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Personal Finance > Chapter 14: Planning for Retirement > Flashcards

Chapter 14: Planning for Retirement Flashcards

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1
Q

to create a retirement plan, you must:
1. make retirement goals
2. establish the amount of money you will need to fund retirement

A

true

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2
Q

what are the 3 mistakes made regarding retirement planning?

A
  1. starting too late
  2. putting away too little
  3. investing too conservatively
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3
Q

compound interest will magnify planning mistakes or proper execution.

A

ture

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4
Q

retirement income will likely be what percent of pre-retiremtn income.

A

70-80%

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5
Q

how often should you revise your retirement plan?

A

3-5 yearas

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6
Q
  1. determine future retirement needs
  2. estimate retirement income
  3. fund the shortfall

This is the process used to fund…

A

retirement.

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7
Q
  1. social security
  2. income from assets
  3. earnings from jobs
  4. pension plans

these are forms of what type of income?

A

retirement income

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8
Q

act that created a basic retirement program for all working U.S. citizens, like Old Age, Survivor’s Disability, and Health Insurance (OASDHI) programs, supplementary security income (SSI), Medicare, Unemployment insurance, public assistance, welfare services, and provision for black lung benefits.

A

Social Security Act of 1935

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9
Q
  1. federal civilian employees hired before 1984 and covered under Civil Service Retirement System
  2. Employees of state/local government who don’t want to be covered
  3. certain temporary employment positions

These individuals are exempt from…

A

mandatory participation in Social Security system

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10
Q

to be covered by the Social security system, you must work how many quarters?

A

40 quarters (OR 10 years)

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11
Q

where do the social security cash benefits come from?

A

FICA taxes

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12
Q

the SS rate is paid up to a taxable max; meidcare is paid on earnings.

A

true

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13
Q

how long do retirement benefits last for fuly covered workers?

A

lifetime

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14
Q

what’s retirment age?

A

65-67

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15
Q

you will only receive 40% of income from benefits.

A

ture

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16
Q

small lump-sum payment folllowed by monthly checks for a widow who is 60 and has a dependent child of the deceased worker in his/her care.

A

survivor’s benefits

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17
Q

lists yearly earnings you’ve been credited and what benefits to expect if you retire @ 62, get full benefits @ 65-67, or delay retirement until 70.

A

social security statement

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18
Q

earnings tests are used when you are below what age?

A

67

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19
Q

taxes must be paid again on some of your social security beenfits.

A

true

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20
Q

ERISA or the Pension Reform Act is called…

A

Employee Retirement Income Security Act of 1974

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21
Q

required after 3-6 yrs of employment as a nonforfeiture right to a pension.

A

vested rights

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22
Q

vested right that has a 3 year reqiurement.

A

cliff vesting

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23
Q

vested right that pays gradually over 6 years.

A

graded schdule

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24
Q

employer pays cost of benefits on a…

A

noncontributory pension plan.

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25
Q

employer and employee share cost of benefits (3-10% of wages) on a…

A

contributory pension plan

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26
Q

specifies contribution from employer and employee; benefits depend on investment performance on a..

A

defined contribution plan

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27
Q

pays a stipulated benefits based on formula including the earnings and years of service. this is called a…

A

defined benefit plan.

28
Q

corporate employer may deduct its contributions from taxable income.

A

qualified pension plan.

29
Q

employees benefit when firm prospers.

A

profit-shareing plans

30
Q

employer’s contributions are tax-freee.

A

thrift and saings plans

31
Q

employees divert a portion of their salary to company-sponsored, tax-free investment accounts.

A

salary reduction plans (401k)

32
Q

slef-employed people set up tax-deffered plans for themselves and employees where max. contribution is $55,000 or 25% earned income.

A

keogh plans

33
Q

aimed at small business owners with no employees; simple and easy to administer.

A

SEP plans

34
Q

can be opened by anyone; cna make up to $5,500 contributions annually, 10% penalty applied to withdrawals before 59.5 years old.

A

traditional IRA.

35
Q

opened by anyone; $5,500 annual contribution max., contributions made in after-tax dollars.

A

nondeductible IRA

36
Q

couples filing jointly w/ AGIs of $199,000 or singles up to $135,000; annual contributions = $6,500/person, contributions, earnings, and withdrawls are tax free.

A

Roth IRA

37
Q

systematic liquidation of an estate in a way that provides protection against economic difficulties tha tcould result from outliving personal financial resoruces.

A

annuity

38
Q

period during which premiums are paid toward the purchase of an annuity.

A

accumulation period

39
Q

period during which anuity payments are made.

A

distribution period

40
Q

what are the 2 types of premium payment methods on annuities?

A
  1. single premium
  2. installment
41
Q

monthly benefits being immediately with…

A

immediate annuity

42
Q

requires a minimum investment of $2,500-10,000.

A

single premium annuity contract

43
Q

set payments made at regular intervals over a period of time w/ large initial payment.

A

installment premium annuity contract

44
Q

cash benefits are deferred for several years.

A

deferred annuity

45
Q

systematically parceling out money into regular payments over fixed period

A

annuitize

46
Q

annuitant receive specified income for life; family receives no income when annuitant dies; largest payments.

A

life annuity w/no refund (pure life)

47
Q

benefits may extend to beneficiaries; annuitant gets benefits monthly and after death for a minimum number of years called “period certain”; refund annuity means beneficiary will receive full annuity funds after annuitant’s death.

A

guaranteed-minimum annuity (life annuity w/ refund)

48
Q

pays a set monthly income for specific number of years.

A

annuity certain

49
Q

insurance guarantees a certain minimum interest rate over the life of the contract; the principal is always secure.

A

fixed-rate annuity

50
Q

insured decides where to invest; may move between investments; accumulates profits tax free; principal is not certain.

A

variable annuity

51
Q

who administers annuities?

A

life insurance companies
stock brokers
mutual funds organizations
banks
financial planners

52
Q

what are the 4 types of expenses incurred in annuity contracts.

A
  1. contract charge
  2. penalties
  3. insurance fees
  4. management fees
53
Q

annuities:
-are an income source that can’t be outlived
-income is tax deferred
-10% early withdrawal penalty
-should be a long-term investment
- have lower returns
- variable annuities have lots of expenses/fees
- contracts should be checked to verify rates, initial rates, and bailout provision (1035 exchange)
-are only as good as company providing them

A

true

54
Q

if annuity plan is designed so that monthly payment is adjusted by the actual investment experience of insurer, then it is a…

A

variable annuity

55
Q

one of the biggest financial benefits of starting early to save for your retirement fund is related to compound…

A

interest.

56
Q

in the year 2027, a person will have a minimum of 67 years to be able to retire with full social benefits,.

A

true

57
Q

the average level of SS benefits for retirees aged 67 and above is adjusted upward each year w/ subsequent increases in the cost of..

A

living.

58
Q

Melissa’s reitrment plan is described in her employee handbook as follows:

  • noncontributory
  • cliff vesting
    -monthly benefits based on average 3 yr salary and years worked

thus, if Melissa leaves the company before working full-time for 3 years, she will not receive…

A

any benefits.

59
Q

bill has worked for excellent corp for 4 years. during this period, excellent corp. has contributed $25,000 to his retirement plan. assuming the company uses graded vesting, how much will bill be able to roll into an IRA if he leaves excellent corp at the end fo 4 years?

A

$15,000

60
Q

the SS tax rate remains in effect for an employee until the employee reaches a maximum…

A

wage base.

61
Q

lillian has a defined benefit plan w/ annual benefits based on 2% of final 3 year salary. at retirement, lillian has 15 year service and average salary of $80,000. how much will she receive in annual benefits?

A

$24,000

62
Q

under a graded schedule…

A

vesting takes place over the first 6 years of employment

63
Q

contributions are made in after-tax dollars to…

A

Roth 401(k) plans

64
Q

gordon and lisa estimate that they will need $1,875,000 in 40 years for their retirement. if they can ean 8% how much do they nee dot save?

A

$7,238

65
Q

an annual contribution of $3,000 to a retirement account that earns 6% will be worth how much in 20 years?

A

$110,360

66
Q

the employer retirement plan that is intended to promote productivity and alllows the employer to vary the amount of annual contributions is a…

A

profit-sharing plan

67
Q
A

Personal Finance (9 decks)

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