Chapter 15

Question 1

increased expenses during retirement

Answer 1

leisure-related expenses: travel, memberships, vehicles, etc
healthcare, prescriptions and medical expenses
insurance

Question 2

importance of retirement planning

Answer 2

gender gap: women live longer and make less money
greater life expectancy
early retirement
social security and pensions are not enough
uncertainty: of life, how much things will cost, etc.
anticipated retirement lifestyle needs

Question 3

what is the average % of anticipated lifestyle needs?

Answer 3

80% of pre-retirement income

Question 4

the average american spends ________ hrs working and not on retirement

Answer 4

60,000 hours

Question 5

why is there a correlation between higher education and greater retirement saving?

Answer 5

1. typically higher income

2. greater management, planning and organizational skills

Question 6

steps in estimating retirement needs

Answer 6

estimate current net worth
estimate money needed at retirement (annual budget)
- analyze money coming from different places
build and maintain retirement income

Question 7

sources of building and maintaining retirement income:

Answer 7

401k = most popular
start the sooner the better
individual retirement accounts on top of social security and pensions
home as asset: reduce to smaller house
- reverse mortgage
whole life insurance: cash in the savings
reduce/rid of other uneccessary policies and accounts
invest in bonds and other low risk investments

Question 8

sources of retirement income

Answer 8

social security
employer-sponsored retirement plans: 401k, 403b, etc. db's, dc's
personal retirement plans: IRA's
savings accounts
stocks, bonds, mutual funds, etc.

Question 9

employer sponsored retirement plan

• db
• dc

Answer 9

db: defined benefit: pension form. defined amount each month
dc: defined contribution: great options- allows employee to make choices

Question 10

Roth IRA
Spousal IRA
Educational IRA
Simple IRA
Simplified employee pension plan (SEP)
Keogh plan

Answer 10

Roth IRA: investment of aftertax dollars into an additional employee account with tax-free withdrawals if criteria is met
Spousal IRA: valid for those with spouses making X amount of money
Educational IRA: savings plan for college education
simple IRA: fewer reports and paperwork
SEP: employee and employer contribute to account (best used for small businesses and self-employed)
Keogh plan: tax-deferred pension plan for small unincorporated businesses or self-employed

Question 11

3 key points when selecting a financial retirement plan

Answer 11

• educate yourself
• consult experts when needed
• there is NO universal formula

Question 12

straight life annuity

joint survivor annuity

Answer 12

straight life: provides funds as long as YOU live
joint survivor: provides until the LAST surviving beneficiary
- higher premium, less per payment

Question 13

retirement planning advice for beginners:

Answer 13

start young
dont take out until youre in the lower tax bracket
rollover accounts from one employer to another if possible
- if you cash out, invest it in an interest-making account
seek growth stocks and mutual funds now

Question 14

what does FANG stand for?

Answer 14

4 companies with the largest growth over the last 5 years
facebook
amazon
netflix
google

Question 15

common pitfalls of retirement planning

Answer 15

start too late
save too little
underestimate needs
not re-investing retirement fund dividends

Question 16

reduced expenses during retirement

Answer 16

work-related expenses: transportation, clothes, memberships, etc.
housing: paid off, downsize, reverse annuity, etc.
federal and state income taxes
transportation: less commuting, reduce # of cars, etc.