Retirement Planning Quiz (W!se 8:5)

The 70% rule for retirement is the recommended income distribution for retirement planning.

Which scenario would be a smart decision for retirement planning?

• 10% living expenses, 70% investing, 10% savings, 10% taking care of others/charity

• 70% living expenses, 10% investing, 10% savings, 10% taking care of others/charity

Answer explanation

The 70% rule for retirement savings can help you estimate the amount of income you may need in retirement.

It says you'll need 70% of your pre-retirement, post-tax income to retire comfortably.

Retirees can use these potential sources of income to fund their living expenses.

• Government organized (FICA) or Social Security

• Employer organized (Pension or 401k)

• Individual savings (IRA) and personal investment account.

Answer explanation

There are three key sources of retirement income:

• 1. Social Security retirement benefits

• 2. Pension Plan (School, Police, Fire, Govt)

• 3. Retirement savings (401k/IRA)

What is the eligibility for collecting Social Security in retirement?

• For people 40-60 years of age who have worked 10 or more years "on the books."

• For people 62 and above who have worked and paid into Social Security for at least 10 years.

What is the value of having and/or contributing to a retirement plan?

In other words, why should you take part of your paycheck and put it into retirement savings?

• Your money can "grow" or earn compound interest over the decades creating a larger "nest egg."

• It helps in reducing taxable income

• No value, it's a waste of money and you should rely on Social Security.

What happens to employer and employee 401(k) contributions when an employee leaves the employer?

• Both contributions are lost

• 401K plans can be transferred or "rolled over."

• Only employee contributions are transferred

What is the advantage of an employee making contributions to a 401(k) plan from each paycheck?

• It reduces the employer's contribution

• It increases taxable income

• It has no impact on taxable income

• It reduces taxable income

What is the value of starting a retirement plan early?

• It's not necessary to start early

• It allows for more time to save, invest and grow.

• No value, it's better to start late

Before retirement, what are the potential consequences of withdrawing pension retirement funds when leaving a company and not depositing in a 401k or IRA account?

So...if you worked for Amazon and then took a new job at Apple, and "cashed" in your retirement fund, what would happen to those savings?

• The funds are taxable and there would be a hefty penalty.

• The funds are transferred to the government and you earn money.

• The funds are not taxable and you can withdrawl without a penalty.

Answer explanation

• 
  You can make an early 401(k) withdrawal at any age, but doing so could trigger a 10% early distribution tax, on top of ordinary income taxes.

• Some reasons for taking an early 401(k) distribution are penalty-free, such as a hardship withdrawal or if you leave your job.

• Converting a 401(k) to an IRA could also be a way to keep your funds and avoid the early distribution penalty.

What are 401(k) plans and how do they work to benefit employees?

• They have no benefit for employees

• Employers make contributions and employees have the option of making contributions

• Only employers make contributions

• Only employees make contributions

Why should individuals plan to have a large "nest egg" or sufficient money for retirement?

• It's important to build relationships with family members who will pay for retirement.

• It's not necessary to take responsibility. Social Security covers all retirement costs.

• It's important to have more money than what a person thinks