Module 15: Retirement Planning with Stock Market Investments Flashcards
Question: Why is stock market investing important for retirement planning?
Answer: Investing in the stock market allows for long-term wealth accumulation, growth potential, and income generation to support retirement.
Question: Why is stock market investing important for retirement planning?
Answer: Investing in the stock market allows for long-term wealth accumulation, growth potential, and income generation to support retirement.
Flashcard 197Question: What are the key investment accounts for retirement?Answer:
401(k): Employer-sponsored retirement account with tax benefits.
IRA (Traditional & Roth): Individual retirement accounts with different tax structures.
Brokerage Account: Taxable investment account for additional retirement savings.
Question: What is the difference between a Traditional IRA and a Roth IRA?
Answer:
Traditional IRA: Contributions are tax-deductible, but withdrawals are taxed.
Roth IRA: Contributions are after-tax, but withdrawals are tax-free in retirement.
Question: How does compounding help in retirement investing?
Answer: Compounding allows reinvested earnings to generate additional returns over time, significantly increasing wealth for retirement.
Question: What types of stocks are best for retirement investing?
Answer:
Blue-chip stocks: Stable companies with strong financials.
Dividend stocks: Provide consistent income.
Index funds & ETFs: Offer diversification with lower risk.
Question: What is asset allocation in retirement planning?
Answer: Asset allocation is the process of dividing investments among different asset classes (stocks, bonds, real estate) to manage risk.
Question: What is the Rule of 100 in asset allocation?
Answer: The Rule of 100 suggests subtracting your age from 100 to determine the percentage of your portfolio that should be in stocks (e.g., if you’re 60, hold 40% in stocks).
Question: What role do bonds play in retirement investing?
Answer: Bonds provide stable income and reduce portfolio volatility, making them a key component of retirement investing.
Question: How do target-date funds work for retirement planning?Answer: Target-date funds automatically adjust asset allocation based on the investor’s retirement timeline, shifting from stocks to bonds over time.
Answer: Target-date funds automatically adjust asset allocation based on the investor’s retirement timeline, shifting from stocks to bonds over time.
Question: What is the 4% Rule in retirement withdrawals?
Answer: The 4% Rule suggests withdrawing 4% of your retirement portfolio annually to ensure it lasts through retirement.
Question: What is the 4% Rule in retirement withdrawals?
Answer: The 4% Rule suggests withdrawing 4% of your retirement portfolio annually to ensure it lasts through retirement.
Question: How can covered calls support retirement income?
Answer: Selling covered calls on dividend stocks can provide additional income without selling assets, supporting a steady retirement income stream.
Question: What is sequence-of-returns risk in retirement?
Answer: This risk refers to the danger of withdrawing money during market downturns, which can deplete retirement savings faster.
Question: How can retirees protect their portfolio from market downturns?
Answer:
Diversification across asset classes.
Holding bonds and cash reserves.
Using annuities for guaranteed income.
Question: What are Required Minimum Distributions (RMDs) in retirement accounts?
Answer: RMDs are mandatory withdrawals from tax-deferred retirement accounts, such as Traditional IRAs and 401(k)s, starting at age 73. The amount is calculated based on life expectancy and account balance, and failure to withdraw can result in significant tax penalties.
Question: What are strategies to offset RMDs?
Answer:
Qualified Charitable Distributions (QCDs): Donating RMDs to charity to reduce taxable income.
Roth Conversions: Moving funds from a Traditional IRA to a Roth IRA before RMDs begin to reduce future required withdrawals.
Using RMDs for Tax-Efficient Investments: Allocating withdrawals into dividend stocks, annuities, or other income-generating assets.
Delaying RMDs with a Qualified Longevity Annuity Contract (QLAC): Reducing required withdrawals by purchasing a QLAC within an IRA.
Question: How can Social Security and stock investments work together?
Answer: By delaying Social Security benefits and using stock market investments for income, retirees can maximize lifetime benefits and portfolio longevity.
Question: When should investments be made to offset RMDs?
Answer: Investments should ideally be made before turning 73 to proactively reduce RMDs. Strategies include:
- Roth Conversions: Moving funds from Traditional IRAs to Roth IRAs before RMDs begin to reduce taxable withdrawals.
- QLACs (Qualified Longevity Annuity Contracts): Deferring part of RMDs by purchasing a QLAC within an IRA.
- Investing in Tax-Efficient Assets: Holding dividend growth stocks, tax-free municipal bonds, or ETFs in taxable accounts to generate non-RMD income.
- Charitable Giving (QCDs): Donating RMDs directly to charity to reduce taxable income.
