Quiz 4 Flashcards
1
Q
How often should we expect prices to double, with 3% inflation?
A
Every 24 years
2
Q
Basic, overall steps of retirement planning
A
- First analyze your assets and liabilities to figure out where you are financially
- Next, evaluate the planned retirement income from pensions and investments
- Finally, increase your income by working part-time if necessary
3
Q
Common place to put retirement funds/money
A
- The stock market, by purchasing stocks, mutual funds, index funds, or ETFs
4
Q
Your Federal Income Taxes will probably be ______ after retirement
A
- Lower; you can regulate better (use Roth IRA when taxes are high and 401(k) when taxes are low
5
Q
How long are people generally in retirement?
A
16-30 years
6
Q
Things you should do if you plan to move when you retire to avoid retirement housing traps
A
- Contact the local chamber of commerce to learn about taxes and the economic profile and future of the area
- Check on state income and sales taxes and taxes on pension income
- Estimate what your utility, health care, auto insurance, food, and clothing costs would be in the area
- Visit or vacation there and talk to the people who live there
- Rent for a while instead of buying immediately
7
Q
Social Security
A
- Full retirement benefits are offered at age 65-67, depending on what year you were born, but you can start pulling money out at age 62, or hold off until age 70
- For every year before 67 (for us) that you pull out social security, you get 8% less social security money than the full amount, and for every year after 67(up to 70) you get 8% more.
- That being said, don’t count on Social security even existing when we retire
- In 1945, there were 42 workers per retiree. In 2010 there were 3.2 workers per retiree, and by 2032 its estimated to drop to 2.1 workers per retiree
8
Q
401k
A
- Retirement account in the company you work for
- A defined contribution account
- There are investments you can choose from, so the accounts can be tailored to employee preferences
- Employee funded and managed
- Tax deferred until the money is used
- In 2020, employees can save up to $19,500 per year if they’re under age 50, or $26,000 per year if 50 or older
- The employer makes the employees non-taxable contributions and reduces the employee salary by the same amount
- Not guaranteed by the government
9
Q
Pension
A
- Defined benefit
- Employer will pay you a certain amount per month when you retire based on your pre-retirement salary and years of service
- Employer makes the investment decisions for you and their contributions, but your benefit amount stays the same regardless of how the investments perform
- Guaranteed by the government
10
Q
Plan Portability
A
- Ability to carry earned benefits from one employer’s pension plan to another’s when you change jobs
- Normally pensions stay in the original plan
11
Q
Vesting
A
- your right to at least a portion of the benefits you have accrued or earned under an employer pension plan, even if you leave before you retire
- Pensions are normally not available unless you have worked for that place for 5 or more years
12
Q
What you can do with your defined contribution plan when you leave your job
A
- Leave it in the plan
- Transfer it to a new employer plan if you have a new job
- rollover the funds into an IRA
- Cash in your account (tax consequences and penalties)
13
Q
What you can do with your defined benefit plan when you leave a job
A
- Have the employer keep the funds you will get as a future pension from them
- Transfer the funds to invest in a pension with your new employer if your pension is portable
- you need to be vested to do either of these
14
Q
Regular (traditional) IRA
A
- Functions like a 401k
- In 2019, you could contribute up to $6,000 annually if under 50, and $7,000 if 50 or older
- Earnings accumulate tax free until you start taking the money out
- Pay taxes on the money when you withdraw it when you’re retired, and you must begin withdrawing funds by age 72 as prescribed by the IRS based on life expectancy data
- When withdrawing lump-sum, its taxed as ordinary income
- Installments are based on life expectancy
- Withdrawals prior to age 59 1/2 are subject to a 10% tax in addition to the ordinary income tax
15
Q
Rollover IRA
A
- Traditional IRA that accepts rollovers of your taxable distribution from a retirement plan or other IRA
- You use this when you change companies
16
Q
Roth IRAs
A
- Contributions are not tax deductible, meaning after tax moneys used to fund them, but earnings accumulate with distributions tax free if the money is in the account for at least 5 years
- Don’t pay taxes on it when you take it out
- In 2020 you can contribute up to $6,000 ($7,000 if over 50 years old) per year
- No age limit for making contributions
