Chapter 18: starting early

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

20%

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.

If you are born after 1928, you become eligible for Social Security retirement benefits if you have _____ quarters of coverage.

Blank 1: 40 or forty

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 _____.

Blank 1: 50 or fifty

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

Blank 1: account

A(n) _____ is a contract that provides an income for a certain number of years or for life.

Blank 1: annuity

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

Blank 1: assets

The 403(b) and 401(k) accounts are examples of employee retirement _____-contribution plans.

Blank 1: defined

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.

Blank 1: distributions or withdrawals

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

Blank 1: earnings or interest

An employer pension plan usually involves contributions by you and your _____.

Blank 1: employer

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

Blank 1: income

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

Blank 1: income

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

Blank 1: inflation

One of the first steps involved with retirement planning is estimating your spending needs and adjusting for _____.

Blank 1: inflation

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.

Blank 1: life

An annuity is a contract that could provide retirement income for _____.

Blank 1: life or lifetime

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.

Blank 1: minimum

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

Blank 1: needs, goals, or plans Blank 2: gaps or holes

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

Blank 1: needs, goals, or plans Blank 2: gaps or holes

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

Blank 1: pension Blank 2: annuities or savings

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

Blank 1: purchase

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.

Blank 1: salary, income, wages, wage, or earnings

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

Blank 1: spending

The minimum required distribution is based on life expectancy _____ produced by the IRS.

Blank 1: tables, factors, estimates, or data

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.

Blank 1: tax, penalty, or taxation

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

Blank 1: taxes

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

Blank 1: traditional Blank 2: IRA

An IRA entails the establishment of a _____ account.

Blank 1: trust or custodial

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

Blank 1: unforeseen, unexpected, unplanned, emergency, unanticipated, unknown, unpredicted, accidental, unprectibale, or unprecidented

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

Blank 1: vesting or vested

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

Blank 1: young or younger

The education IRA is also called the Blank______.

Coverdell education savings account

Which of the following are rules of the traditional IRA?

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

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

Earned income may partially offset benefits Minimum retirement age specified Increasing pressure on system as population ages

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

False

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

False

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

False

True or false: One of the reasons that Social Security is expected to have problems in the future is the shorter life expectancy of Americans.

False

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

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

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 disadvantages of individual saving and investing as sources of income for retirement?

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

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.

Which of the following describes tax implications of withdrawing from an IRA before age 59.5?

The withdrawal will be taxed as ordinary income, and a 10% penalty will be applied.

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

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

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

True

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

True

True or false: Under a defined-benefit plan, the plan's actuary determines the annual employer contribution.

True

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

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

Which of the following are rules of the education IRA?

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

Vesting means:

an employee's right to receive at least part of the benefits that have accrued under an employer pension plan.

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 Blank______.

begun to save

When you find a retirement city that appeals to you, you should visit the area during various times during the year to experience the year-round Blank______.

climate

Ways retirees can uncover hidden costs before moving include:

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

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 Blank______ to the retirement plan, focus on low fees and expenses, and save by regular, automatic deductions from your paycheck.

contributions

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.

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

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

The potential Blank______ due to inflation is what makes planning ahead so important.

loss of buying power

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

maintenance costs

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.

Housing needs often change as people grow Blank______.

older

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

Select each of the following that are IRA withdrawal options:

placing it in an annuity that guarantees payments over your lifetime installments over your life expectancy lump sum

Financial planning for retirement involves assessing your post-retirement needs and income and:

plugging any gaps you find.

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

precious metals life insurance collectibles securities bought on margin

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

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

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

securities bought on margin life insurance precious metals collectibles

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

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

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

vary

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

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