Chapter 16 Retirement Planning

Question 1

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

Answer 1

social security

Question 2

How does one become eligible for social security?

Answer 2

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

Question 3

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

Answer 3

4 credits

Question 4

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

Answer 4

40 credits

Question 5

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

Answer 5

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

Question 6

social security benefits what group of people most?

Answer 6

those in lower income tax brackets

Question 7

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

Answer 7

today’s retirees

Question 8

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

Answer 8

no

Question 9

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

Answer 9

increasing the retirement age or limiting benefits for the wealthy

Question 10

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

Answer 10

10 years

Question 11

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

Answer 11

35

Question 12

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

Answer 12

70%

Question 13

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

Answer 13

66-67

Question 14

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

Answer 14

70

Question 15

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

Answer 15

no

Question 16

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

Answer 16

disability and survivor benefits

Question 17

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

Answer 17

disability

Question 18

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

Answer 18

funeral

60

Question 19

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

Answer 19

defined-benefit plan

Question 20

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

Answer 20

noncontributory retirement plan

Question 21

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

Answer 21

contributory retirement plan

Question 22

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

Answer 22

portability

Question 23

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

Answer 23

vested

Question 24

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

Answer 24

funded pension plan

Question 25

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

Answer 25

unfunded pension plan

Question 26

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

Answer 26

cash-balance plan

Question 27

which is more risky, an unfunded or funded plan?

Answer 27

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

Question 28

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.

Answer 28

interest | slowly

Question 29

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 ______

Answer 29

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

Question 30

What are advantages to tax-deferred plans?

Answer 30

can contribute more since contributions may not be taxed you can earn interest on money that might have otherwise gone to the IRS

Question 31

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

Answer 31

tax-deferred

Question 32

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

Answer 32

defined contribution

Question 33

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

Answer 33

profit-sharing plan

Question 34

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

Answer 34

thrift and savings plans

Question 35

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

Answer 35

employee stock ownership plan or esop

Question 36

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

Answer 36

401(k) plans

Question 37

why is esop dangerous for employees?

Answer 37

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

Question 38

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

Answer 38

profit

Question 39

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

Answer 39

money purchase

Question 40

a tax-sheltered retirement plan for the self-employed

Answer 40

Keogh plans

Question 41

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

Answer 41

simplified pension plan

Question 42

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

Answer 42

savings incentive match plan for employees or SIMPLE plan

Question 43

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

Answer 43

individual retirement account or IRA

Question 44

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

Answer 44

roth IRA

Question 45

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?

Answer 45

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

Question 46

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

Answer 46

deferred

Question 47

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

Answer 47

70.5

Question 48

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

Answer 48

retirement

Question 49

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

Answer 49

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

Question 50

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

Answer 50

$6,000

Question 51

With Roth IRAs, what are taxes like?

Answer 51

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

Question 52

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.

Answer 52

Coverdell education savings account or education IRA

Question 53

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.

Answer 53

50

Question 54

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

Answer 54

529 plans

Question 55

how much money can you contribute in a 529 plans?

Answer 55

$250,000

Question 56

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

Answer 56

financial advisor

Question 57

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

Answer 57

consequences

Question 58

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

Answer 58

higher tax bracket

Question 59

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

Answer 59

annuities( taking out equal amounts over a finite period)

Question 60

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

Answer 60

single life annuity

Question 61

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

Answer 61

annuity for life ( she called double life annuity)

Question 62

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

Answer 62

joint and survivor annuity

Question 63

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

Answer 63

lump-sum option

Question 64

annuity payouts are generally taxed as _______ _______

Answer 64

normal income

Question 65

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

Answer 65

tax-deferred

Question 66

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.

Answer 66

combination | maximum

Question 67

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

Answer 67

more

Question 68

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

Answer 68

150,000