Retirement Account Test

What is typically the most an employer will match in a 401k?

5-6%

What percentage of private-sector workers (doesn't work for the government) are NOT eligible for a 401(k) plan?

50%

What is the earliest age a current baby boomer can get social security retirement benefits?

62

If someone is 25, how much of their money should they invest in stocks?

80%, because they have time on their side and should never have 100% in stocks

Nothing about the account changes, even if you switch jobs...

Traditional IRA and Roth IRA

You make contributions from your bank account...

Traditional IRA and Roth IRA

True or False: If you save for your own retirement in a 401(k) or IRA, you still have to pay Social Security taxes from your paycheck

True

True or False: You'll receive more Social Security benefits if you wait until age 70 instead of collecting your benefits at age 65

True

When should someone start investing for retirement?

soon as you can, more time your money has to grow

What is brokerage?

the business of bringing buyers and sellers together in the marketplace

Dollar cost averaging refers to...

the fact that you can buy more shares with the same size investment when share prices are low

What is asset allocation?

the process of spreading your assets among several different types of investments to lessen risk

Which type of retirement account is an investment option for ANY young person entering the full-time workforce?

traditional IRA

True or False: 401Ks and 403Bs are employer sponsored, where IRAs can be opened at almost any brokerage firm.

true

True or False: A majority of companies do NOT offer pension plans today, so YOU will be responsible for your quality of life in retirement by making sound investment decisions

true

True or False: Currently, social security is only funded through 2037.

true

True or False: Short-term fluctuations in stock prices (volatility) can often spook investors to give up on investments when they should not

true

True or False: Since robo-advisors create diversified investment portfolios through automation, they are able to offer their services to investors with much smaller accounts than a typical financial advisor

true

True or False: Social security was never designed to be someone's complete retirement plan.

true

True or False: The "herd mentality" can lead investors to buy when share prices are high and to sell when share prices are low which is the opposite of an optimal strategy

true

True or False: The money you pay today supports those currently receiving benefits.

true

True or False: The tax advantage of a Roth IRA is that do not have to pay taxes on distributions.

true

True or False: The tax advantage of a Roth IRA is that you do not have to pay taxes on the money you withdraw.

true

True or False: When you start investing for retirement in your 20's, you should invest mostly in stocks since they have higher returns over the long-run

true

True or False: With IRAs, you have more control over where your money is invested than with 401Ks or 403Bs

true

Is monitoring investments on a day-to-day basis an investing mistake?

yes

Is purchasing a stock based on a tip from a friend an investing mistake?

yes

Is selling your stocks that have gone up in price and holding onto your stocks that have lost money hoping that they will rebound an investing mistake?

yes

What are two significant advantages of a 401(k) over an IRA?

you can put more money in the account and your employer will contribute

What are advantages of a 401(k)?

you don't pay taxes on your investments' growth each year, your employer may match some of your 401(k) contributions, and you can contribute up to $19,500, which is more than the limits for an IRA

How much of your income do experts recommend investing in a 401(k) account?

10%

Janice works at a company with a 401(k) match program. She earns $50,000 per year and the company agrees to match her contributions at the rate of $0.50 for every $1.00 she contributes, up to a maximum company contribution of 5%. To maximize how much does she need to contribute?

$5,000 (10% of her salary) per year

How many years do you have to work in order to receive retirement benefits?

10 years

True or False: In order to be eligible for Social Security, you must have worked for 35 years

False

The money you put into this retirement account has already had taxes taken out of it...

Roth IRA

What is THE question an investor should ask before investing in a Roth IRA or a Traditional IRA?

Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?

True of False: Most Americans will have enough money from Social Security to retire comfortably

False

True or False: In order to be eligible for Social Security, you must have worked at the SAME job for 10 years

False

Can you contribute to social security?

No

What is the biggest difference between a Traditional IRA and a Roth IRA?

Roth is taxed when you put it in and interest you earn in the Roth is not taxed again but traditional is taxed when you take it out.

Any contributions you make come directly from your paycheck...

Pension and Traditional 401k

Eligibility may be affected by how long you work with a given company...

Pension and Traditional 401k

Your company may contribute funds toward your retirement...

Pension and Traditional 401k

Your employer has some say in how the money is invested...

Pension and Traditional 401k

You're promised a fixed benefit each month, which may increase with inflation...

Pension only

You pay taxes when you eventually take the money out...

Pension, Traditional 401k, and Traditional IRA

You have some choice in how your contributions are invested...

Traditional 401k, Traditional IRA, and Roth IRA

Your total retirement benefit will depend on the risk level of the investments you chose...

Traditional 401k, Traditional IRA, and Roth IRA

Which type of retirement account is an investment option for ANY young person entering the full-time work force?

Traditional IRA

What happens if you don't take advantage of company matching in a 401k plan?

You are giving away free money

What is social security?

a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible

Describe a Roth IRA

a retirement account anyone can open that you fund with money that you've already paid taxes on, so it grows tax-free

What is a pension?

a retirement account where you receive a fixed amount every month and where your employer has almost complete control

About how much more does money grow when it's invested rather than deposited in a traditional savings account?

about 100 times more

What is a Roth 401k?

an employer-sponsored retirement savings account that is funded with post-tax money

When stocks go up...

bonds go down

An example of an employer sponsored retirement account is...

both 401K and 403B

What are the maximum contributions per year for each of these IRAs?

both traditional and Roth maximum is 6,000 under 50 and 7,000 over 50 which can change year to year; Roth has limits depending on which income level you are at, traditional does not

What types of accounts are FDIC insured?

checking and savings

Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $75,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month

When an employer pays a percentage of your salary into your retirement plan, it is called...

employer match

A person should plan for retirement using...

employer sponsored retirement account, IRA, and long term investments such as Mutual Funds and Stocks and Bonds

True or False: Investors are rational actors so psychology has little role when it comes to investing

false

True or False: Selling when stock prices are falling is usually a good strategy so psychology can be helpful when it comes to investing

false

True or False: Since robo-advisors use sophisticated computer modeling and typically make similar recommendations, they eliminate your need to educate yourself about investing

false

True or False: Though transactions are conducted online, each robo-advisor has a dedicated financial advisor behind the scenes, making the best decisions for yo

false

True or False: With proper asset allocation, you should never experience a negative yearly rate of return on your investment

false

True or False: You can start receiving Social Security benefits whenever you decide to retire

false

True or False: You should be able to retire early (before the age of 60) when you have assets (savings and/or investment accounts) of about $50,000

false

True or False: it is impossible to save $1,000,000 for retirement without having to put $500 or more into savings every month.

false

True or False: The amount that you contributes to her 401(k) plan will increase her taxable income and therefore increase the amount of taxes that she needs to pay

false (lowers taxes)

What types of jobs are most likely to use a pension as compensation?

government union employees

What is the single most important decision that investors make (after their decision about how much to save)?

how to divide their assets between stocks and bonds

At what age can you get full social security retirement benefits?

it depends what year you were born

How does social security payments work?

it's based on how many taxes you paid and what your income was, people in need get more for their taxes than people more financially stable because they need the money more

If you're a hands-on investor who doesn't want a robo advisor, what should you look for in a brokerage?

look for low-cost mutual funds and ETFs

How can you invest for retirement if your employer does not offer a 401(k) plan?

open an Individual Retirement Account (IRA)

What should you do when you change an employer and have a 401k?

roll it into your own IRA