Retirement: Ready, set, quiz

If you are in or soon aiming for retirement, here are five things you probably should know. See if you do. Take our quiz.

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If you are in or soon aiming for retirement, here are some things you probably should know. Let’s see if you do.

1.

True or false?

Most retirees benefit from converting money in a traditional IRA to a Roth IRA.

(See answer below.)

2.

What is the best time to claim Social Security benefits?

(Choose one.)

  1. At age 65
  2. At your full retirement age
  3. At 70
  4. As late as you can

(See answer below.)

3.

Which of the following is true if you buy a corporate bond?

(Choose one.)

  1. You own a part of the company issuing the bond.
  2. You have lent money to the company.
  3. You are liable for the company’s debts.
  4. You can help manage the company.

(See answer below.)

4.

The 4% rule refers to which of the following?

(Choose one.)

  1. What you can withdraw from a balanced portfolio annually while maintaining the principal
  2. The portion of retirees whose assets exceed $1 million
  3. How much of your required minimum distributions (RMDs) to set aside for taxes
  4. The average anticipated long-term return on stocks, adjusted for inflation

(See answer below.)

5.

At age 65, how many more years should an average American expect to live?

(Choose one.)

  1. 11-15
  2. 16-20
  3. 21-25
  4. 26-30

(See answer below.)

Answers

1.

False.

The benefits of Roth conversions depend on individuals’ tax situations – not only their current tax rate but their expected rate in coming years. Too many variables are based on individual circumstances to consider a Roth conversion without consulting a trusted tax professional.

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2.

c) At 70

Social Security has incentivized Americans to work longer by increasing monthly benefit amounts for those who wait until 70 to claim. However, the best age to claim Social Security can depend on specific individual factors, including how long you expect to live. Oh, and except for annual cost-of-living adjustments, the benefit amounts peak at age 70.

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3.

b) You have lent money to the company.

A bond is an IOU that investors secure when they lend money to a company. In borrowing the money, the company typically agrees to pay investors interest until the bond matures, at which point, it returns the investors’ initial loan.

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4.

a) What you can withdraw from a balanced portfolio annually while maintaining the principal

Not intended for all retirees, 4% is a rule of thumb that suggests a simple formula by which investors can estimate how much cash flow their assets could safely provide them in retirement. For example, a couple with $500,000 in a balanced investment portfolio could afford to withdraw $20,000 a year (adjusting for inflation) to combine with Social Security, pensions and other income. In theory, the portfolio should generate enough returns over time to replenish the withdrawals. 

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5.

b) 16-20

Based on the Actuarial Life Table from the Social Security Administration, on average, a 65-year-old male could expect to live about 17 more years, a female nearly 20.

The exact numbers aren’t as important as the reminder that one’s years are finite. There is no certainty on how long any individual will live, so it’s wise to make financial plans so that your money lasts at least as long as you do.

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