Retirement Flashcards
(19 cards)
Which of the following are reasons discussed in the video of why planning for retirement is essential?
The video discusses three reasons as to why planning for retirement is essential. First, during your retirement years, prices for almost everything you want or need will increase due to inflation. Second, when people retire, they can expect, on average, to live an additional 16 to 30 years after retirement. Third, the dollar amount you receive from Social Security and a pension – if you have one – will not be enough to fund the type of retirement most people want.
According to the video, what is one of the most important decisions you can make regarding retirement?
One of the most important decisions you can make is a decision to begin saving and investing for retirement when you are young.
According to the example in the video, what are the two factors that cause almost all of the increase in dollar value?
The two factors that cause almost all of the increase in dollar value in the example are the age of the investor and the earning power of the time value of money concept.
All of the following are advantages to consider when downsizing
You can choose to move to a new location, like somewhere with a warmer climate or to be closer to family members if you downsize your home. You may be able to improve cash flows by moving to a smaller, less expensive home. Your new home may be newer and require less maintenance if you choose to downsize. However, adjustments that you will have to make if you choose to move are considered a disadvantage.
All of the following are disadvantages to consider of reverse mortgages
With a reverse mortgage, you will have a fewer amount of assets to leave to your heirs. Payments to the homeowner are often structured for a specific number or years or until both a husband and wife pass away. Although you get access to immediate cash, the bank or financial company now owns your home in a reverse mortgage. The cash you receive from the equity in your home is considered an advantage of reverse mortgages.
What is the final thought and warning discussed at the end of the video?
Reverse mortgage agreements are complicated and you can lose your home and be forced to move.
In regards to when you can begin collecting benefits, what is the age in which your monthly benefit will be the highest?
At age 62, you can begin collecting reduced benefits. If you wait until age 65, your monthly benefit amount will be higher. If you wait until you are age 70, the monthly benefit you will receive will be even higher.
According to the video, all of the following are circumstances that it makes sense to begin collecting Social Security benefits early
According to the video, all of the following are circumstances that it makes sense to begin collecting Social Security benefits early, including if you have severe medical problems and cannot work, if you prefer more leisure time and time to travel, and if you have a family history of medical problems and early death. Some people choose to postpone applying for Social Security benefits because they enjoy working and don’t want to quit work.
What is the name of the document that provides an estimate of how much you will receive monthly from Social Security when you retire based on your earnings, information about how much your wife and family would receive if you were to die, and information about Medicare?
The benefits statement includes an estimate of how much you will get each month from Social Security when you retire at age 62, 65, or 70 – based on your earnings, information about how much your wife and family would receive if you were to die, and information about Medicare.
According to the video, what is one of the most important advantages of a Tax Sheltered Annuity (TSA)?
Since TSA accounts are tax free until you make withdrawals, your savings and investments compound at a faster rate and provide you with a greater sum than if you had invested in a taxable account.
Grace and Maddie both earn $26,000 a year. Maddie invests $2,500 in a Tax Sheltered Annuity (TSA). All other factors are the same between Grace and Maddie. Because Maddie used a TSA, she has __________ taxable income and __________ take-home pay.
Because Maddie used a TSA, she has lower taxable income, her federal taxes are lower, and therefore, her take-home pay is higher.
At the end of the video, what is the final point to remember about TSA’s?
The final point at the end of the video to remember is that the taxes on a TSA are deferred not eliminated.
Shelly’s assets include money in checking and savings accounts, investments in stocks and mutual funds, and personal property such as furniture, appliances, an automobile, a coin collection, and jewelry. Shelly calculates that her total assets are $165,200. Her current unpaid bills, including an auto loan, credit card balances, and taxes, total $21,300. Calculate Shelly’s net worth.
Net worth = Assets − Liabilities
=$165,200 − $21,300
= $143,900
Roy owns a Lexus worth $60,000. He owns a home worth $375,000. He has a checking account with $1,800 in it and a savings account with $2,900 in it. He has a mutual fund worth $215,000. His personal assets are worth $100,000. He still owes $45,000 on his car and $170,000 on his home, and he has a balance on his credit card of $1,850 What is Roy’s net worth?
Net worth = Assets − Liabilities
= $754,700 − $216,850
= $537,850
Calculate approximately how much money an older (age 65+) household with an annual income of $50,000 and annual expenditures of $48,000 spends on housing each year. Use Exhibit 14-3.
Money spent on housing = Annual expenditures × Average housing percent
= $48,000 × 35.7%
= $17,136
Calculate approximately how much money an older (age 65+) household with an annual income of $50,000 and annual expenditures of $48,000 spends on health care. Use Exhibit 14-3.
Money spent on health care = Annual expenditures × Average health care percent
= $48,000 × 13.8%
= $6,624
Ruby is 25 and has a good job at a biotechnology company. She currently has $10,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. Ruby estimates that she will need $875,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $20,000 a year (she expects that Social Security will pay her an additional $15,000 a year). Using Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D, answer the following questions.
How much will Ruby’s IRA be worth when she needs to start withdrawing money from it when she retires?
Note: Round discount factor to 3 decimal places and final answer to the nearest whole dollar.
How much money will she have to accumulate in her company’s 401(k) plan over the next 40 years in order to reach her retirement income goal?
Note: Round discount factor to 3 decimal places and final answer to the nearest whole dollar.
Future value of IRA = Present value of IRA × Future value factor
= $10,000 × 21.725
= $217,250
Required future value of 401(k) = Total retirement savings goal − Future value of IRA
= $875,000 − $217,250
= $657,750
You have $100,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly.
How many dollars in withdrawals per month would reduce this nest egg to zero in 20 years? Use Exhibit 14-7.
How many dollars per month can you withdraw for as long as you live and still leave this nest egg intact? Use Exhibit 14-7.
Given a $100,000 account value and an interest rate of 5.5 percent, compounded quarterly, a monthly withdrawal of $680 will reduce the account value to zero in 20 years.
Given a $100,000 account value and an interest rate of 5.5 percent, compounded quarterly, you can withdraw $460 a month indefinitely while maintaining the $100,000 account value.
