Chapter 7 - Investing for Retirement

According to most financial planners, what percentage of your retirement investments can you withdraw annually in retirement and not run out of money?

4%

What is the vesting period?

The length of time you must work before you own your retirement benefits.

Which bond fund would be considered the safest?

U.S. treasury bond

What type of fund should a retirement investor select if they do not want to worry about diversification or asset allocation as they near retirement?

target-date fund

Who is responsible for setting up and managing the investments in an Individual Retirement Account (IRA)?

the individual

Lucas invests $2000 per year in his retirement account for 40 years in an investment with an average annual return of 10%. Approximately how much will he have after 40 years?

$975,000

What is the greatest advantage of a defined benefit pension plan for the employee?

Defined benefit plans make retirement planning easier.

What type of fund should an investor choose if they want to invest in companies that are environmentally and socially responsible?

ESG fund

Why is it important to plan early for your retirement?

In order to take advantage of the power of compounding.

Which retirement plan provides no up-front tax benefit but allows contributions and earnings to be withdrawn tax free during retirement?

Roth IRA

Emma is a high school student with a part-time job. She is not eligible for any employer sponsored plan. She wants to start investing for retirement. What is the best type of account for her to use?

Roth IRA

Which is a government sponsored retirement plan?

Social Security

Why is it necessary to invest for retirement instead of saving for retirement?

The return on savings is too low to build the wealth needed for retirement.

When choosing mutual funds what does market capitalization refer to?

The size of the companies the fund invests in.

When investing for retirement, why is it better to use an Individual Retirement Account (IRA) than a standard brokerage account?

There are tax advantages to using an IRA.

How is retirement planning different for young adults today from past generations?

Very few of today's young adults will be offered a defined benefits pension plan.

If you decide to become an entrepreneur or go into business for yourself, is it possible to set up your own business retirement savings plan?

Yes, you can set up and invest in a plan called an Individual or Solo 401(k).

Which is not a strategy for successfully investing for retirement?

choose the safest invests

Which is an advantage mutual or exchange traded funds have over individual stocks when investing for retirement?

diversification

You get a new job, and you have money in your previous employer's 401(k) plan. Which is the best option for most people?

roll the money over