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Exam 18: Starting Early: Retirement Planning

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Question 1

True/False

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In a reverse annuity mortgage, a lender uses your house as collateral to buy an annuity for you from a life insurance company.

A) True
B) False

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Question 2

Multiple Choice

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Which one of the following is not a typical characteristic of a defined contribution plan?

A) Employer matching contributions
B) Ability to transfer account balance to an IRA
C) Guaranteed formula-based benefit
D) Employee-managed investments
E) Lump-sum withdrawal option

F) A) and B)
G) C) and D)

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Question 3

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Your right to at least a portion of the benefits you have accrued under an employer pension plan is called:

Some retirement planning experts suggest that you start retirement planning while you are:

Some retirees may need to file quarterly estimated income tax returns.

The Social Security Administration estimates that what percent of individuals age 65 and older would live in poverty without Social Security benefits?

Immediate annuities provide income payments at once and are usually purchased with a lump-sum payment.

Which of the following is typically a characteristic of a defined contribution plan?

The Education IRA was renamed the Coverdell Education Savings Account.

The time to begin saving is when you are young.

Money-purchase pension plans, stock bonus plans, profit-sharing plans, 401(k), 403(b) plans, and Section 457 plans are often referred to as tax-sheltered annuity (TSA) plans.

Which one of the following is not a private source of retirement income?

According to the 2012 Trustees Report, in what year is it projected that the funds available for paying Social Security benefits will be exhausted at current benefit and tax rates?

Nancy Moore is planning for her retirement. She guesses that by the time she retires her mortgage will be paid off on her home. She expects she will pay $600 a month on food and that her medical expenses will be $400 a month. She also estimates that she will spend $400 a month on things that she enjoys like traveling, going to concerts, reading and other similar activities. What step in the retirement planning process is Nancy completing?

Earned interest on annuities accumulates tax-free until the annuity payments begin.

Janice Jacobs is planning for her retirement. She knows what assets and liabilities she has now and expects to have in the future. She knows what her spending patterns are likely to be and adjusted them for inflation. She also has identified all of her sources of income after she retires. Now she is sitting down and planning her income and expenses each month. After she has finished this plan, she knows that she has enough income to cover her expected expenses and still have $200 extra each month for emergencies and other unplanned activities. Even with inflation, she thinks she can sustain this plan for approximately 30 years. What step in the retirement planning process is Janice completing?

John Carpenter works as a manager of a retail store. His employer has been setting money aside for him each month in the amount of 7 percent of his monthly earnings. What type of retirement plan does John have?

Saving now for the future requires tackling the trade-offs between spending and saving.

Up to what percent of your Social Security benefits may be subject to federal income tax?

Most employers' pension plans are either defined-contribution or defined-benefit plans.