Chapter 14—Planning for Retirement
1. Most people are too conservative when investing their retirement funds.
a.
True
b.
False
True
Easy
2. It really makes little difference whether you start retirement savings at age 25 or at age 45.
a.
True
b.
False
False
Easy
3. Starting later in life and being too conservative when investing are both common retirement planning mistakes.
a.
True
b.
False
True
Easy
4. The best retirement investment is fixed income securities such as CDs and Treasury notes.
a.
True
b.
False
False
Easy
Chapter 14—Planning for Retirement
5. The first step in retirement planning is to identify retirement goals.
a.
True
b.
False
True
Easy
6. In short-term retirement planning, you estimate the required level of retirement income as a percentage of current
income, fund that amount, and then adjust that number every 3 to 5 years.
a.
True
b.
False
True
Challenging
7. In long-term retirement planning, you decide on the required level of retirement income and funds needed over a 3 to 5
year series of intervals.
a.
True
b.
False
False
Moderate
8. Having an accurate current income and expenditures statement would be very useful when calculating retirement needs.
a.
True
b.
False
True
Chapter 14—Planning for Retirement
9. When one estimates retirement needs, you start with a projection of expenses stated in future dollars.
a.
True
b.
False
False
Moderate
10. Even the best retirement plan needs to be reviewed every few years.
a.
True
b.
False
True
Easy
11. If one is unsure about the facts needed to estimate retirement needs, it is better to do nothing for a few years.
a.
True
b.
False
False
Easy
12. When estimating retirement needs, you use the before-retirement investment return rate to adjust the current dollar
Easy
Chapter 14—Planning for Retirement
shortfall to the actual shortfall at retirement.
a.
True
b.
False
False
Challenging
13. A retiree’s principal source of retirement income is Social Security.
a.
True
b.
False
True
Moderate
14. Social Security represents about 38% of total retiree income.
a.
True
b.
False
True
Easy
15. Household expenses usually increase after retirement.
a.
True
b.
False
False
Easy
Chapter 14—Planning for Retirement
16. Social security benefits alone can usually fund a comfortable retirement.
a.
True
b.
False
False
Easy
17. Your social security withholdings are placed in an account with your name on it.
a.
True
b.
False
False
Moderate
18. Employees of state and local governments cannot participate in the Social Security system.
a.
True
b.
False
False
Moderate
19. To be eligible for social security retirement benefits, 30 quarters of covered employment are generally needed.
a.
True
b.
False
False
Moderate
Chapter 14—Planning for Retirement
20. Integrating a retirement plan with Social Security benefits typically increases a retiree’s retirement income.
a.
True
b.
False
True
Easy
21. Whether or not social security benefits will be subject to income taxes depends on the age of the recipient.
a.
True
b.
False
False
Challenging
22. Whether or not your social security benefits will be subject to income taxes depends on how much other income you
received during the year.
a.
True
b.
False
True
Easy
23. Self-employed workers pay twice as much for Social Security coverage compared to employed workers.
a.
True
Chapter 14—Planning for Retirement
b.
False
True
Moderate
24. To qualify for full retirement benefits, a worker must be employed in a job covered by Social Security for at least 40
consecutive quarters.
a.
True
b.
False
False
Moderate
25. Once you begin drawing social security benefits, you will receive a fixed level of income for the remainder of your
life.
a.
True
b.
False
False
Challenging
26. Social Security taxes are not limited by the amount of wages earned.
a.
True
b.
False
False
Moderate
Chapter 14—Planning for Retirement
27. Social security is meant to be a retirement income supplement.
a.
True
b.
False
True
Easy
28. By itself, Social Security is sufficient to allow a worker and spouse to maintain their preretirement standard of living.
a.
True
b.
False
False
Easy
29. For most workers, participation in the social security system is mandatory.
a.
True
b.
False
True
Easy
30. For anyone born in 1960 or later, the full retirement age is 65.
a.
True
b.
False
False
Easy
Chapter 14—Planning for Retirement
31. Upon retirement, married couples automatically receive 1.5 times the higher earning spouse’s Social Security benefit.
a.
True
b.
False
False
Challenging
32. Reduced early retirement Social Security benefits can be received at age 60.
a.
True
b.
False
False
Moderate
33. Reduced early retirement benefits can be received at age 62.
a.
True
b.
False
True
Easy
34. More than 50 percent of all wage earners and salaried workers today are covered by some type of employer-sponsored
retirement or profit-sharing plan.
a.
True
Chapter 14—Planning for Retirement
b.
False
True
Easy
35. With a non-contributory pension plan, the employer makes no financial contribution to the account.
a.
True
b.
False
False
Moderate
36. The current trend in retirement plans is toward contributory plans.
a.
True
b.
False
True
Moderate
37. Qualified retirement plans provide employees with tax benefits.
a.
True
b.
False
True
Moderate
Chapter 14—Planning for Retirement
38. As Social Security covers more employees, employer-provided pensions and individual retirement plans are covering
fewer.
a.
True
b.
False
False
Moderate
39. Eligibility requirements for pension and retirement plans are typically determined by the employee’s age and years of
service.
a.
True
b.
False
True
Moderate
40. A vested employee has a right to receive benefits from an employer’s retirement funds even if he no longer works
there.
a.
True
b.
False
True
Moderate
41. A graded vesting schedule would legally have to give you some vesting rights even though you worked at a company
only one year.
a.
True
b.
False
False
Chapter 14—Planning for Retirement
42. A graded vesting schedule would legally have to give you some vesting rights if you worked at a company for two or
more years.
a.
True
b.
False
True
Moderate
43. A company using cliff vesting would legally have to give you vesting rights if you worked at a company three or more
years.
a.
True
b.
False
True
Moderate
44. Payments from a defined benefits plan will be determined by the investment performance of the retirement funds.
a.
True
b.
False
False
Moderate
Challenging
Chapter 14—Planning for Retirement
45. The amount accumulated in a defined contribution plan will be determined, at least in part, by the investment
performance of the retirement funds.
a.
True
b.
False
True
Challenging
46. Supplemental retirement plans are usually voluntary.
a.
True
b.
False
True
Moderate
47. Age 65 is typically the “normal retirement” age on retirement plans.
a.
True
b.
False
True
Easy
48. The cash-balance retirement plan is being used to replace traditional defined benefit plans.
a.
True
b.
False
True
Moderate
Chapter 14—Planning for Retirement
49. Traditional defined benefit plans are better suited than cash-balance plans for a mobile workforce.
a.
True
b.
False
False
Moderate
50. Profit-sharing plans allow flexible employer contributions to the plan.
a.
True
b.
False
True
Moderate
51. The advantage of profit-sharing plans that invest in their own company stock is that the minimum value of the stock is
guaranteed.
a.
True
b.
False
False
Challenging
52. A 401(k) plan allows you to defer taxes on part of your income.
a.
True
b.
False
True
Chapter 14—Planning for Retirement
53. 403(B) plans are the most common salary reduction plans.
a.
True
b.
False
False
Moderate
54. The number of new retirement plans started among small businesses is growing.
a.
True
b.
False
False
Moderate
55. About 40% of all full-time workers are covered by company-financed retirement plans.
a.
True
b.
False
True
Easy
56. 403(b) and 457 plans are similar to 401(k) plans, but they are for employees of public, non-profit organizations.
Moderate
Chapter 14—Planning for Retirement
a.
True
b.
False
True
Easy
57. One can contribute up to $20,000 annually to a 401(k) plan.
a.
True
b.
False
False
Moderate
58. The employee contributions limits for 401(k) plans are the same as those for 403(b) and 457 plans.
a.
True
b.
False
True
Moderate
59. It is extremely wise to contribute at least as much to a 401(k) plan as one’s employer will match.
a.
True
b.
False
True
Moderate
Chapter 14—Planning for Retirement
60. The SEP is designed for self-employed individuals.
a.
True
b.
False
True
Easy
61. A person who is self-employed on a part-time basis can qualify for a Keogh account.
a.
True
b.
False
True
Moderate
62. Like Keogh plans, SEP plans are only for self-employed persons with no employees.
a.
True
b.
False
False
Moderate
63. Keogh and SEP plans provide tax-deferred methods for the self-employed to save for their retirement.
a.
True
b.
False
True
Easy
Chapter 14—Planning for Retirement
64. The maximum contribution to a Keogh plan in 2015 was $50,000.
a.
True
b.
False
False
Moderate
65. Miles has no retirement plan at work. Therefore, $2,000 contributed to his regular IRA will be tax deductible.
a.
True
b.
False
True
Challenging
66. A large selection of investment types can qualify as IRA investments.
a.
True
b.
False
True
Moderate
67. IRA withdrawals can be made without tax penalty any time after you reach the age of 59 1/2.
a.
True
b.
False
True
Chapter 14—Planning for Retirement
68. Anyone with earned income can contribute to some type of IRA.
a.
True
b.
False
True
Easy
69. An IRA is a type of an investment.
a.
True
b.
False
False
Challenging
70. Younger persons are able to make larger contributions to IRAs than persons 50 and over.
a.
True
b.
False
False
Moderate
71. Roth IRAs are the only IRAs that have the potential to produce tax-free earnings.
Moderate
Chapter 14—Planning for Retirement
a.
True
b.
False
True
Moderate
72. It is possible to convert a traditional IRA to a Roth IRA.
a.
True
b.
False
True
Moderate
73. Annuity premiums are paid to the company during the distribution period.
a.
True
b.
False
False
Challenging
74. Annuity premiums are paid to the insurance company during the accumulation period.
a.
True
b.
False
True
Moderate