Deck 14: Planning for Retirement

Question 1

It really makes little difference whether you start retirement savings at age 25 or at age 45.

Answer 1

False

Question 2

Gordon and Lisa estimate that they will need $1,875,000 in 40 years for their retirement fund.If they can earn 8 percent annually on their funds,how much do they need to save annually? (Round off to the nearest units place.)

A)$7,238
B)$7,987
C)$8,103
D)$9,234
E)$9,875

Answer 2

D

Question 3

In the year 2027,a person will have to be a minimum of _____ years to be able to retire with full social benefits.

A)59
B)62
C)64
D)67
E)72

Answer 3

D

Question 4

Workers who elect to retire early-at age 62-will receive reduced Social Security retirement benefits.

Question 5

Retirement planning starts with:

A)determining the size of the required nest egg.
B)considering the longevity of the retiree.
C)defining the investment program.
D)determining the interest on income-earning assets.
E)the setting of retirement goals.

Question 6

The third step in retirement planning is to formulate an investment program.

Question 7

Most people are too conservative when investing their retirement funds.

Question 8

Profit-sharing plans allow flexible employer contributions to the plans.

Question 9

Profit-sharing plans enable employees to participate in the earnings of their employer.

Question 10

One of the biggest financial benefits of starting early to save for your retirement fund is related to:

A)the increased cost of living.
B)compound interest.
C)lower tax deductions.
D)inflation.
E)reduced expenses.

Question 11

The purpose of the Social Security retirement program is to:

A)ensure retirement income equal to 75 percent of preretirement income.
B)pay for health care costs.
C)replace defunct pension fund plans.
D)provide a basic and adequate income to eligible retirees.
E)levy tax on the retirement funds of federal civilian employees.

Question 12

A common mistake people tend to make in retirement planning is:

A)starting too early.
B)saving too little.
C)investing too aggressively.
D)planning too early.
E)spending too little.

Question 13

Your Social Security contribution depends on your current income and retirement income goal.

Question 14

The first step in retirement planning is to identify retirement goals.

Question 15

Single premium annuities result in a lump-sum payment of benefits.

Question 16

Planning for retirement over a series of short-run time frames requires:

A)stating your retirement income objectives as a percentage of your present earnings.
B)the retiree to wait until age 50 to start planning.
C)annual savings of at least $100,000.
D)investment of retirement funds in more risky investments.
E)estimating the inflation factor by reducing inflation projections.

Question 17

An annual contribution of $3,000 to a retirement account that earns 6 percent will be worth approximately _____ in 20 years.(Use the table of future value annuity factors or a financial calculator.Round off to the nearest tens place.)

A)$60,000
B)$96,780
C)$100,000
D)$110,360
E)$192,600

Question 18

Social Security benefits (cash benefits)are funded by:

A)voluntary contributions from the government,employers,and self-employed people.
B)compulsory contributions from employees,employers,and self-employed people.
C)state and income tax.
D)charitable contributions from the federal government.
E)federal income taxes.

Question 19

Contributions to profit-sharing retirement plans are invested only in securities issued by the employing firm itself.

Question 20

Which of the following is true of Social Security benefits?

A)Social Security benefits are retirement benefits extended only to self-employed people.
B)A retiree can avail Social Security benefits once he or she attains age 75.
C)Social Security benefits are available to military personnel only.
D)Social Security benefits may be reduced if the recipient is under age 55 and still gainfully employed.
E)Workers who elect to retire at age 62 will receive reduced Social Security benefits.

Question 21

The Employee Retirement Income Security Act (ERISA)provides:

A)funding for retirement plans.
B)same retirement insurance when employees change employers.
C)self-employed people with mandatory retirement plans.
D)protection to employees participating in private employer retirement plans.
E)trust funds for retirement.

Question 22

Henry has a defined benefit plan that promises an annual retirement benefit based on 2.5 percent of his final 5-year average annual salary for each year of service.At retirement,Henry has 21 years of service and had an average salary of $95,000 over the last 5 years.His annual benefit will be _____.

A)$95,000
B)$60,500
C)$49,875
D)$28,500
E)$15,200

Question 23

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 guaranteed-minimum annuity.
B)an equity annuity.
C)a variable annuity.
D)an uncertain annuity.
E)a temporary annuity.

Question 24

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

Question 25

Melissa's retirement plan is described in her employee handbook as follows: Noncontributory
Cliff vesting (100 percent)after 3 years of full-time employment
Monthly retirement benefits based on average salary over the last 3 years of employment and the total number of years worked for the company
Which of the following statements about this retirement plan is true?

A)Melissa will have to contribute to the plan.
B)If Melissa leaves this company before working full-time for three years,she will not receive any benefits.
C)Melissa will have to make investment decisions regarding her retirement plan.
D)Melissa's retirement plan is a defined contribution plan.
E)For Melissa,vesting takes place gradually over the first six years of employment.

Question 26

You will receive the largest monthly payment under an annuity contract when the annuity disbursement option is the _____.

A)life annuity with no refund
B)life annuity for a certain period
C)refund annuity
D)annuity certain
E)temporary life annuity

Question 27

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

Question 28

In the case of a refund annuity,_____.

A)the monthly income provided by the policy varies as a function of the insurer's actual investment experience
B)the insurance company agrees to pay a guaranteed rate of interest on the insured's money
C)a specified monthly income is provided for a stated number of years without consideration of any life contingency
D)if the annuitant dies,the designated beneficiary receives monthly payments until the total price of the annuity is paid back
E)the insurance company guarantees the annuitant a stated amount of monthly income for life

Question 29

Bill has worked for Excellent Corp.for 4 years.During this period,Excellent Corp.has contributed $25,000 to his retirement plan.Assuming the company uses graded vesting,how much will Bill be able to roll into an individual retirement account (IRA)if he leaves Excellent Corp.at the end of 4 years?

A)$0
B)$5,000
C)$10,000
D)$15,000
E)$20,000

Question 30

The average level of Social Security benefits for retirees aged 67 and above is adjusted upward each year with subsequent increases in the:

A)retirees' income.
B)number of dependents.
C)quality of life.
D)cost of living.
E)preretirement cost of living.

Question 31

In which of the following procedures does vesting take place gradually over the first six years of employment?

A)Cliff vesting
B)Contributory vesting
C)Self-directed schedule
D)Graded schedule
E)Maximum vesting

Question 32

Jacque Solis,a 38-year-old,is leaving her current job and would like to take a long vacation before a new job.She has $58,000 in a qualified plan that she would like to live on during this period.If she is in a 25 percent marginal tax bracket,how much will she have left after paying taxes and penalties?

A)$58,000
B)$43,500
C)$37,700
D)$29,000
E)$14,500

Question 33

If you withdraw funds from a Keogh pension plan before age 59½,you will have to pay a _____ federal income tax penalty.

A)5 percent
B)10 percent
C)15 percent
D)20 percent
E)25 percent

Question 34

Which of the following types of retirement plans is becoming less common?

A)A traditional defined contribution plan
B)A traditional defined benefit plan
C)A cash balance plan
D)A 401(k)plan
E)A Keogh plan

Question 35

In order to avoid penalties,a person who is not gainfully employed must typically start taking minimum distributions from Keogh retirement accounts by age _____.

A)50
B)59½
C)65
D)70½
E)75

Question 36

Which of the following pension plans enables an employee to estimate what his or her pension payment would be upon retirement?

A)A Keogh plan
B)A profit-sharing plan
C)A defined benefit plan
D)A defined contribution plan
E)A 401(k)plan

Question 37

Jamie has worked for ABC Printing for 5 years.During this period,ABC Printing has contributed $25,000 to her noncontributory retirement plan.Assuming ABC uses cliff vesting,the longest period allowed,how much will Jamie be able to roll into an individual retirement account (IRA)if she leaves ABC Printing?

A)$0
B)$5,000
C)$10,000
D)$20,000
E)$25,000

Question 38

Lillian has a defined benefit plan that promises an annual retirement benefit based on 2 percent of her final 3-year average annual salary for each year of service.At retirement,Lillian has 15 years of service and had an average salary of $65,000 over the last 3 years.What is the amount of her annual benefit?

A)$65,000
B)$50,500
C)$35,400
D)$19,500
E)$0

Question 39

The two ways to pay the premiums for annuities are single premium and:

A)refundable premium.
B)premium in future.
C)premium in installments.
D)guaranteed premium.
E)lateral premium.

Question 40

Which of the following is a requirement for an individual to qualify for full retirement benefits under the Social Security system?

A)The individual must be employed in a job covered by Social Security for at least 60 quarters,or 15 years,which need not be consecutive.
B)The individual must be employed in a job covered by Social Security for at least 50 quarters,or 12.5 years,which need not be consecutive.
C)The individual must be employed in a job covered by Social Security for at least 50 consecutive quarters,or 12.5 years.
D)The individual must be employed in a job covered by Social Security for at least 40 quarters,or 10 years,which need not be consecutive.
E)The individual must be employed in a job covered by Social Security for at least 40 consecutive quarters,or 10 years.

Question 41

Lois,a 67-year-old,is receiving Social Security benefits.She received $25,000 in interest and dividends this year.Her Social Security benefits __________. ​

A)are subject to an earnings test
B)are reduced to half because of these earnings
C)are not reduced because of these earnings
D)are reduced by the federal tax paid on her interest income

Question 42

Marshall will need $1,250,000 in his retirement fund in 40 years at the time of his retirement.If Marshall can earn 8 percent annually over this period,how much does Marshall need to save annually to meet that goal? (Show all work.)

Question 43

The wage base on which Social Security tax is computed __________. ​

A)increases each year
B)remains the same for long periods of time
C)after adjusting for inflation
D)increases by the amount of the employer's contribution

Question 44

Marcia works for Telephonic Industries and participates in its supplemental retirement plan.In years when the firm has no profit,the firm is not required to contribute to the supplemental retirement plan.This plan is a __________. ​

A)defined benefit plan
B)non-contributory plan
C)cash balance plan
D)profit-sharing plan

Question 45

Harry starts receiving reduced retirement benefits at age 62.These benefits __________. ​

A)increase when he reaches the normal retirement age
B)are not subject to federal income taxes
C)are deducted from the future benefits he will receive after age 67
D)increase the tax deductions available to him

Question 46

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 percent of her salary dollar for dollar and the next 3 percent with 50 cents for every dollar,how much will her employer put into her account this year? (Show all work.)

Question 47

Contributions are made in after-tax dollars to __________. ​

A)traditional 401(k)plans
B)traditional IRAs plans
C)SEP plans
D)Roth 401(k)plans

Question 48

Kurt receives Social Security benefits and also received $55,000 in wages during the year.His Social Security benefits are __________. ​

A)totally taxable
B)totally deductible
C)partially taxable
D)partially deductible