Module 12

Imagine that you have figured out that you will need to save $1.21 million before you can comfortably retire. If you want to be able to retire in 40 years and if you can earn a 5% return on your retirement account investments, how much money do you have to put into the account each year to reach your savings goal? A. $10,000 B. $13,000 C. $16,000 D. $19,000 E. $22,000

A. $10,000

All of the following statements are true with regard to Roth IRAs EXCEPT: A. Contributions are tax-deductible B. Eligibility ends above a certain income level C. Contributions can be made even after retirement D. Money in the account can be withdrawn tax-free after five years to pay for a house E. Money can be withdrawn tax-free after five years if you are over the age 59.5

A. Contributions are tax-deductible

Suppose you are 70 years old and have saved up $1.4 million for your retirement. If you can earn 4% interest on any unspent portion of your retirement account, for how many years can you withdraw $100,000 before your account is fully depleted? A. 15 B. 17 C. 19 D. 21 E. 23

D. 21

Which of the following terms is most appropriate for describing the tax treatment of employee contributions to most defined-contribution, employer-sponsored retirement plans: A. Tax deductible B. Tax avoided C. Tax credited D. Tax deferred E. Tax randomized

D. Tax deferred

Retirement experts often refer to a "three-legged stool" of retirement income. These three legs are: A. Personal savings, social security, and employer-sponsored retirement plan B. Employment income, personal savings, and employer-sponsored retirement plan C. Inheritance, social security, and personal savings D. Inheritance, social security, and employer-sponsored retirement plan E. Employment income, social security, and employer-sponsored retirement plan

A. Personal savings, social security, and employer-sponsored retirement plan

Which of the following statements about the Social Security program in the United States is NOT correct? A. It redistributes income from more wealthy to less wealthy people B. It is received my more men than women C. Almost half of single recipients rely on it for 90% or more their income D. Current workers pay for current retirees E. It is a social insurance program.

B. It is received my more men than women

People often take money they have accumulated during their working years and buy an annuity. All of the following are variations that are possible with an annuity EXCEPT: A. Withdrawals can be immediate or deferred B. Taxes are typically paid each year on the account balance C. Contributions can be one large payment or installments over time D. The amount of money received each year can be fixed or variable E. Annuities can be purchased that may a death benefit if the annuitant dies

B. Taxes are typically paid each year on the account balance

Assuming that you have met the work qualifications to receive Social Security benefits, your monthly benefit check will go up for every year that you delay the start of benefits up until the age of: A. 62 B. 66 C. 70 D. 74 E. There is no age at which benefits cease increasing.

C. 70

Imagine today is your 68th birthday and you decide to retire as of tomorrow morning. You have an annuity that pays you $80,000 per year for as long as you live after retirement, but the payments are not adjusted upward each year to reflect any inflation. If inflation can be expected to average 6% per year, use the rule of 72 to determine how old you will be when the purchasing power of your annuity will have been cut in half,, that is, to the equivalent of only $40,000 today: A. 72 years old B. 76 years old C. 80 years old D. 84 years old E. 88 years old

C. 80 years old

In the world of retirement money, the technical phrase for a shift of money from an employer-sponsored retirement plan to a personal retirement plan is: A. Carry forward B. Withdrawal C. Rollover D. Amortization E. Down payment

C. Rollover

Roth IRAs generally make the most sense for which of the following types of people: A. Self-employed people B. Women C. Young people D. Members of the U.S. military E. Married people

C. Young people

Imagine a company that offers a defined contribution retirement savings program in which the individual employee can contribute up to 5% of her salary, and this contribution will be matched dollar-for-dollar by the employer. The employer also provides that the employee is fully "vested" in the retirement plan after three years. After this point in time, the individual employee typically can take which of the following upon leaving or quitting the job: A. 50% of the individual contribution and 50% of the employer contribution B. 50% of the individual contribution and 100% of the employer contribution C. 75% of the individual contribution and 75% of the employer contribution D. 100% of the individual contribution and 50% of the employer contribution E. 100% of the individual contribution and 100% of the employer contribution

E. 100% of the individual contribution and 100% of the employer contribution

A 401(k) plan is best described as: A. A defined-benefit education plan offered by a public employer B. A defined-benefit retirement plan offered by a public employer C. A defined-benefit retirement plan offered by a private employer D. A defined-contribution retirement plan offered by a tax-exempt employer E. A defined-contribution retirement plan offered by a private sector employer

E. A defined-contribution retirement plan offered by a private sector employer

Which of the following statements about reverse mortgages is NOT correct: A. They can provide regular payments until a homeowner dies B. Potential users are required to take a counselling course C. Home owners are responsible for property taxes and home insurance D. They are federally insured E. Anyone is eligible for one if they have enough equity in their home

E. Anyone is eligible for one if they have enough equity in their home

Keogh plans are most relevant to the retirement planning of which of the following groups: A. Disabled people B. Widows and widowers C. Parents of college students D. Same-sex couples E. Self-employed people

E. Self-employed people