most likely to be an individual's single biggest asset?

Accepted Answer

A home is likely to be an individual's single biggest asset as it has the potential to appreciate in value over time and can also provide rental income. Automobiles, jewelry, bank accounts, and furniture may have value, but are not typically as significant in terms of overall worth.

Question 4

As its retirement plan contribution, Aaron Copeland's employer has been buying shares of the company's stock for Aaron's benefit. What type of retirement plan does Aaron most likely have?

Accepted Answer

The employer buying shares of the company's stock for the employee's benefit is a characteristic of a stock bonus plan.

Question 5

Which one of the following is a disadvantage associated with Social Security retirement income?

Accepted Answer

One disadvantage associated with Social Security retirement income is that earned income can partially offset benefits. If a retiree earns above a certain amount, they may have a portion of their Social Security benefits withheld.

Question 6

Beverly Foster is planning for her retirement. She has determined that her car is worth $10,000, her home is worth $150,000, her personal belongings are worth $100,000, and her stocks and bonds are worth $300,000. She owes $50,000 on her home and $5,000 on her car. What step in the retirement planning process is Beverly completing?

Accepted Answer

Beverly is analyzing her current assets and liabilities by determining the value of her car, home, personal belongings, stocks and bonds, and subtracting the amounts she owes on her home and car. This step is important in understanding her current financial situation and determining how much she needs to save for retirement.

Question 7

Which type of annuity gives more income per dollar of outlay than any other type?

Accepted Answer

The straight life annuity provides the highest income per dollar of outlay because it only provides payments for the life of the annuitant and does not have any other guarantees or provisions. This means that the insurance company can make higher payments because there is a greater risk that the annuitant may die before the entire principal is paid out.

Question 8

When should you apply for Social Security?

Accepted Answer

It is best to apply for Social Security three months before you plan on retiring. This will ensure that your benefits start as soon as possible after you retire. Applying early also provides a cushion for any potential delays or complications in the application process.

Question 9

Nancy Moore is planning for her retirement. She guesses that by the time she retires her mortgage will be paid off on her home. She expects she will pay $600 a month on food and that her medical expenses will be $400 a month. She also estimates that she will spend $400 a month on things that she enjoys like traveling, going to concerts, reading and other similar activities. What step in the retirement planning process is Nancy completing?

Accepted Answer

Nancy is estimating her spending needs for retirement, which is a crucial step in retirement planning. By determining her expected expenses, she can better evaluate her planned retirement income and determine if she needs to adjust her savings or investment strategies.

Question 10

What happens to your Social Security income if you retire early?

Accepted Answer

If you retire early, your Social Security income will be permanently reduced by 5/9 of one percent for each month that you retire early. For example, if you retire 36 months early (3 years), your benefit will be permanently reduced by 20 percent (36 x 5/9 of one percent). This reduction is in effect for the rest of your life.

Question 11

An annuity in which you receive an income for the rest of your life, but no payments are made to anyone after your death is called:

Accepted Answer

A straight life annuity provides guaranteed income for the life of the annuitant, but payments stop upon the annuitant's death. This can be a good option for individuals who are concerned about outliving their retirement savings. However, it does not provide any payments to beneficiaries or heirs after the annuitant's death.

Question 12

What type of annuity is generally purchased by people of retirement age?

Accepted Answer

Immediate annuities are generally purchased by people of retirement age as they provide immediate regular income payments.

Question 13

Janice Jacobs is planning for her retirement. She knows what assets and liabilities she has now and expects to have in the future. She knows what her spending patterns are likely to be and adjusted them for inflation. She also has identified all of her sources of income after she retires. Now she is sitting down and planning her income and expenses each month. After she has finished this plan, she knows that she has enough income to cover her expected expenses and still have $200 extra each month for emergencies and other unplanned activities. Even with inflation, she thinks she can sustain this plan for approximately 30 years. What step in the retirement planning process is Janice completing?

Accepted Answer

Janice is developing a balanced budget based on her retirement income, which is the last step in the retirement planning process. She has already analyzed her current assets and liabilities, estimated her spending needs, evaluated her planned retirement income, and is now creating a budget that meets her needs while still allowing for emergencies and unplanned activities.

Question 14

Which one of the following is probably the best suggestion for stretching your retirement income?

Accepted Answer

Using your skills and time instead of your money can help you save money and stretch your retirement income. You can take up hobbies or activities that do not require spending a lot of money, such as gardening, volunteering, or reading books from the library. This way, you can still have a fulfilling retirement without breaking the bank. Skipping leisure activities, cutting food expenditures, canceling insurance, or getting rid of health insurance can all have negative consequences and may not be the best options for stretching your retirement income.

Question 15

John Carpenter works as a manager of a retail store. His employer has been setting money aside for him each month in the amount of 7 percent of his monthly earnings. What type of retirement plan does John have?

Accepted Answer

A money-purchase pension plan is a type of defined contribution plan where the employer contributes a fixed percentage of the employee's earnings to their retirement account, which matches the description given for John Carpenter's retirement plan.

Question 16

In respect to your federal income taxes, which one of the following may you have to do during retirement, even if you did not have to do so prior to retiring? (Assume you have both pre- and post-retirement income.)

Accepted Answer

Upon retirement, you may have to file quarterly estimated tax returns if you have income from sources such as Social Security, pensions, or retirement account withdrawals that are not subject to tax withholding. This is because you may need to pay estimated taxes throughout the year to avoid underpayment penalties at the end of the tax year. Reporting dividend and interest income, filing an annual tax return, and listing all income sources may also be necessary during retirement, but they are not unique to retirement and may have already been required prior to retiring. Semi-annual tax returns are not a common requirement for federal income taxes.

Question 17

Once you retire, the first step in stretching your retirement income is to make sure that you are:

Accepted Answer

It is important to ensure that you are receiving all of the income to which you are entitled, such as Social Security benefits and any pension payments. This will help to maximize your retirement income and ensure that you are not missing out on any potential sources of income. Contributing to retirement accounts like 401(k) plans and IRAs can also help to stretch your retirement income, but ensuring that you are receiving all of your entitled income is the first step.

Question 18

If you work after age 65, your Social Security benefit will increase by one-fourth of one percent for each month you delay retirement up until what age?

Accepted Answer

Your Social Security benefit increases by one-fourth of one percent for each month you delay retirement up to age 70. After age 70, there is no longer any increase for delaying retirement.

Question 19

Rebecca Murphy is planning for her retirement. She has done some checking and thinks she will get about $1,025 a month from Social Security. She also thinks her pension plan will pay her about $1,125 per month. In addition, she has some personal retirement accounts that she thinks will pay her $500 per month. What step in the retirement planning process is Rebecca completing?

Accepted Answer

Rebecca is evaluating her planned retirement income and determining how much she can expect to receive from Social Security, her pension plan, and personal retirement accounts. This is an important step in the retirement planning process as it helps her determine if she will have enough income to cover her expenses in retirement.

Question 20

Ted Riley owns a vehicle worth $25,000 and a home worth $225,000. He has a checking account balance of $500, a savings account balance of $1,500, and a mutual fund worth $85,000. His personal assets are worth $90,000. He still owes $10,000 on his car, $100,000 on his home, and $1,000 on his credit card. What is Ted's net worth?

Accepted Answer

Assets (25,000 + 225,000 + 500 + 1,500 + 85,000 + 90,000) F1F1F1S1F1F1F10 Liabilities (10,000 + 100,000 + 1,000) = 427,000 F1F1F1S1F1F1F10 111,000 = $316,000.

Quiz 18: Starting Early: Retirement Planning