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Flashcards in chapter 16 Deck (31):

Social Security

Primary Source of retirement income for many senior citizens

FICA Taxes being paid today are providing benefits for retirees.

Will keep you out of poverty but will in no means provide for a comfortable lifestyle


SS eligibility

If you Wait until after you are able to receive retirement you will receive more money each year. Approx 8% each year

62- 70%


SS Benefits

Death Benefits
Disability Benefits
Health Problem Benefits
Retirement Benefits


Disability and Survivor Benefits

Protection for those with impairment that keeps them from work for at least 1 year

Monthly survivor benefits when the breadwinner dies
One time death benefits for funeral costs


Defined Benefit Plan

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


Noncontributory Plan

A retirement plan in which the employer provides all of the funds and the employee contributes nothing


Contributory Plan

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



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



To gain the right to retirement contributions made by your employer in your name. Usually when you've worked for an employer for a certain amount of time.


Funded Pension Plan

The employer makes contributions directly to the trustee who holds and invests the employees retirement funds


Unfunded Pension Plan

The benefits are paid out of current earnings on a pay-as-you-go basis


Cash Balance PLan

Workers are credited with a percentage of their pay plus a predetermined rate of interest.

Employers contribute a % of your pay each yr into an account which grows at a 30-yr treasury bond rate


Plan Now, Retire Later, Steps to funding

1. Set Goals
2. Estimate how much you will need
3. Estimate Income at Retirement
4. Calculate the (Annual) Inflation Adjusted Shortfall
5. Calculate how much you need to cover this shortfall
6. Determine how much you must save annually between now and retirement
7. Put the Plan in Play and Save


Defined Contribution Plan

A pension plan in which you and your employer or your employer alone contribute directly to a retirement account set aside specifically for you


Profit Sharing PLan

The company's contributions vary from year to year depending on the firms performance. Amount of money contributed to each employee depends on the employees salary level


Money Purchase Plan

The employer contributes a set percentage of employees salaries to their retirement plans annually


Thrift and Savings Plans

The employer matches percentage of the employees contributions to their retirement accounts


Employees Stock Ownership Plan (ESOP)

Retirement funds are invested directly in the company's stock


401(k) Plans

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 proportion of the annual salary contributed (typically 15%)


Keogh Plan

Self Employment Plan
Tax sheltered retirement plan for the self employed


Simplified Pension Plan (SEP-IRA)

Tax sheltered (Taxes are not payed on earnings while they remain in the plan) retirement plan aimed at small businesses or at the self employed


Savings Incentive Match Plan for employees (SIMPLE Plan)

Tax sheltered plan aimed at small businesses or the self employed that provide for some matching funds by the employer to be deposited in the employers retirement account


Individual Retirement Account (IRA)

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


Roth IRA

An IRA in which contributions are not tax deductible . That is, you' make your contribution to this IRA out of after tax income. Once the money is put in, it grows tax free and when it is withdrawn, the withdrawals are tax free


Coverdell Education Savings Account (Education IRA)

Works just like 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. Earning are tax free and there is no tax on withdrawals to pay for education.


529 Plans

Tax advantaged savings plans used only for college and graduate school

Contribute up to 250,000 and grows tax free

Sponsored by individual states, open to all applicants regardless of where the reside


Single Life Annuity

An annuity in which you receive a set monthly payment for your entire life


Annuity for life or "certain period"

Single life annuity that allows you to receive your payments for a fixed period of time. Payments can be made for remainder of life and then after will be paid to your beneficiary until the end of the set period


Joint and Survivor Annuity

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


Lump-sum option

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


When to Monitor your plan

Monitor before and after retirement

One year delay can cost you a lot- almost 150,000