Ch. 18 Personal Finance

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%

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

40

With a(n) BLANK, your employer makes nontaxable contributions to the plan for your benefit and reduces your salary by the same amount.

401(k) plan

For a traditional IRA, you can contribute up to $5,500 per year if you are under age 50 and up to $6,500 if you are over age BLANK

50

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.

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

Contributions are not tax deductible. 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.

Which of the following are rules of the education IRA?

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

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

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

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 Penalties for early withdrawal from vehicles such as IRAs and Keogh accounts Mandatory minimum withdrawals during retirement

Which of the following are rules of the traditional IRA?

Distributions are taxable. You can contribute up to $5,500 to a traditional IRA if you are under age 50. You can contribute up to $6,500 to a traditional IRA if you are over age 50. The contributions could be tax deductible.

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

IRA

Select each of the following that are IRA withdrawal options.

Installments over your life expectancy Lump sum Placing it in an annuity that guarantees payments over your lifetime

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

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

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

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 describe 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.

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

account

Your first step in retirement planning is to analyze your current BLANK 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 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

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

deferred

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

earnings

An employer pension plan usually involves contributions by you and your

employer

The very first steps of retirement planning include:

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

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

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

goals, gaps

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

inflation

An annuity is a contract that could provide retirement income for BLANK

life

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

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

pension, savings

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

plugging any gaps you find

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

salary

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 BLANK by the amount of your annual contribution.

salary

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

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

traditional, IRA

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

true

An IRA entails the establishment of a BLANK account

trust

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

unexpected

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

vesting

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

withdrawals

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

young