Lesson 7.6 - Investing for Retirement

Which statements regarding Social Security are accurate? [Select all that apply]

• Most Americans will have enough money from Social Security to retire comfortably.

• In order to be eligible for Social Security, you must have worked for 35 years.

• In order to be eligible for Social Security, you must have worked at the SAME job for 10 years.

• If you save for your own retirement in a 401(k) or IRA, you still have to pay Social Security taxes from your paycheck.

• You'll receive more Social Security benefits if you wait until age 70 instead of collecting your benefits at age 65.

Which type of retirement account is an investment option for ANY young person entering the full-time workforce?

• Traditional IRA

• Pension

• 401(k)

• Trick question -- you can't invest in retirement until you've worked long enough to become vested

Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $75,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

• Contribute her $150/mo to Social Security -- it's the best way to make sure she gets her money back

• Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified.

• Save up money in a bank account until she has enough to max out her 401(k), and then invest.

• Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month.

Which statement is TRUE regarding dollar-cost averaging?

• Dollar-cost averaging works best if you are picking and choosing different stocks to invest in each month

• Dollar-cost averaging is most advantageous for investors who are getting close to retirement age

• Dollar-cost averaging refers to the fact that you can buy more shares with the same size investment when share prices are low.

• Dollar-cost averaging allows you to automatically sell your shares when the price is low.

• Dollar-cost averaging is an investment strategy best suited for expert investors with a lot of experience.

A majority of companies do NOT offer pension plans today, so YOU will be responsible for your quality of life in retirement by making sound investment decisions.

• True

• False

Which retirement investment option would work best for a 25-year-old who works at a company offering a 5% 401(k) match on their $50,000 salary.

• Invest in an S&P 500 fund in a non-retirement account

• Invest in company 401(k) plan

• Put money in a savings account earning 0.5% which will be safe

• Invest in IRA

Janice works at a company with a 401(k) match program. She earns $50,000 per year and the company agrees to match her contributions at the rate of $0.50 for every $1.00 she contributes, up to a maximum company contribution of 5%. Which statements below are TRUE? [Select all that apply.]

• In order to maximize (make the most of) the company 401(k) match, Janice needs to contribute $5,000 (10% of her salary) per year to the program.

• The maximum the company will contribute to Janice's 401(k) is $2,500.

• The amount that Janice contributes to her 401(k) plan will increase her taxable income and therefore increase the amount of taxes that she needs to pay.

• The way to think about a 401(k) match program is that the company is giving you "free money" to encourage you to save for retirement.

• The investments you make in a 401(k) plan are guaranteed by the FDIC so there is no risk of loss.

What is THE question an investor should ask before investing in a Roth IRA or a Traditional IRA?

• Do I want to make a guaranteed return of 6% or 8%?

• Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?

• Do I want to pay taxes now (Traditional IRA) or later (Roth IRA)?

• What type of investments do I want to make?

I am a retirement plan sponsored by your employer (the company you work for). You have a limited set of investment choices that I will give to you. One facet of the program may be a match in which your company matches your contribution to the plan. Typically, the contributions that you make to the plan will lower your taxable income so there are tax benefits to me also. What am I?

• Individual Retirement Account (IRA)

• Roth Individual Retirement Account (Roth IRA)

• 401(k) Plan

• Mutual Fund

• Pension

Which strategy is the best when it comes to investing for retirement for these 25-year-olds?

• Bill worries about the risks in the stock market so his primary method of saving for retirement is to set aside $2,000 per year into a savings account.

• Juana invests $1,500 a year in her company's 401(k) plan and her company provides a $500 match every year. Her investment choice: the S&P500 index fund.

• Francis has a very tight budget and is committed to saving $2,000 a year in his company's 401(k) plan once he is 35 years old after he has a house and has paid off his student loans.

• Kamil's company has a 401(k) plan with a match program. He forgot to fill out the paperwork so just puts $1,500 a year in an IRA. His investment choice is the S&P500 index fund.