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Personal Finance > Chapter 16 Retirement Planning > Flashcards

Chapter 16 Retirement Planning Flashcards

1
Q

Currently, what is the major source of retirement income for senior citizens?

A

social security

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2
Q

How does one become eligible for social security?

A

pay into the system with the FICA tax on your payment stubs

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3
Q

What is the maximum number of credits you can earn per year in regards to social security?

A

4 credits

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4
Q

to qualify for social security benefits, you need how many credits overall?

A

40 credits

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5
Q

The size of your benefits is determined by what three things?

A

1) your number of years of earnings
2) your average level of earning
3) an adjustment for inflation

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6
Q

social security benefits what group of people most?

A

those in lower income tax brackets

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7
Q

All the social security taxes go into a pooled fund, so therefore FICA taxes paid today are providing benefits for who?

A

today’s retirees

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8
Q

Is the money you pay today being saved up and invested in an account for you?

A

no

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9
Q

What changes are likely to be necessary by the time I retire?

A

increasing the retirement age or limiting benefits for the wealthy

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10
Q

If you do the math, how many years do you have to work for minimally in order to receive social security benefits?

A

10 years

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11
Q

They calculated your average earnings over a ____ year period, which is how much you receive monthly.

A

35

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12
Q

At age 62, you get what percentage of your benefits?

A

70%

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13
Q

In between what ages will you get 100% of your money?

A

66-67

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14
Q

If you wait till your ____ you will get around 8% more of your money.

A

70

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15
Q

Can our generation rely on social security to give us a good lifestyle?

A

no

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16
Q

Not only do you get the retirement benefits, but what other benefits do you receive?

A

disability and survivor benefits

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17
Q

the ________ benefits provide protection for those who experience a physical or mental impairment that is expected to result in death or keep them from doing any substantial work for at least a year

A

disability

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18
Q

When the breadwinner dies, survivor benefits are provided to the family. These payments include a small, automatic one-time payment at the time of death to help defray _______ costs, as well as continued monthly payments to the spouse if they are over ______, over 50 is disabled, or any age and caring for a child either under 16 or disabled and receiving social security benefits

A

funeral

60

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19
Q

a traditional pension plan in which you receive a promised or “defined” pension payout at retirement. the payout is based on a formula that takes into account your age at retirement, salary level, and years of service

A

defined-benefit plan

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20
Q

a retirement plan in which the employer provides all the funds and the employee need not contribute

A

noncontributory retirement plan

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21
Q

a retirement plan in which the employee, possibly with the help of the employer, provides the funds for the plan

A

contributory retirement plan

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22
Q

a pension fund provision that allows employees to retain and transfer any pension benefits already earned to another pension plan if they leave the company

A

portability

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23
Q

to gain the right to the retirement contributions made by your employer in your name. in the case of a pension plan, employees become vested when they’ve worked for a specified period of time and thus, gained the right to pension benefits

A

vested

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24
Q

a pension plan in which the employer makes pension contributions directly to a trustee who holds and invests the employers’ retirement funds

A

funded pension plan

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25
Q

a pension fund in which the benefits are paid out of current earnings on a pay-as-you-go basis

A

unfunded pension plan

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26
Q

a retirement plan in which workers are credited with a percentage of their pay, plus a predetermined rate of interest

A

cash-balance plan

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27
Q

which is more risky, an unfunded or funded plan?

A

an unfunded because if the financial performance of the company is good, then it’s not an issue, but if the company goes bankrupt you lose your pension

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28
Q

With cash-balance plans, you get _________ and your money is likely to grow very ________, but you will know exactly how much you will get each month, but it’s not going to perform super highly.

A

interest

slowly

29
Q

In planning retirement:

1) Set _______
2) estimate how much you will need
3) estimate ______ at retirement
4) calculate the inflation-adjusted shortfall
5) Calculate how much you need to cover this _________
6) determine How much you must save ________ between now and retirement
7) put the plan in play and ______

A

1) goals
3) income
5) shortfall
6) annually
7) save

30
Q

What are advantages to tax-deferred plans?

A

can contribute more since contributions may not be taxed

you can earn interest on money that might have otherwise gone to the IRS

31
Q

The advantage ______ ________ of as the years get longer is huge.

A

tax-deferred

32
Q

a pension plan in which you and your employer or your employer alone contributes directly to a retirement account set aside specifically for you. In effect, a __________-__________ plan can be thought of as a savings account for retirement

A

defined contribution

33
Q

a pension plan in which the company’s contributions vary from year to year depending on the firm’s performance. The amount of money contributed to each employee depends on the employee’s salary level

A

profit-sharing plan

34
Q

a pension plan in which the employer contributes a set percentage of their employees’ contributions to their retirement accounts

A

thrift and savings plans

35
Q

a retirement plan in which the retirement funds are invested directly in the company’s stock

A

employee stock ownership plan or esop

36
Q

a tax-deferred retirement savings plan in which employees of private corporations may contribute a portion of their wages up to a maximum amount set by law. Employers may contribute a full or partially matching amount, and may limit the portion of the annual salary contributed

A

401(k) plans

37
Q

why is esop dangerous for employees?

A

because of companies like ENRON that fail, so as soon as you can move it out of the stock, then move it out in order to diversify your investments

38
Q

with profit-sharing plans, your earnings are very uncertain, you only get money when the company makes a ________,

A

profit

39
Q

between a profit sharing plan and a money purchase plan which is guaranteed?

A

money purchase

40
Q

a tax-sheltered retirement plan for the self-employed

A

Keogh plans

41
Q

a tax-sheltered retirement plan aimed at small businesses or at the self-employed

A

simplified pension plan

42
Q

a tax-sheltered retirement plan aimed at small businesses or the self-employed that provides for some matching funds by the employer to be deposited in to the employee’s retirement account

A

savings incentive match plan for employees or SIMPLE plan

43
Q

a tax advantaged retirement account. the contribution may or may not be tax deductible, depending on the individual’s income level and whether he or she, or his or her spouse, is covered by a company retirement plan

A

individual retirement account or IRA

44
Q

an IRA in which contributions are not tax deductible. that is, you’d make your contribution to this IRA out of after-tax income. But once the money I in there, it grows tax free and when it is withdrawn the withdrawals are tax free

A

roth IRA

45
Q

A traditional IRA is done on your own, so you don’t have to go through a company. You can invest whatever you want, but you can only do it if what?

A

your company doesn’t sponsor a 401(k) or 403b, designed for retirement only

46
Q

a traditional IRA is tax-___________, so you pay when you withdraw

A

deferred

47
Q

At what age is latest you can withdraw from a traditional IRA?

A

70.5

48
Q

the great thing about Roth IRAs are that they are not solely for __________

A

retirement

49
Q

Can you do both a 401(k) and a roth IRA?

A

yes but only if you make below a certain amount of money

50
Q

you can combine traditional and roth IRAs for a maximum of how much money?

A

$6,000

51
Q

With Roth IRAs, what are taxes like?

A

they’ll grow tax forever and when you withdraw they’re still tax free.
therefore there’s no time limit

52
Q

An IRA that works just like the Roth IRA, except with respect to contributions. Contributions are limited to $2,000 annually per child for each child younger than 18, with income limits beginning at $95,000 for single taxpayers and $190,000 for couples. The earnings are tax free and there is no tax on withdrawals to pay for education.

A

Coverdell education savings account or education IRA

53
Q

the saver’s tax credit should be utilized if you are eligible. It’s usually _____ percent of what you save. So if you put in 2,00 then you get a credit for 1,000 and don’t have to pay that 1,000 in taxes, but you have to be in a low tax rate.

A

50

54
Q

tax-advantaged savings plans used only for college and graduate school

A

529 plans

55
Q

how much money can you contribute in a 529 plans?

A

$250,000

56
Q

529 plans are sponsored by individual states, open to all applicants regardless of where they reside. Can invest directly or through a _________ _________.

A

financial advisor

57
Q

Before you start taking your money out of retirement plans, make sure you understand the _______________.

A

consequences

58
Q

if you take out a large lump sum, then your putting yourself in a _______ ________ ____________ and thus will pay higher taxes

A

higher tax bracket

59
Q

what’s the best way to take your money out of retirement plans?

A

annuities( taking out equal amounts over a finite period)

60
Q

an annuity in which you receive a set monthly payment until you die

A

single life annuity

61
Q

a single life annuity that allows you to receive your payments for a fixed period of time. Payments will be made to you for the remainder of your life, but if you die before the end of the time period, payments will continue to be made to your beneficiary until the end of the period

A

annuity for life ( she called double life annuity)

62
Q

an annuity that provides payments over the life of both you and your spouse

A

joint and survivor annuity

63
Q

a payout arrangement in which you receive all your benefits in one single payment

A

lump-sum option

64
Q

annuity payouts are generally taxed as _______ _______

A

normal income

65
Q

Can pay all taxes at one with lump sum or have the distribution “rolled over” into an IRA or other qualified plan. With rollover can avoid paying taxes on the distribution while the funds continue to grow on a ______-____________ basis

A

tax-deferred

66
Q

Most people rely on retirement savings from a _________ of different plans. Start with the seven steps. Invest ________ allowed in tax-sheltered plans according to your investment time horizon.
Monitor before and after retirement.

A

combination

maximum

67
Q

The sooner you start saving for retiring, the _________ you end up with.

A

more

68
Q

one year delay can cost you a lot-almost $__________

A

150,000

Personal Finance (3 decks)

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