Chapter 14—Planning for Retirement
140. ____ are exclusively for the self-employed person and his/her employees.
a. Keogh plans
b. SEPs
c. 401(k) plans
d. a and b
e. a, b, and c
141. Self-directed retirement accounts such as Keogh and SEP accounts can be set up at
a. banks.
b. brokerage houses.
c. insurance companies.
d. mutual fund companies.
e. all of these.
142. A Roth IRA
a. is funded with after-tax dollars.
b. allows interest or dividends to accrue tax-free.
c. permits you to withdraw your contribution at any time.
d. provides for tax-free earnings if you hold the account 5 years and are 59 1/2 at withdrawal.
e. does all of these.
143. Tax-free earnings can be gotten from investments in
a. Roth IRAs.
b. traditional IRAs.
c. SEP plans.
d. 401(k) plans.
Chapter 14—Planning for Retirement
e. all of these.
144. Sally and Patrick are married with 4 young children. Patrick stays at home with the kids while Sally works as CEO of
a small manufacturing firm earning $105,000 annually. Sally is covered by a 401(k) plan at work, but they would like to
maximize their IRA contributions as well. Which of the following are true assuming their AGI is $105,897?
a. Sally and Patrick could each contribute $6,500 to a Roth IRA.
b. Sally and Patrick could each contribute $3,000 to a deductible traditional IRA.
c. Only Sally can contribute to any type of IRA. Patrick has no earned income.
d. Patrick could contribute $5,500 to a traditional deductible IRA.
e. a and d
145. Investment vehicles that systematically pays out benefits over an extended period of time are
a. common stock.
b. bonds.
c. mutual funds.
d. annuities.
e. money market securities.
146. The period during which premiums are paid for the purchase of an annuity is called the
a. installment period.
b. accumulation period.
c. survivor period.
d. distribution period.
e. contract period.
Chapter 14—Planning for Retirement
147. The portion of the principal and interest of an annuity that has not been paid to the annuitant prior to death is the
____ benefit.
a. principal
b. distribution
c. survivorship
d. installment
e. accumulated
148. The two ways to buy annuities are single premium and
a. multi-premium.
b. future premium.
c. installment premium.
d. guaranteed premium.
e. lateral premium.
149. You will receive the largest monthly payment under an annuity contract when the selected payment option is the
a. life annuity with no refund.
b. life annuity, period certain.
c. refund annuity.
d. annuity certain.
e. temporary life annuity.
Chapter 14—Planning for Retirement
150. If an annuity plan is designed so that the monthly payment is adjusted by the actual investment experience of the
insurer, it is
a. a fixed dollar annuity.
b. an equity annuity.
c. a variable annuity.
d. an uncertain annuity.
e. a temporary annuity.
151. The proceeds of a variable annuity are dependent on the
a. cost of living.
b. Consumer Price Index.
c. investment return.
d. tax rate.
e. actual investment.
152. The cost of an annuity varies with the
a. age of the annuitant at issue.
b. age of the annuitant when payment begins.
c. method of proceeds distribution.
d. sex of the annuitant.
e. all of these.
153. There are early withdrawal penalties for all of the following except
a. Roth IRA contributions.
b. traditional IRA contributions.
Chapter 14—Planning for Retirement
c. annuity contributions.
d. SEP contributions.
e. 401(k) contributions.
154. Which of the following is not a common mistake people make when planning for retirement?
a. Starting too late
b. Putting away too little
c. Assuming too much risk
d. Having too little when reaching retirement
e. None of these
155. Which of the following has accounted for a growing amount of total retirement income?
a. Social Security
b. 401(k)
c. Personal savings
d. Earned income
e. Real estate investing
INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first
item, B for the second item, and C if neither item will correctly complete the statement.
156. Most people invest their retirement funds too [aggressively | conservatively].
Chapter 14—Planning for Retirement
157. You can offset the effects of earning a lower rate of return by [increasing the amount you invest each year |
shortening the period over which you build up your retirement account].
158. The first step in retirement planning is to [set retirement goals | decide how much money you cam afford to set aside
for retirement].
159. Beginning to put aside retirement funds at age 35 instead of 45 will make [very little | a great] difference in your total
accumulated funds.
160. The initial estimates of retirement expenses and income should be done in [today’s | future] dollars.
161. Inflation will have [little | great] impact on your retirement plans.
Chapter 14—Planning for Retirement
162. The major source of retirement income for current retirees is [Social Security | personal savings].
163. Social Security alone [will | will not] provide a comfortable standard of living at retirement.
164. Money to make Social Security benefit payments comes from contributions from [employees only | employers only].
165. The income base on which Social Security tax is computed [increases each year | remains the same for long periods
of time].
166. For most people, participation in the Social Security system is [voluntary | mandatory].
Chapter 14—Planning for Retirement
167. Most people today must have worked in a job covered by Social Security for the equivalent of at least [8 years | 10
years] to be fully insured and therefore eligible for retirement benefit payments.
168. The Social Security Administration [can | cannot] give you a fairly accurate estimate of benefits you can expect in
the future.
169. Judy, age 68, is receiving Social Security benefits. She received $45,000 in consulting income this year. Her Social
Security benefits [will | will not] be reduced because of these earnings.
170. Kurt receives Social Security benefits and also received $55,000 wages during the year. His Social Security benefits
will be [totally | partially] taxable.
Chapter 14—Planning for Retirement
171. The Social Security administration provides estimates of retirement benefits one could expect to receive in [current |
inflated] dollars.
172. The earnings test [applies | does not apply] to retirees at age 67.
173. Vested rights are [forfeitable | non-forfeitable] rights to receive some pension benefits.
174. Under a defined contribution pension plan, an employee [is | is not] able to estimate what his pension payment would
be upon retirement.
175. Under a defined benefit pension plan, an employee [is | is not] able to estimate what his pension payment would be
upon retirement.
Chapter 14—Planning for Retirement
176. The employee is subject to the investment risk in a defined [contribution | benefit] plan.
177. There is a growing trend for companies to implement [defined benefit plans | defined contribution plans].
178. A cash-balance [does | does not] guarantee a minimum rate of return.
179. If your employer matches your 401(k) contributions, you should contribute at least [the maximum allowed for tax
deferral | the amount matched by your employer].
180. The employee will be responsible for making investment choices when the employer offers a [401(k) plan | defined
benefit plan].
Chapter 14—Planning for Retirement
181. You have just begun working at ABC Corporation. Participation in the company’s 401(k) plan will probably be
[voluntary | mandatory].
182. [401(k) | 403(b)] plans would be available for employees of a public, non-profit organization.
183. A self-employed person could set up a [Keogh | 403(b)] retirement plan.
184. [SEP | Keogh] plans are easier to administer.
Chapter 14—Planning for Retirement
185. With an IRA, the [account owner | institution] is the trustee.
186. It is [possible | not possible] to convert a traditional IRA to a Roth IRA.
187. If Melissa converts her traditional IRA to a Roth IRA, she [will | will not] have to pay taxes on any earnings and
pretax contributions.
188. [Any gainfully employed person | Only certain employees] can put money into an IRA.
189. You are age 45 and healthy, and you are withdrawing money from your IRA. There [will | will not] be a tax penalty
for doing this.
Chapter 14—Planning for Retirement
190. A Roth IRA will be funded with [pre | post] tax dollars.
191. Dan and Betty, both in their early 30s, want to withdraw $9,000 from their IRA to put toward the purchase of their
first house. They [will | will not] have to pay a penalty.
192. [SEPs | ESAs] can be set up to fund the future education cost of a child.
193. The period during which annuity payments are made to the individual is called the [distribution | survivorship]
period.
194. The most common investment amount of a single premium annuity contract is [$5,000 | $10,000].
Chapter 14—Planning for Retirement
195. With a life annuity, period certain, a payment will be made for a stated period of time [only to the annuitant if she
lives | to someone else if the annuitant dies].
196. With a [fixed rate | variable] annuity, you would receive a guaranteed payment regardless of the activity of the
investment funds.
197. Returns from annuities can be [significant | disappointing].
198. Jake wants to convert part of his retirement savings into income now. He should purchase a [deferred | immediate]
annuity.
199. You [can | cannot] write off losses from the sale of securities held in an IRA.
Chapter 14—Planning for Retirement
200. [Social Security | 401k] is the single largest source of income for the average U.S. retiree.
201. [Earned income | 401k’s] has accounted for a growing amount of total retirement income.
202. About [20 | 40] percent of people have not calculated how much they need to retire.
203. In a Roth 401(k), contributions [are | are not] tax deductible.
204. Julie’s employer has a defined benefits retirement plan which pays 3.2 percent of her last year’s salary for each year
of employment. Julie estimates her final salary will be $85,000, and she will have worked for 20 years. What is her
expected retirement benefit? (Show all work.)
Chapter 14—Planning for Retirement
205. Eric works for a company with a defined contribution benefit pension plan. He will retire in ten years (at age 65) and
expects his salary to be $100,000 in his last year of work. Social Security should pay him $1,325 per month at that time. If
he needs 80 percent of his income to maintain his standard of living upon retirement, how much annual income will he
need from his employer’s plan and from his own planning when he retires? (Show all work.)
206. Danielle puts 8 percent of her paycheck in a 401(k) plan administered by her employer. Danielle earns $55,000 per
year and is in the 28 percent tax category. What annual tax savings does she get from her contribution? If her employer
matches contributions on the first 5% of her salary dollar for dollar and the second 5% 50 cents on the dollar, how much
will her employer put into her account this year? (Show all work.)