Chapter 14—Planning for Retirement
KEYWORDS:
Bloom’s: Understanding
75. Annuities may provide survivor’s benefits.
a.
True
b.
False
ANSWER:
True
POINTS:
DIFFICULTY:
Moderate
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KEYWORDS:
Bloom’s: Remembering
76. Single premium annuities result in single payment of proceeds.
a.
True
b.
False
ANSWER:
False
POINTS:
DIFFICULTY:
Challenging
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KEYWORDS:
Bloom’s: Understanding
77. A single premium annuity must be purchased with a lump-sum payment.
a.
True
b.
False
ANSWER:
True
POINTS:
DIFFICULTY:
Easy
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KEYWORDS:
Bloom’s: Remembering
78. Annuities may guarantee proceeds for a specific period or for a specific amount.
a.
True
b.
False
ANSWER:
True
POINTS:
DIFFICULTY:
Moderate
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Chapter 14—Planning for Retirement
79. Annuity proceeds are limited to the life of one person.
a.
True
b.
False
False
Moderate
80. Variable annuities are usually better choices than fixed annuities for risk tolerant investors during the withdrawal
phase of the annuity.
a.
True
b.
False
True
Challenging
81. You would most likely purchase an annuity from a bank.
a.
True
b.
False
False
Moderate
82. You would most likely purchase an annuity from an insurance company.
a.
True
b.
False
Chapter 14—Planning for Retirement
True
Moderate
83. There is no penalty for early withdrawal of an annuity.
a.
True
b.
False
False
Moderate
84. A major advantage of an annuity is that you cannot outlive your financial resources.
a.
True
b.
False
True
Moderate
85. An annuity is only as good as the insurance company that stands behind it.
a.
True
b.
False
True
Moderate
Chapter 14—Planning for Retirement
86. The fees on annuities tend to be high compared to mutual funds.
a.
True
b.
False
True
Moderate
87. All contributions to Roth 401(k) plans are made in after-tax dollars.
a.
True
b.
False
True
Moderate
88. If you make a withdrawal from an IRA account before age 57 1/2, you generally owe a 20% penalty on that amount.
a.
True
b.
False
False
Moderate
89. Earned income has accounted for a growing amount of total retirement income.
a.
True
b.
False
True
Easy
Chapter 14—Planning for Retirement
90. In a Roth 401(k), contributions are tax deductible and withdrawals are taxable.
a.
True
b.
False
False
Moderate
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Bloom’s: Remembering
91. The need for retirement planning is increased by the uncertainties of
a.
inflation.
b.
social security benefits.
c.
the assets you hold.
d.
your pension benefits.
e.
all of these.
e
Easy
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Bloom’s: Remembering
92. The major financial benefit of beginning your retirement funding early is related to
a.
b.
c.
d.
e.
Moderate
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Bloom’s: Understanding
93. The first step in retirement planning is to
a.
determine how large a nest egg is required.
b.
consider your longevity.
Chapter 14—Planning for Retirement
c.
define your investment program.
d.
determine your income-earning assets.
e.
set retirement goals.
e
Easy
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Bloom’s: Remembering
94. When setting retirement goals, you should consider
a.
what you want to do in retirement.
b.
your expected standard of living.
c.
your proposed level of income.
d.
special retirement activities and projects.
e.
all of these.
e
Moderate
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Bloom’s: Remembering
95. At age 25, Julie invests $2,000 at an average rate of return of 6 percent. Approximately how much will Julie have by
the time she is 65?
a.
$10,000
b.
$100,000
c.
$250,000
d.
$309,000
e.
$486,000
Challenging
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96. The size of your retirement nest egg will depend on
a.
when you start your program.
Chapter 14—Planning for Retirement
b.
how much you contribute each year.
c.
the rate of return you earn on your investments.
d.
all of these.
e.
none of these.
Moderate
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Bloom’s: Understanding
97. The major mistake(s) people make in retirement planning is(are)
a.
starting too late.
b.
saving too little.
c.
investing too conservatively.
d.
a and b
e.
a, b, and c
e
Easy
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Bloom’s: Remembering
98. A $2,000 annual contribution to a retirement account earning 6% will be worth ____ in 20 years.
a.
$12,000
b.
$26,360
c.
$59,560
d.
$73,570
e.
$222,860
Challenging
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Bloom’s: Evaluating
99. Major sources of retirement income include
Chapter 14—Planning for Retirement
a.
Social Security.
b.
government transfers.
c.
earnings.
d.
pensions and retirement savings.
e.
all of these.
e
Moderate
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Bloom’s: Remembering
100. Major sources of retirement income include all of the following except
a.
life insurance.
b.
earnings.
c.
assets.
d.
pensions and retirement savings.
e.
Social Security.
a
Moderate
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Bloom’s: Remembering
101. Gordon and Lisa estimate that they will need approximately $1,300,000 in 40 years for their retirement years. If they
can earn 8 percent annually on their funds, how much do they need to save annually?
a.
$2,000
b.
$3,000
c.
$4,000
d.
$5,000
e.
$10,000
Challenging
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Bloom’s: Evaluating
Chapter 14—Planning for Retirement
102. Funds to finance social security come from
a.
voluntary contributions from employee, employer, and self-employed.
b.
compulsory contributions from employee, employer, and self-employed.
c.
state and federal income tax.
d.
compulsory contributions from government, employee, and employer.
e.
Congressional appropriations.
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Bloom’s: Remembering
103. The amount of your social security contribution depends on
a.
age and income.
b.
income and current tax rate.
c.
age and current tax rate.
d.
current income and retirement income goal.
e.
employer’s contribution and current tax rate.
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Bloom’s: Remembering
104. ____ do not have to be covered by Social Security coverage.
a.
Farmers and ministers
b.
Federal civilian employees hired before 1984 and employees of state and local governments
c.
Federal employees and ministers
d.
Teachers and employees of universities
e.
Ministers and professional athletes
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Bloom’s: Remembering
Chapter 14—Planning for Retirement
105. Dr. Johnson is surgeon at University Hospital. She will pay ____ taxes on all of her $170,000 salary.
a.
Social Security
b.
Medicare
c.
Medicaid
d.
a and b
e.
a, b, and c
b
1
Challenging
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Bloom’s: Applying
106. Mandy and Michael Tombs are retiring soon. Their projected monthly Social Security benefits are $800 and $1,800,
respectively. Assuming they are married and they select the best benefit alternative for them, how much will they receive
monthly?
a.
$ 800
b.
$1,200
c.
$1,800
d.
$2,600
e.
$2,700
e
1
Challenging
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Bloom’s: Evaluating
107. Workers who retire early receive _________ percent of the full amount of Social Security.
a.
40 to 50
b.
50 to 60
c.
60 to 70
d.
70 to 80
e.
80 to 90
d
1
Moderate
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Chapter 14—Planning for Retirement
108. One can maximize the monthly Social Security benefit amount by delaying taking retirement benefits until age
a.
62.
b.
65.
c.
67.
d.
70.
e.
75.
Moderate
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Bloom’s: Remembering
109. The purpose of the Social Security retirement program is to
a.
increase retirement income to 75 percent of pre-retirement income.
b.
pay for health care costs.
c.
replace defunct pension fund plans.
d.
provide a basic adequate income to eligible retirees.
e.
none of these.
Easy
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Bloom’s: Remembering
110. Fully insured status requires 40 ____ of employment covered by social security.
a.
weeks
b.
months
c.
quarters
d.
periods
e.
years
c
Moderate
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – KS – DISC: Investments
Bloom’s: Remembering
Chapter 14—Planning for Retirement
111. Fully insured status for Social Security requires ____ quarters of coverage.
a.
6
b.
10
c.
25
d.
40
e.
50
d
1
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Bloom’s: Remembering
112. Of the following survivors of a fully insured worker, ____ would not be eligible for Social Security benefits.
a.
dependent children
b.
spouse age 47, no children
c.
spouse age 65, with dependent children
d.
spouse age 65, no children
e.
spouse age 26, with dependent children
b
1
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Bloom’s: Applying
113. Social Security provides the average retired wage earner (who is married) with _________ percent of the wages he or
she was earning in the year before retirement.
a.
20 to 40
b.
30 to 50
c.
40 to 60
d.
60 to 80
e.
100
1
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Bloom’s: Remembering
Chapter 14—Planning for Retirement
114. Annual increases in the Social Security benefit check are related to the
a.
retiree’s income.
b.
number of dependents.
c.
quality of life.
d.
current cost of living.
e.
pre-retirement cost of living.
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Bloom’s: Remembering
115. Social security benefits for retirees less than 65 years of age may be reduced if
a.
wages and salaries exceed certain limits.
b.
interest income exceeds limits.
c.
dividend and rental income exceed limits.
d.
assets exceed $60,000.
e.
a spouse’s income exceeds certain limits.
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United States – AK – DISC: Risk and return
Bloom’s: Applying
116. Earnings limitations on Social Security benefits cease at age
a.
60.
b.
62.
c.
67.
d.
70.
e.
72.
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Bloom’s: Remembering
Chapter 14—Planning for Retirement
117. If you are gradually vested in a retirement plan over a six-year period, the plan is a
a.
cliff plan.
b.
contributory plan.
c.
self-directed plan.
d.
graded plan.
e.
maximum vesting plan.
d
1
Moderate
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Bloom’s: Understanding
118. Jamie has worked for ABC Printing for 5 years. During this period ABC Printing has contributed $25,000 to her non–
contributory retirement plan. Assuming ABC uses cliff vesting, the longest period allowed, how much will Jamie be able
to roll into an IRA if she left ABC Printing?
a.
$ 0
b.
$ 5,000
c.
$10,000
d.
$20,000
e.
$25,000
e
1
Challenging
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Bloom’s: Evaluating
119. The amount of money in your defined contribution retirement portfolio will depend on
a.
the age at which you begin contributing.
b.
the amount of money you deposit each month.
c.
the rate of return on your savings.
d.
all of these.
e.
none of these really make much difference.
d
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Bloom’s: Remembering
Chapter 14—Planning for Retirement
120. Lillian has a defined benefit plan that promises a 2% annual retirement benefit based on the average of her last three
years of salary. At retirement Lillian has 15 years of service and an average salary over the last three years of $65,000.
What will her annual benefit be?
a.
$65,000
b.
$50,500
c.
$35,400
d.
$19,500
e.
Cannot determine
Challenging
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Bloom’s: Evaluating
121. Henry has a defined benefit plan that promises a 2.5% annual retirement benefit based on the average of his last five
years of salary. At retirement Henry has 21 years of service and an average salary over the last five years of $95,000.
What will his annual benefit be?
a.
$95,000
b.
$60,500
c.
$49,875
d.
$28,500
e.
Cannot determine
c
Challenging
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Bloom’s: Evaluating
122. Melissa’s retirement plan is described in her employee handbook as follows:
—
Noncontributory
—
Cliff vesting (100%) after 3 years of full-time employment
—
Monthly retirement benefit based on average salary over the last 3 years of employment and
Challenging
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Bloom’s: Understanding
Chapter 14—Planning for Retirement
the total number of years worked for the company
Which of the following statements about this retirement plan is(are) true?
a.
Melissa will have to contribute to the plan.
b.
If Melissa leaves this company before working full-time for 3 years, she will not receive any benefits.
c.
Melissa will have to make investment decisions regarding her retirement plan.
d.
This is a defined contribution plan.
e.
All of the above.
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Bloom’s: Analyzing
123. What are the tax characteristics of qualified pension plans?
a.
Employers can deduct the contributions.
b.
Employees do not pay taxes on the employer contributions until funds are withdrawn.
c.
Employee contributions may or may not reduce taxable income in the year made.
d.
Earnings on both employee and employer contributions are tax-deferred.
e.
All of these are characteristics.
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Bloom’s: Understanding
124. An example of a type of plan where the amount the employee receives at retirement is dependent on investment
return is a
a.
defined contribution plan.
b.
defined benefit plan.
c.
cash balance plan.
d.
a and b
e.
a, b, and c
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – KS – DISC: Investments
Chapter 14—Planning for Retirement
125. Which of the following types of retirement plans is becoming less common?
a.
Traditional defined contribution
b.
Traditional defined benefit
c.
Cash-balance
d.
401(k)
e.
Keogh
Easy
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Bloom’s: Remembering
126. A ____ plan combines some of the features of a defined contribution plan with features of a defined benefit plan to
produce a plan that is more portable than a traditional defined benefit plan.
a.
SEP
b.
Roth IRA
c.
cash-balance
d.
profit sharing
e.
thrift and savings
c
Moderate
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Bloom’s: Remembering
127. The employer retirement plan that is intended to promote employee productivity and allows the employer to vary the
amount of annual contributions is a
a.
qualified defined contribution plan.
b.
thrift and savings plan.
c.
profit sharing plan.
d.
401(k) plan.
e.
403(b) plan.
c
Moderate
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Bloom’s: Understanding
Chapter 14—Planning for Retirement
128. Employers who want flexibility in how much they contribute to their employees’ retirement plans would want to
consider adopting a ____ plan.
a.
qualified defined contribution
b.
cash-balance
c.
defined benefit
d.
profit-sharing
e.
403(b)
Challenging
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Bloom’s: Applying
129. Employee contributions to ____ plans do not reduce taxable income.
a.
403(b)
b.
thrift and savings
c.
457
d.
401(k)
e.
a, b, and c
Moderate
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Bloom’s: Remembering
130. Home Appliance Warehouse, Inc. would like to set up a retirement plan for its employees that encourages employees
to save for their own retirement. The company is willing to match employee contributions. Which of the following plans
would be appropriate in this situation?
a.
Cash-balance plan
b.
403(b) plan
c.
457 plan
d.
401(k) plan
e.
b, c, and d
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
Chapter 14—Planning for Retirement
131. Will works for Micro Lance Computer Company and participates in its thrift and savings plan. For every $1.00 Will
contributes to the plan, up to 5 percent of his salary, the company contributes $0.25. If Will’s salary is $40,000 and he
decides to maximize the matching contributions, how much will be contributed to Will’s plan in a year by both the
employer and Will?
a.
$4,000
b.
$3,500
c.
$2,500
d.
$2,000
e.
$1,000
c
Challenging
132. Marcia works for Telephonic Industries and participates in its thrift and savings plan. For every $1.00 Marcia
contributes to the plan, up to 4 percent of her salary, the company contributes $0.50. Which of the following accurately
describe this plan?
a.
It’s a defined benefit plan.
b.
It’s a non-contributory plan.
c.
It’s a cash-balance plan.
d.
It’s a matching plan.
e.
It’s a profit-sharing plan
Challenging
133. Employees of a nonprofit corporation can contribute to a(n)
a.
401(k).
Challenging
Chapter 14—Planning for Retirement
b.
Keogh plan.
c.
403(b).
d.
HR10.
e.
501(c)3.
c
Moderate
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Bloom’s: Understanding
134. Attractive features of a 401(k) plan can include
a.
guaranteed investment return and tax deferral.
b.
tax deferral and liquidity.
c.
liquidity and matching contributions.
d.
matching contributions and tax deferral.
e.
tax deferral and liquidity.
Challenging
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Bloom’s: Remembering
135. Employer matching contributions are common with ____ plans.
a.
401(k)
b.
403(b)
c.
457
d.
a and b
e.
a and c
a
Challenging
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Bloom’s: Analyzing
136. Mary Ann contributed $5,000 to her 401(k) plan. If Mary Ann is in the 15% marginal tax bracket, this retirement
contribution saved her approximately ____ in federal income taxes.