Investing Review 6 Retirement

Which statement best describes how social security works?

• Social Security pools contributions from current workers to then provide retirement support benefits to those who are eligible.

• Social Security is a federal health insurance program for retired workers.

• Social Security is an optional program to allow retirees to continue contributing to their individual retirement accounts.

• Social Security is a mandatory payroll deduction for current workers who then receive the retirement benefit on an annual basis.

What is the current Social Security tax rate?

• 12.4% - half paid by the employee, half by the employer

• 12.4% - all paid by the employee

• 12.4% - all paid by the employer

• 0% - There is not a current Social Security Tax

Which should you do when taking your rate of return into account?

•  Assume an aggressive rate of return because it accounts for other income streams, such as Social Security.

• Assume an aggressive rate of return because that is what the market guarantees.

• Assume a conservative rate of return so that you can plan the worst but hope for the best.

• Assume a conservative rate of return because that is how the market is going to perform.

How can the length of your retirement impact how much you might need to save for retirement? (hint: choose two right answers)

• The longer your retirement, the MORE money you'll receive in government stipends and programs.

• The longer your retirement, the LESS you need to have saved.

• The longer your retirement, the MORE you need to have saved.

• The longer your retirement, the LESS money you'll be able to withdraw each year.

Why will you need slightly more income in each year of your retirement?

• Your expenses increase the longer you are in retirement.

• Your rate of return on investments is guaranteed to increase in retirement, so you can spend more each year.

• You are required to withdraw more money each year from your retirement account

• You should take the increasing price of goods and services over time into account.

Why are people worried about the future of Social Security?

• The money is not put into a fund of any kind but instead paid from one employee to one retiree.

• In the future, more people will be drawing from the system than paying in.

• The Social Security Trust Fund is currently depleted.

• The Social Security Trust Fund is currently not being invested, therefore, not earning any additional interest.

What solutions are presented to fix the Social Security shortfall? (hint: choose three correct answers)

• Stop distributing benefits to workers who do not pay into the system

• Reduce benefits to match income from payroll taxes

• Increase the Social Security tax rate

• Raise the age of retirement for younger workers

What is an IRA?

• Investment and Retirement Account - established by the government

• Investment and Retirement Account - established by individuals

• Individual Retirement Account - established by the government

• Individual Retirement Account - established by individuals

What are advantages of 401(k) and IRAs?

• The money you put into the accounts can be invested to earn more money.

• You can retire by age 50 if you have one of these account types.

• Some contributions are tax-deferred, which means you won't pay taxes on it until you withdraw money from the account in retirement.

• Contributions to a 401(k) or IRA accounts are combined by the Social Security Administration to increase your retirement benefits to your Social Security Retirement Investment Fund by the government and Social Security Administration.

Which is the primary difference between a 401(k) and an IRA?

• The amount that can be deposited each year.

• The way each is taxed.

• Who can establish each account.

• 
  There are no differences between a 401(k) and an IRA.