Chapter 18 – Starting Early: Retirement Planning
1. (p. 594) You can depend on your employer’s health insurance plan and Medicare to pay all
your medical expenses when you retire.
2. (p. 594) It is vital to engage in basic retirement planning activities throughout your working
years.
3. (p. 594) Saving now for the future requires tackling the trade-offs between spending and
saving.
Chapter 18 – Starting Early: Retirement Planning
4. (p. 594) Only saving now and curtailing current spending can ensure comfortable retirement
later.
5. (p. 596) Your first step in retirement planning is to analyze your current assets and liabilities.
6. (p. 594) A successful, happy retirement just doesn’t happen; you have to plan for it.
Chapter 18 – Starting Early: Retirement Planning
7. (p. 594) One of the misconceptions about retirement is that your expenses will drop when you
retire.
8. (p. 594) You can depend on Social Security and your company pension to pay for your basic
living expenses.
9. (p. 594) It is almost certain that your pension benefits will increase to keep pace with
inflation.
Chapter 18 – Starting Early: Retirement Planning
10. (p. 594) Saving money doesn’t come naturally to many young people.
11. (p. 595) The time to begin saving is when you are young.
12. (p. 595) Some experts suggest starting retirement planning while you are in school.
13. (p. 595) Inflation increases the purchasing power of your retirement savings.
14. (p. 595) A three percent rate of inflation will cause prices to double every 24 years.
Chapter 18 – Starting Early: Retirement Planning
15. (p. 597) Your assets include everything you own that has value.
16. (p. 598-99) In a reverse annuity mortgage, a lender uses your house as collateral to buy an
annuity for you from a life insurance company.
17. (p. 599) During retirement, you should increase your premium payments by increasing the
face value of your life insurance.
18. (p. 599) When settling a divorce case, the division of pension benefits generally depends on
the length of the marriage.
Chapter 18 – Starting Early: Retirement Planning
19. (p. 598) The current value of your life insurance and pensions are included in your assets.
20. (p. 598) Generally, the current value of your jewelry is not included in your assets.
21. (p. 598) Your mortgage, car payments, credit card balances, and taxes due are all examples
of your liabilities.
22. (p. 599) If a marriage lasted more than 15 years, the marital assets are generally split 50-50 if
the couple divorces.
Chapter 18 – Starting Early: Retirement Planning
23. (p. 600) The exact amount of money you will need in retirement can be predicted accurately.
24. (p. 601) Your expenses for leisure activities will probably decrease during retirement.
25. (p. 600) Your work-related expenses, such as driving back and forth to work, will be lower
or eliminated during retirement.
26. (p. 600) Your federal income taxes will probably be lower during the retirement years.
Chapter 18 – Starting Early: Retirement Planning
27. (p. 601) Although medical expenses vary from person to person, they tend to decrease with
age.
28. (p. 602) The potential loss of buying power during inflation is what makes it so important to
plan ahead for your retirement.
29. (p. 604) Staying in their present home is the alternative preferred by most people who are
approaching retirement.
30. (p. 605) To boost demand for universal design homes, builders are marketing to families of
all ages.
Chapter 18 – Starting Early: Retirement Planning
31. (p. 604) If you think you want to live in another city during retirement, it’s a good idea to
plan vacations now in areas you might enjoy later.
32. (p. 606) Social Security is the most widely used source of retirement income.
33. (p. 606) Social Security was originally intended to provide 100 percent of retirement
income.
34. (p. 606) Most people can qualify for reduced Social Security retirement benefits at age 62.
Chapter 18 – Starting Early: Retirement Planning
35. (p. 608) The law exempts Social Security benefits from federal income taxes.
36. (p. 610) Under a 401(k) plan, you can elect to have your employer make nontaxable
contributions to the plan for your benefit and reduce your salary by an offsetting amount.
37. (p. 617) In a Roth IRA, contributions are not tax-deductible, but earnings can accumulate tax
free.
38. (p. 606) Social Security is a package of protection, providing retirement, survivors’, and
disability benefits.
Chapter 18 – Starting Early: Retirement Planning
39. (p. 606) Social Security should be the only source of your retirement income.
40. (p. 606) Your Social Security payments will start at age 65 whether you apply for benefits or
not.
41. (p. 607) The Social Security office will require you to provide proof of your age.
42. (p. 607) If you work after 65, your Social Security benefits will neither increase nor
decrease.
Chapter 18 – Starting Early: Retirement Planning
43. (p. 607) Because of longer life expectancies, the full retirement age is greater than age 65 for
younger individuals.
44. (p. 608) People born after 1928 need at least 60 quarters of coverage to qualify for Social
Security benefits.
45. (p. 608) Up to 85 percent of your Social Security benefits may be subject to federal income
tax.
46. (p. 608) Your Social Security benefits may be reduced if you earn above a certain amount a
year, depending on your age and the amount you earn.
Chapter 18 – Starting Early: Retirement Planning
47. (p. 608-609) Social Security benefits do not increase even if the cost of living increased during
the preceding year.
48. (p. 609) The full Social Security benefit for a spouse is one-half of the retired worker’s full
benefit.
49. (p. 609) According to the Social Security Administration, the Social Security program is
financially sound.
50. (p. 610) Besides Social Security, the federal government administers several other retirement
plans for federal government and railroad employees.
Chapter 18 – Starting Early: Retirement Planning
51. (p. 610) Employees who are covered under the Railroad Retirement System are also covered
by Social Security.
52. (p. 610) Most employers’ pension plans are either defined-contribution or defined-benefit
plans.
53. (p. 610) Over the last two decades, the defined-benefit plan has continued to grow rapidly
while the number of defined-contribution plans has generally dropped.
54. (p. 610) A defined-contribution plan has an individual account for each employee; therefore,
these plans are also called individual account plans.
Chapter 18 – Starting Early: Retirement Planning
55. (p. 610) Profit-sharing plans or 401(k) plans are examples of defined-contribution plans.
56. (p. 610) If your employer is a tax-exempt institution such as a hospital, university, or
museum, the salary reduction plan is called a Section 403(b) plan.
57. (p. 610) If you are a government employee, you may have a Section 457 plan.
58. (p. 610) Money-purchase pension plans, stock bonus plans, profit-sharing plans, 401(k),
403(b) plans, and Section 457 plans are often referred to as tax-sheltered annuity (TSA)
plans.
Chapter 18 – Starting Early: Retirement Planning
59. (p. 611) All earnings in a tax-sheltered annuity grow without current federal taxation.
60. (p. 611) Vesting is your right to at least a portion of the benefits you have accrued under an
employer pension plan.
61. (p. 611) With a defined-contribution plan, the plan document specifies the benefits promised
to the employee at the normal retirement age.
62. (p. 612) Because of their actuarial aspects, defined-benefit plans tend to be more-complicated
and more expensive to administer than defined-contribution plans.
Chapter 18 – Starting Early: Retirement Planning
63. (p. 612) The shift to defined-contribution plans has forced employees to take more
responsibility for their retirement.
64. (p. 612) Pension plan portability enables you to carry earned benefits from one employer’s
pension plan to another’s when you change jobs.
65. (p. 612) The Employee Retirement Income Security Act of 1974 (ERISA) sets minimum
66. (p. 612) ERISA established the Pension Benefit Guaranty Corporation (PBGC).
Chapter 18 – Starting Early: Retirement Planning
67. (p. 615) The two most popular personal retirement plans are individual retirement accounts
(IRAs) and Keogh accounts.
68. (p. 617) Your contribution to a Traditional IRA is fully tax deductible regardless of your
earned income.
70. (p. 617) You can convert your traditional IRA to a Roth IRA.
Chapter 18 – Starting Early: Retirement Planning
71. (p. 617) Under certain circumstances, the Roth IRA allows for penalty-free withdrawals as
well as tax-free distributions.
72. (p. 618) The Education IRA was renamed the Coverdell Education Savings Account.
73. (p. 619) You can keep money in most retirement plans indefinitely.
74. (p. 619) The amount of the minimum required distribution from a 401(k) at age 70½ is based
on your life expectancy at the time of the distribution.
Chapter 18 – Starting Early: Retirement Planning
75. (p. 615) Whether or not you are covered by a pension plan, you can still make nondeductible
IRA contributions.
76. (p. 618) A SEP-IRA plan is simply an individual retirement account funded by the
employer.
77. (p. 618) Contributions to a SEP-IRA, which may vary from year to year, are tax deductible
and earnings accumulate on a tax-deferred basis.
78. (p. 617) You can put your IRA funds in many kinds of investments¾stock, bonds, mutual
funds, real estate, and U.S.-minted gold and silver coins.