Personal Finance Ch. 18

Studies show that about 75% of workers expect to maintain at least the same standard of living during retirement as before retirement, but only ______ have saved for retirement.

20%

Most Americans need to expect to spend between 16 and ___ years in retirement

30

In a reverse annuity mortgage, the lender pays the homeowner a fixed amount per month, and the mortgage principal is repaid to the lender

After death

Which of the following are the disadvantages of individual saving and investing as sources of income for retirement?

Current needs compete with future (retirement) needs Mandatory minimum withdrawals during retirement Penalties for early withdrawal from vehicles such as IRAs and Keogh accounts

Social Security provides more benefits than just retirement protection, including survivors' benefits and benefits to ______ persons

Disabled

With a Roth IRA, contributions are not tax deductible, but __________ accumulate tax free.

Earnings

True or false: A plan that specifies the benefits the employee will receive at the normal retirement age is called a defined-contribution plan.

False

True or false: An Individual Retirement Account (IRA) is an account where the employer deposits money for each individual employee.

False

Which of the following best describes how the annual increase in Social Security benefits works?

It is automatic based on the preceding year's increase in the cost of living.

Sources of retirement income include Social Security, other public __________ plans, employer pension plans, personal retirement plans, and __________.

Pensions Annuities

Retirement planning involves both _____ and financial components.

Personal

Emotional planning for retirement involves identifying your _______ goals and setting out to ______ those goals.

Personal Meet

Reducing the face value of your life insurance will reduce your

Premiums

Based on U.S. Bureau of Labor Statistics, which of the following is true?

Retired families spend greater

Also called an equity conversion, a _________ annuity mortgage involves using the home as collateral to buy an annuity for the borrower from a life insurance company that will provide current income.

Reverse

The IRA that has contributions that are not tax deductible is a

Roth IRA

If you take a lump-sum distribution from your IRA, how will the amount be treated for tax purposes?

The entire amount will be taxed as ordinary income.

True or false: When planning for a successful retirement savings plan, one must constantly focus on the plan and evaluate regularly.

True

From the list below, select those investments that can be held in an IRA.

U.S. minted gold and silver coins bonds stocks real estate savings accounts certificates of deposit annuities

A deferred annuity provides income that will start at a _________ date.

future

Which of the following investments are prohibited from being held in an IRA?

precious metals collectibles life insurance securities bought on margin

An IRA entails the establishment of a _________ account.

trust

If you are born after 1928, you become eligible for Social Security retirement benefits if you have

40

Based on the U.S. Bureau of Labor Statistics report, retirees spend more of their income than workers for which of the following?

Health care

A spousal IRA lets you contribute up to the same amount as you can to your own IRA for your

Nonworking

It is quite possible that Social Security and private ________ may not be enough to support your desired standard of living during retirement and that ________ will diminish your purchasing power.

Pension Inflation

With a _________ bonus plan, your employer's contribution is used to buy shares of your employer's stock, which is held in __________ until you retire.

Stock Trust

True or false: The use of an emergency fund during retirement is for unexpected situations that arise.

True

A spousal IRA lets you ____________ up to the same amount as a traditional IRA for your spouse if you file a joint tax return.

contribute

Your right to at least part of the benefits accrued under a pension plan is called

vesting

The two most important initial questions to ask about a private pension plan are:

when do I become eligible for pension benefits? what will be the benefits?

The financial decisions related to housing as you try to maximize current income and prepare for retirement might include:

a smaller house is not only less expensive, but less costly to maintain than a larger home. selling your home and buying a smaller less-expensive home.

A defined-contribution plan in which your employer promises to set aside a certain amount for you each year is called a:

money-purchase pension plan.

An SEP-IRA is the simplest type of retirement plan if you are fully or partially

self-employed

To get the benefits of the power of compounding, you should begin saving for retirement while you are still

young

The increase in Social Security benefits if you retire at an age greater than 65 can best be summarized as:

your benefit will increase by a quarter of 1% for each month past age 65 that you delay retirement up to age 70.

For a traditional IRA, you can contribute up to $6,000 per year if you are under age 50 and up to $7,000 if you are over age

50

Up to ______% of your Social Security benefits could be subject to federal income tax if your adjusted gross income exceeds a certain amount.

85

Which of the following best describes the tax rules with regards to the payments from an annuity?

Annuity payments that exceed your premiums are taxed as ordinary income when you receive them.

According to the Securities and Exchange Commission, the easiest ways to boost your retirement savings are to take advantage of your employer's matching some or all of your ______ to the retirement plan, focus on low fees and expenses, and save by regular, automatic deductions from your paycheck.

Contributions

Which of the following are rules of the education IRA?

Contributions do not reduce current taxes. Accumulates earnings tax free. You can contribute up to $2,000 per year per child under age 18.

Which of the following are the disadvantages of employee pension plans?

Cost-of-living increases may not be provided. There is no control over how the funds are invested. It may not be portable from job to job.

The education IRA is also called the

Coverdell education savings account

Defined-contribution plan

Employees bear investment risk.

Defined-contribution plan

Employees manage investments among choices designated by employer.

True or false: A person must work 20 years to be eligible for Social Security retirement benefits.

False

True or false: During retirement, Social Security payments are tax free.

False

True or false: It is mandatory to start saving a large amount very early because retirement will be expensive.

False

True or false: Social Security payments are increased annually based on the average cost of living increases for the prior three years.

False

Expenses that may increase as a result of retirement include recreation, health insurance, and

Health

Defined-benefit plan

High administrative costs when employee turnover is high

To avoid the mandatory 20% federal income withholding, rollover of a retirement account balance must be made directly to a(n):

IRA

Which of the following are the advantages of Social Security as a source of retirement income?

It is a forced savings program. The cost of the program are shared with the employer. It is portable from job to job.

Which of the following are rules of an SEP-IRA?

It is an IRA funded by the employer. Contributions are tax deductible. Each employee sets up an IRA with a bank or brokerage house.

The amount of your required minimum distribution from your retirement plan (starting at age 70.5) is based on your _______ expectancy at the time of the distribution

Life

Traditional IRA

Limited eligibility for tax-deductible contribution with earnings accumulating on a tax-deferred basis.

Federal income taxes will probably be _________ during retirement for many people.

Lower

A deferred annuity is purchased with a(n) _________ sum and is also known as a single-premium deferred annuity.

Lump

Which of the following expenses will probably be incurred during retirement?

Medical expenses

For most tax-qualified retirement plans, including 403(b), 401(k), and all IRAs except the Roth IRA, there are __________ lifetime distributions at age 70.5.

Minimum

Financial planning for retirement involves assessing your post retirement ________ and income and plugging any ______ you find.

Needs Gaps

Two strategies with regards to life insurance that may be employed to make retirement affordable involve drawing on the cash value and reducing the __________ payments by reducing the __________ value.

Premium face

A rollover IRA is a(n) ______ IRA that accepts distributions from a retirement plan or from another ________.

Traditional IRA

True or false: A Roth IRA may be better for you than a traditional IRA depending on your anticipated tax bracket.

True

True or false: Retirement planning includes two components: emotional and financial.

True

True or false: Social Security provides income for retirement, disability, and survivors.

True

True or false: Sources of income for many retirees are Social Security, other public pension plans, employer pension plans, personal retirement plans, and annuities.

True

True or false: The contributions and earnings of an employer-sponsored pension plan accumulate tax free until you withdraw them.

True

True or false: Typical retiree housing considerations include cost of maintenance, taxes, transportation, and proximity to shopping and entertainment.

True

True or false: When researching a retirement location, factors such as year-round climate, available transportation, and taxes should be considered to determine what you will give up and what you will gain.

True

Private pensions ______, so you should ask questions about your employer's plan.

Vary

Which of the following are rules of the traditional IRA?

You can contribute up to $7,000 to a traditional IRA if you are over age 50. You can contribute up to $6,000 to a traditional IRA if you are under age 50. Distributions are taxable. The contributions could be tax deductible.

Which of the following are true about the rules of a Roth IRA?

You can make contributions after age 70.5. Earnings accumulate tax free. Five years after establishing the account, you can withdraw tax-free distributions if you are at least age 59.5. Contributions are not tax deductible.

The reduction in Social Security benefits that occur if you retire early (age 62) can best be summarized as which of the following?

a permanent reduction of five-ninths of 1% for each month you receive payments before age 65

A defined-contribution retirement plan provides an individual _______ for each participant.

account

Your first step in retirement planning is to analyze your current _____ and liabilities.

assets

According to the text, 75% of workers expect to live as well as, if not better than, they do now when they retire, but only 20% have ______

begun saving

The earnings on 401(k), 457, and 403(b) plans are tax-_______ until they are withdrawn.

deferred

Fill in the blank question. The 403(b) and 401(k) accounts are examples of employee retirement _________ -contribution plans.

defined

Which plan's retirement payments are dependent on investment returns?

defined-contribution plan

An employer pension plan usually involves contributions by you and your

employer

The very first steps of retirement planning include:

estimating your spending needs and adjusting for inflation. analyzing your current assets and liabilities. evaluating your planned retirement income.

Expenses that may increase as a result of retirement include recreation, health insurance, and

health

If you work for a nonprofit or the government, you can take advantage of tax-sheltered plans, such as Section 457 and 403(b) plans, which lower your taxable ___________ by the amount of your annual contribution.

income

The first step in stretching your retirement earnings is make sure you are receiving all the __________ you are entitled to.

income

During retirement, __________ will probably cause your cost of living to increase.

inflation

With a Roth IRA, contributions are not tax deductible, but ________ accumulate tax free.

interest

Upon retirement, you might consider selling your house and buying a smaller, more easily maintained house to decrease your

maintenance costs

The expenses that may increase as a result of retirement include

medical costs recreation health insurance

Which of the following are reasons why many believe that the Social Security system will have financial problems in the years to come?

more workers retiring early flood of baby boomers retiring less workers supporting retirees longer life expectancies

A Keogh plan is a qualified _________ plan in which tax-_________ contributions fund the retirement of self-employed people and their employees.

pension deductible

Which of the following types of people should be investing in an annuity?

people who have fully funded all other retirement options and still have retirement income needs

A feature called plan ________ allows you to carry earned benefits from one employer's pension plan to another when you change jobs. This is a one-word answer.

portability

With a money-_________ pension plan, the employer promises to set aside a certain amount of money for you each year.

purchase

The expenses that may increase as a result of retirement include

recreation medical costs health insurance

In a stock bonus plan, your employer's contribution is used to buy stock in your company, which is held until you

retire

A 401(k) plan and the nonprofit equivalent, called a 403(b) plan, are _________ reduction plans that reduce your salary by the amount of your contributions and result in a lower current tax liability.

salary

A Keogh plan is a qualified pension plan developed for

self-employed people and their employees

Emotional planning for retirement involves:

setting personal goals and setting out to meet those goals.

To stay within your income, you may also need to make some changes in your

spending

Ways retirees can uncover hidden costs before moving include:

talk to retirees and other local residents. contact the province's tax department. call the local chamber of commerce.

Withdrawing funds from your IRA before age 59.5 usually results in a 10% _________ in addition to the entire amount of the withdrawal being taxable as ordinary income.

tax

One of the biggest traps to avoid when considering retirement housing is to avoid hidden

taxes

The use of an emergency fund during retirement is for ______ situations that arise.

unexpected

A Roth IRA may be better for you than a traditional IRA if you are saving for your first home or retirement at age 59.5, as the ________ can be made tax free and without penalty.

withdrawals