Deck 16: Retirement Planning: Planning for Your Long-Term Needs

Question 1

When deciding how much to save for your retirement years the author suggests you

A)save as much as you possibly can because the future is highly uncertain.
B)first take care of your present needs,because the future has a way of taking care of itself.
C)consult a professional planner to find out how much you must presently save.
D)carefully weigh the marginal benefit of an additional dollars worth of present consumption versus the marginal benefit of an additional dollars worth of consumption in your retirement years.

Answer 1

carefully weigh the marginal benefit of an additional dollars worth of present consumption versus the marginal benefit of an additional dollars worth of consumption in your retirement years.

Question 2

Under which category of plans might retirement benefits vary according to the performance of an underlying financial investment?

A)Defined benefit plans
B)Defined contribution plans
C)Both defined benefit and defined contribution plans
D)Neither defined benefit nor defined contribution plans

Answer 2

Defined contribution plans

Question 3

Some pension plans guarantee a specific benefit at retirement.These are known as

A)defined benefit plans.
B)defined contribution plans.
C)qualified pension plans.
D)non-adjustable pension plans.

Answer 3

defined benefit plans.

Question 4

Vested benefits may be lost if

A)you quit.
B)you either quit or are fired.
C)you are convicted of a felony.
D)die.

Question 5

A "qualified" retirement plan is one that

A)has a special tax status because it satisfies all government-mandated requirements.
B)is federally insured.
C)has fully vested benefits.
D)is currently paying out benefits.

Question 6

Most financial planners will advise you to begin retirement planning

A)as soon as you enter the work force.
B)when you reach 30 years of age.
C)when you are ready to retire.
D)when you are eligible for Social Security.

Question 7

Saving for retirement is different from most other forms of saving,

A)because it need not be placed in diversified investments.
B)because of the special tax status accorded such savings.
C)because such savings can be placed in more liquid investments.
D)because such savings can be placed in more liquid investments and because it is accorded special tax status.

Question 8

Tax-deferred retirement plans

A)are generally preferred for most individuals because they accumulate returns at a pre-tax rate.
B)are no better than non-tax-deferred plans,because the taxes must eventually be paid.
C)are generally preferred because they are safer,having received IRS approval.
D)are only tax advantageous for those at the highest marginal tax bracket.

Question 9

In a "qualified tax-deferred" retirement plan,taxes are deferred on

A)employer contributions and interest earned by the retirement fund.
B)only employer contributions.
C)only interest earned by the retirement fund.
D)only employee contributions.

Question 10

If your pension benefits are fully vested then they

A)must be paid to you upon demand.
B)cannot be forfeited for any reason other than death.
C)are fully invested in the stock of the employing corporation.
D)have been fully depleted.

Question 11

The Pension Benefit Guaranty Corp does not

A)insure defined pension benefits.
B)help pensions locate benefits in terminated plans.
C)require firms to adequately fund promised defined benefits.
D)set standards for minimum benefits.

Question 12

Your accrued pension benefits are

A)your vested benefits.
B)those you expect to earn before retirement.
C)your accumulated pension benefits.
D)those that will be lost if you change employers.

Question 13

Company-sponsored pension plans are regulated by

A)the Employee Retirement Benefit Act (ERBA).
B)the Old-Age,Survivors,Disability,and Health Insurance Act (OASDHI).
C)the Retirement Accounting Standards Board (RASB).
D)the Employee Retirement Income Security Act (ERISA).

Question 14

When a pension plan satisfied all the government mandated requirements for it to receive a tax advantaged status,it is referred to as a

A)defined benefit plan.
B)qualified retirement plan.
C)normal retirement plan
D)individual savings plan.

Question 15

A Roth IRA is likely to be preferred over a traditional tax deductible IRA if

A)your marginal tax rate is expected to be less in your retirement years.
B)your marginal tax rate is expected to be the same in your retirement years as in your pre-retirement years.
C)your marginal tax rate is expected to be higher in your retirement years.
D)future withdrawals are subject to five-year tax-averaging.

Question 16

For "qualified tax-deferred" retirement plans,taxes

A)never become due.
B)become due only if the retiree dies.
C)become due when the funds are withdrawn from the retirement fund.
D)become due only at age 65.

Question 17

If you marginal tax rate is likely to be lower in your retirement years,you should

A)prefer a tax-deductible IRA to Roth IRA.
B)prefer a Roth IRA to a tax-deductible IRA.
C)be indifferent between investing in a tax-deductible IRA or a Roth IRA.
D)prefer a non-tax advantaged investment to either a tax-deductible IRA or a Roth IRA.

Question 18

The employer's contribution to a defined benefit plan is based on

A)the number of workers that will survive to age 65.
B)future returns on investments.
C)both future survival rate and future returns on investments.
D)is actuarially determined and,therefore,443 based on all of the above.

Question 19

Given a taxable interest return of 10%,in the 28% marginal tax bracket,the effective after-tax interest rate is

A)0%.
B)2.8%.
C)7.2%.
D)10%.

Question 20

In the 28% marginal tax bracket,a $1,000 tax-deductible contribution to a pension account will reduce your taxes in the year of the contribution by

A)$0.
B)$280.
C)$720.
D)$1,000.

Question 21

According to provisions set down by Congress in COBRA,your

A)application for medical insurance cannot be rejected after age 65.
B)company sponsored medical insurance cannot be discontinued before age 65.
C)medical insurance premiums cannot be increased after you reach age 65.
D)right to convert your group insurance plan at work into individual coverage after you terminate employment is guaranteed.

Question 22

Married workers participating in a defined-benefit plan

A)must receive a joint and last survivor annuity at retirement.
B)will receive a joint and last survivor annuity unless they and their spouses elect a single life annuity.
C)will receive a single life annuity unless they and their spouses elect a joint and last survivor annuity.
D)need not be offered a joint and last survivor annuity,qualified pension plans need only offer single life annuities.

Question 23

There are tax penalties for

A)early withdrawals from an IRA,but not for late withdrawals.
B)late withdrawals from an IRA,but not for early withdrawals.
C)both early and late withdrawals from an IRA.
D)early withdrawals on company-sponsored pension plans,but not on IRAs.

Question 24

IRA funds may be withdrawn without penalty at

A)age 59-1/2.
B)age 64-1/2.
C)age 69-1/2.
D)any age.

Question 25

Which one of the following is not a company-sponsored retirement plan?

A)ESOP
B)SEP
C)EPA
D)401(k)

Question 26

ERISA requires that the vested portion of your benefits at your death must

A)be forfeited.
B)be applied to the benefits of the surviving employees in the pension plan.
C)be used to provide death benefits for your surviving spouse.
D)be paid to the Pension Benefit Guaranty Corporation.

Question 27

Which one of the following investment programs invests the savings fund almost entirely in the sponsoring company's stock?

A)ESOP
B)SEP
C)IRA
D)SRA

Question 28

"Normal retirement age" in a private pension plan is

A)set at age 65 by federal statute.
B)set at age 70 by federal statute.
C)the age at which the average individual will retire.
D)the age at which unreduced pension benefits are first available.

Question 29

For those workers not nearing retirement,funds in an Employee Stock Ownership Plan are generally held in

A)stock issued by the company of employment.
B)stock issued by companies in the industry of employment.
C)stock held by selected mutual funds.
D)both mutual stock funds and mutual bond funds.

Question 30

ERISA requires that employee contributions to a qualified pension plan

A)vest by the fifth year under cliff vesting.
B)vest by the tenth year under graded vesting.
C)vest immediately.
D)vest by age 65.

Question 31

The government requires that all qualified pension plans vest benefits

A)at least as quickly as one of the mandated vesting schedules.
B)immediately as prospective benefits are earned.
C)only after 20 years of continuous employment.
D)only immediately preceding retirement.

Question 32

For most occupations the law forbids an employer from forcing you into retirement

A)before age 60.
B)before age 65.
C)before age 70.
D)at any age.

Question 33

Benefits under a joint life annuity with survivorship

A)will continue as long as either partner to the marriage is still alive.
B)will continue as long as both partners to the marriage are alive,and will totally cease at the death of the first.
C)usually have a greater expected value than those offered the same employee under the single life annuity option.
D)have a smaller expected value than those offered the same employee under the single life annuity option.

Question 34

"Early retirement age" in a private pension plan is

A)set at age 62 by federal statute.
B)set at age 59 by federal statute.
C)the earliest age at which you can retire with reduced pension benefits.
D)the earliest age at which unreduced pension benefits are first available.

Question 35

Credited years of service

A)must equal the calendar years of employment.
B)can exceed the calendar years of employment.
C)will include only those years in which the hours worked exceed a minimum in the plan description.
D)will include only those in which job-related performance was satisfactory.

Question 36

A "cash balance" retirement plan is a type of

A)defined benefit plan.
B)Social Security plan.
C)defined contribution plan.
D)annuity.

Question 37

You may be entitled to receive the funds in your retirement plan under which of the following conditions?
I.retirement.
II.disability.
III.termination of employment.
IV.financial hardship.

A)only I
B)only I and II
C)only I,II,and IV
D)I,II,III,or IV

Question 38

Under the unit benefit method for determining retirement benefits,benefits

A)are equal to a specific percentage of your salary,regardless of the number of years of credited service.
B)are equal to a specific dollar amount,regardless of the number of years of credited service.
C)are equal to a specific unit benefit for each dollar paid into the plan by the employee multiplied by the years of credited service.
D)are equal to a specified unit benefit multiplied by the years of credited service.

Question 39

Given a "break in service" you may

A)lose vested benefits.
B)lose nonvested benefits.
C)lose both vested and nonvested benefits.
D)not lose either vested or nonvested benefits.

Question 40

The rules governing cliff vesting require that 100% of employer contributions be vested after

A)1 to 2 years of service.
B)3 to 5 years of service.
C)10 to 11 years of service.
D)13 to 15 years of service.

Question 41

One important difference between a Roth IRA and a traditional IRA is that

A)distributions from the Roth IRA are tax-free.
B)accumulations in the traditional IRA are never taxed.
C)contributions to the Roth IRA are tax deductible.
D)contributions to the traditional IRA are always out of after-tax earnings.

Question 42

A Keogh plan may be established for

A)any market worker.
B)only market workers already covered by a company-sponsored retirement plan.
C)self-employed workers not already covered by a company-sponsored retirement plan.
D)anyone earning at least a part of his or her income from self employment.

Question 43

Retirees may remain in their homes while accessing the home equity for supplemental income through the use of a

A)reverse mortgage.
B)shared appreciation mortgage.
C)price level adjusted mortgage.
D)decreasing term mortgage.

Question 44

A "rollover" occurs when pension accumulations are

A)paid out to retirees.
B)paid out to terminated employees.
C)paid out to the dependents of a deceased employee.
D)transferred from one tax-deferred fund to another.

Question 45

Low income earners

A)may contribute additional amounts to an IRA under a catch-up provision.
B)are not bound by contribution limits.
C)may receive a tax credit based on contributions to an IRA
D)can access there funds without incurring a tax penalty.

Question 46

One common characteristic shared by both the Roth IRA and traditional IRA is that both

A)have contribution limits.
B)require that disbursements begin at age 70 1/2.
C)cease contributions at age 70 1/2.
D)have identical tax advantages.

Question 47

The maximum annual contribution to an individual IRA account is

A)$2,000.
B)is determined by your income.
C)indexed to the annual rate of inflation.
D)unlimited.

Question 48

The earnings on an deferred annuity are

A)subject to ordinary income taxes when earned.
B)subject to capital gains taxes when earned.
C)tax exempt.
D)tax-deferred until they are distributed.

Question 49

An annuity that begins payments one period from the date it is purchased is known as a(n)

A)deferred annuity.
B)ordinary annuity.
C)immediate annuity.
D)accumulating annuity.

Question 50

The refund feature on an annuity guarantees that

A)you will be satisfied with the investment build-up,because you may withdraw your funds at will.
B)you can withdraw all your contributions at age 59-1/2.
C)payments will continue until they have at least refunded the cost of the annuity.
D)the insurance company can refund your payments and terminate your annuity at its discretion.

Question 51

IRA funds may be invested in all of the following except one.Which one?

A)Life insurance
B)Real estate
C)Foreign stocks
D)State bonds

Question 52

A marriage partner of a spouse with earned income and without a qualified retirement plan

A)may not have a spousal IRA unless he or she also has earned a minimal wage.
B)may have a spousal IRA even if she or he had no earned income.
C)may have a spousal IRA only if the market worker contributed less than $2,000 to his or her IRA.
D)may not have an IRA if the working spouse already has one.

Question 53

For a Roth IRA the initial contribution

A)is not tax deductible;however,the funds accumulate tax-free and are non-taxable upon withdrawal.
B)is not tax deductible;however,the funds accumulate tax-free,but are taxable upon withdrawal.
C)is tax deductible;however,the funds accumulate tax-free and are non-taxable upon withdrawal.
D)is tax deductible;however,the funds accumulate tax-free,but are taxable upon withdrawal.

Question 54

Married couples that have adjusted gross income of less than $53,000 may

A)be restricted from contributing the maximum amount to a traditional IRA.
B)be restricted from contributing the maximum amount to a Roth IRA.
C)receive a tax credit for contributing to an IRA.
D)receive tax-free distributions from an IRA.

Question 55

Congress has already enacted future changes in the Social Security system that will change all but one of the following.Which of the following is not presently scheduled to change?

A)Normal retirement age
B)Early retirement age
C)Reduction in benefits at the earliest retirement age
D)Increase in benefits for delayed retirement

Question 56

IRA contributions serve to reduce taxable income

A)for those who do not have a company-sponsored retirement plan,regardless of how much they may earn.
B)for those who do not have a company-sponsored plan and earn less than a specified maximum amount.
C)for all those with earned income,regardless of income level and the existence of a company-sponsored retirement plan.
D)only for those with a company-sponsored retirement plan.

Question 57

The primary difference between fixed and variable annuities is that

A)variable annuities have variable monthly payments during the accumulation period.
B)the investment return on fixed annuities doesn't change.
C)the value of the variable annuity can both increase and decrease.
D)the annuity starting date can be changed for the variable annuity.

Question 58

You can contribute to an IRA

A)only if they do not have a company-sponsored retirement plan.
B)only if they have less than a specified level of wealth.
C)only if they have a company-sponsored retirement plan.
D)regardless of membership in a company-sponsored pension plan and their total earned income.

Question 59

On late withdrawals from an IRA,there is

A)no tax penalty.
B)a 10% tax penalty.
C)a 25% tax penalty.
D)a 50% tax penalty.

Question 60

IRA contributions

A)are always tax-deductible.
B)were once tax-deductible,but are no longer tax deductible.
C)have never been tax-deductible.
D)are in some situations tax-deductible and in other situations not tax deductible.

Question 61

ERISA states that company-sponsored pensions plans may not require employee contributions.

Question 62

The government provides special tax incentives on savings specially earmarked for retirement.

Question 63

Many defined contribution plans permit employees to make additional voluntary contributions to the retirement account.

Question 64

There is a standard rule for determining how much to save for retirement.

Question 65

With cliff vesting nothing vests before 3 years,but everything is vested in the fifth year.

Question 66

ERISA established minimum monthly benefits to be paid by all qualified plans.

Question 67

When estimating your need funding at retirement

A)a higher interest rate assumption and a lower inflation rate assumption reduce the required current savings needed to meet your target.
B)a higher interest assumption and a higher inflation assumption reduce the required current savings needed to meet your target.
C)a lower interest rate assumption and a higher inflation assumption reduce the required current savings needed to meet your target.
D)a lower interest rate assumption and a lower inflation rate assumption reduce the required current savings needed to meet your target.

Question 68

Each participant in a qualified pension plan is entitled to receive an annual statement indicating their earned pension benefits.

Question 69

With a defined benefit plan,the employee knows just how much his or her retirement benefits is costing the employer.

Question 70

The Pension Benefit Guaranty Corporation was created by ERISA to insure promised pension benefits against unexpected loss.

Question 71

For those who continue to work while drawing Social Security retirement benefits,

A)there is no reduction in benefits for those past normal retirement age.
B)there is a reduction in benefits for those under age 70 and earning more than a specified threshold amount.
C)there is no reduction in benefits for anyone presently retired,but this will be changed for future retirees.
D)there is a $1 reduction in benefits for every $3 earned starting with the first dollar of earned income for all retirees regardless of age.

Question 72

The present value of a $1 annuity payable over 25 years at a net discount rate of 3% is $17.41.Consequently,the value of a $1 annuity due payable over 26 years is

A)$18.41.
B)$17.41.
C)$16.41.
D)-$17.41.

Question 73

In a defined contribution plan,the amount that will be available at retirement is uncertain.

Question 74

Defined benefit plans may be integrated with Social Security so as to provide a total guaranteed monthly benefit.

Question 75

A defined benefit plan will indicate the prospective monthly benefit payable at normal retirement age.

Question 76

Social Security benefits

A)are not subject to income taxes.
B)are 100% taxable.
C)may be partially taxable depending on your other income.
D)are taxable only for those less than age 70.

Question 77

Qualified retirement plans provide the same tax advantages as non-qualified plans,but they are preferred because they are generally much safer.

Question 78

A qualified pension plan must credit you with a year of service if you worked at any time during the current fiscal year.

Question 79

Financial retirement begins when expenses begin to exceed income.

Question 80

ERISA sets down certain requirements that all "qualified" retirement plans must meet.