Quiz | Updated February 2013
Are You Ready to Retire?
By Mary Beth Franklin
If you're 50 or older, it's time to start thinking about your exit strategy from the workaday world. The sooner you start, the more time you'll have to explore your retirement options and take any necessary corrective action. So are you REALLY ready to retire? Answer these 10 questions to find out -- and to learn how the important pieces of your retirement income puzzle fit together.
Quiz
Are You Ready to Retire?
Question 1 of 10
If you were born between 1943 and 1954, what percentage of your full Social Security benefit will you lose if you collect as soon as you are eligible at age 62, rather than at your normal retirement age of 66?
A. 10%
B. 25%
C. 50%
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Quiz
Are You Ready to Retire?
Question 1 of 10
If you were born between 1943 and 1954, what percentage of your full Social Security benefit will you lose if you collect as soon as you are eligible at age 62, rather than at your normal retirement age of 66?
You're right! B. 25% is correct.
Sorry, wrong!
is incorrect.
The right answer is B. 25%.
Choosing when to begin receiving Social Security benefits can have a huge impact on your cash flow. If you start collecting as soon as you are eligible at 62, your retirement benefit will be reduced by 25% for the rest of your life. For those born in 1960 and thereafter, the normal retirement age will gradually increase to 67. For this group, starting Social Security five years early at age 62 will cut their benefits by 30%.
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Are You Ready to Retire?
Question 2 of 10
While you might be tempted to collect your Social Security benefit as soon as you are eligible at age 62, as the majority of Americans do, it may not be a smart choice if you continue to work.
A. True
B. False
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Are You Ready to Retire?
Question 2 of 10
While you might be tempted to collect your Social Security benefit as soon as you are eligible at age 62, as the majority of Americans do, it may not be a smart choice if you continue to work.
You're right! A. True is correct.
Sorry, wrong!
is incorrect.
The right answer is A. True.
Be aware that if you collect Social Security benefits and continue to work, your benefits will be subject to an earnings test. In 2013, you lose $1 in benefits for every $2 you earn over the $15,120 annual limit. Say you're 62 and earn $40,000 in 2013 while collecting Social Security benefits. Your earnings are $24,880 more than the limit, so you'll forfeit half of that amount -- $12,440 -- in Social Security benefits for the year. Once you reach your normal retirement age, however, the earnings test disappears. Note: Those forfeited benefits aren't lost forever. At full retirement age, your benefit will increase to take into account those months in which benefits were withheld.
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Are You Ready to Retire?
Question 3 of 10
If you're behind on your retirement savings, consider working a little longer. It's an effective strategy because:
A. It delays the need to tap your nest egg, allowing your savings to grow.
B. It reduces the number of years you'll have to rely on your savings for income.
C. It gives you access to employer-provided health insurance until you qualify for Medicare at 65.
D. All of the above.
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Quiz
Are You Ready to Retire?
Question 3 of 10
If you're behind on your retirement savings, consider working a little longer. It's an effective strategy because:
You're right! D. All of the above. is correct.
Sorry, wrong!
is incorrect.
The right answer is D. All of the above..
Working longer, even part-time, can help stretch your nest egg by giving it more time to grow and reducing the time you'll have to rely on it for income. Working longer also lets you postpone collecting Social Security benefits until they are worth more later. (If you were born between 1943 and 1954 and you wait until age 70 to collect, you will receive 132% of the Social Security benefit you would have received at normal retirement age.) Once you reach your normal retirement age, the earnings test disappears, too, so you can collect Social Security without forfeiting any of your benefits, regardless of income.
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Are You Ready to Retire?
Question 4 of 10
Let's say you retire at 66. Inflation over the next 25 years averages 3%. How much buying power would you lose by the time you turn 91, without inflation-adjusted cost of living increases?
A. One third of your buying power.
B. More than half.
C. 80%
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Are You Ready to Retire?
Question 4 of 10
Let's say you retire at 66. Inflation over the next 25 years averages 3%. How much buying power would you lose by the time you turn 91, without inflation-adjusted cost of living increases?
You're right! B. More than half. is correct.
Sorry, wrong!
is incorrect.
The right answer is B. More than half..
Twenty five years from now, you would need about $2,100 to match the purchasing power of what $1,000 would buy today. The threat of inflation is why you need to keep some of your nest egg invested in stocks so that you can maintain your buying power over a retirement that could last 20 years or more.
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Are You Ready to Retire?
Question 5 of 10
Your retirement savings have to last the rest of your life. What are the chances that one member of a 65-year-old married couple will live beyond age 92?
A. 10%
B. 25%
C. 50%
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Quiz
Are You Ready to Retire?
Question 5 of 10
Your retirement savings have to last the rest of your life. What are the chances that one member of a 65-year-old married couple will live beyond age 92?
You're right! C. 50% is correct.
Sorry, wrong!
is incorrect.
The right answer is C. 50%.
Unfortunately, many people severely underestimate how much money they will need for the rest of their lives. You may be surprised to learn that life expectancy is not the estimated number of years most people live. It is the midpoint, or median. That means 50% of the population will die before they reach their life expectancy, and the other 50% will live beyond it. While a 65-year-old man has a life expectancy -- that is, a 50% chance -- of living past the age of 85, for a 65-year-old couple, the chances are 50% that one member will live beyond the age of 92. Some people will spend more time in retirement than they did working. So it's important to plan how to make your nest egg last a lifetime.
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Are You Ready to Retire?
Question 6 of 10
To make sure you don't outlive your nest egg, what's a good rule of thumb for annual withdrawals?
A. Don't touch the money until you really, really need it.
B. Restrict your withdrawals to 4% of your nest egg during the first year of retirement, then increase your withdrawals to keep pace with inflation in future years.
C. Withdraw the money for emergencies only.
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Are You Ready to Retire?
Question 6 of 10
To make sure you don't outlive your nest egg, what's a good rule of thumb for annual withdrawals?
You're right! B. Restrict your withdrawals to 4% of your nest egg during the first year of retirement, then increase your withdrawals to keep pace with inflation in future years. is correct.
Sorry, wrong!
is incorrect.
The right answer is B. Restrict your withdrawals to 4% of your nest egg during the first year of retirement, then increase your withdrawals to keep pace with inflation in future years..
By following the conservative 4% withdrawal rule and investing in a diversified portfolio of 60% stocks and 40% bonds, your money should last the rest of your life. But if you retire during a severe bear market, like the one new retirees encountered in 2008, you may want to reduce your initial withdrawals or skip the inflation-adjusted increase in your withdrawals in subsequent years until the market recovers. If you withdraw too much from a shrinking nest egg during the early years, there may not be enough principal left to benefit from the market rebound, and you could outlive your money.
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Are You Ready to Retire?
Question 7 of 10
One way to help stretch your retirement savings is to use some of your assets to buy an immediate annuity from an insurance company. The annuity will pay out more than you could prudently withdraw from your savings.
A. True
B. False
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Are You Ready to Retire?
Question 7 of 10
One way to help stretch your retirement savings is to use some of your assets to buy an immediate annuity from an insurance company. The annuity will pay out more than you could prudently withdraw from your savings.
You're right! A. True is correct.
Sorry, wrong!
is incorrect.
The right answer is A. True.
Because you pool your risk with other annuity holders, you get a bigger bang for your buck. For example, a 65-year-old man who invested $100,000 in an immediate annuity today would receive about $6,400 every year for the rest of his life. That amounts to 6.4% of the $100,000 investment -- nearly double the amount he could safely withdraw using the 4% rule. But with a fixed-rate annuity, you will lose purchasing power over time. And if you die early, it could be a bad deal, with the unused portion of the investment reverting to the insurance company to fund payments to other annuitants.
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Are You Ready to Retire?
Question 8 of 10
Uh-oh. You're behind on your retirement savings goals. You want to catch up. In 2013, the maximum amount that workers age 50 and older can contribute to a 401(k) is:
A. $10,000
B. $17,500
C. $23,000
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Are You Ready to Retire?
Question 8 of 10
Uh-oh. You're behind on your retirement savings goals. You want to catch up. In 2013, the maximum amount that workers age 50 and older can contribute to a 401(k) is:
You're right! C. $23,000 is correct.
Sorry, wrong!
is incorrect.
The right answer is C. $23,000.
If you're age 50 or older by the end of 2013, you can contribute up to $23,000 to your 401(k), 403(b) or 457 plan. That's $5,500 more than the maximum amount that younger workers can stash in their retirement plan. Contributing to a traditional 401(k) will reduce your taxes now. If you have a Roth 401(k) option at work, there's no upfront tax break on contributions, but all your withdrawals will be tax-free in retirement. You can also contribute up to $6,500 to an IRA if you are 50 or older; younger workers and spouses are limited to a $5,500 contribution in 2013. And don't feel bad: A majority of Americans say they are behind in saving for retirement because they got off to a late savings start, according to a survey by TD Ameritrade.
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Quiz
Are You Ready to Retire?
Question 9 of 10
How much should a 65-year-old couple retiring today expect to spend on out-of-pocket health-care costs throughout their retirement? (Hint: It's more than you might think)
A. $40,000
B. $140,000
C. $240,000
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Quiz
Are You Ready to Retire?
Question 9 of 10
How much should a 65-year-old couple retiring today expect to spend on out-of-pocket health-care costs throughout their retirement? (Hint: It's more than you might think)
You're right! C. $240,000 is correct.
Sorry, wrong!
is incorrect.
The right answer is C. $240,000.
When estimating your retirement income needs, don't forget to factor in health-care costs. A study by Fidelity Investments calculates that a 65-year-old couple with no access to retiree health benefits would need nearly a quarter of a million dollars to cover their out-of-pocket medical costs, including Medicare and supplemental medical insurance premiums (but not including nursing-home expenses) over a 20-year retirement.
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Quiz
Are You Ready to Retire?
Question 10 of 10
The average cost of a private room in a nursing home is about $81,000 a year. If you should need care, who covers it?
A. Your health insurance
B. Medicare
C. You do, unless you have special long-term-care insurance.
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Are You Ready to Retire?
Question 10 of 10
The average cost of a private room in a nursing home is about $81,000 a year. If you should need care, who covers it?
You're right! C. You do, unless you have special long-term-care insurance. is correct.
Sorry, wrong!
is incorrect.
The right answer is C. You do, unless you have special long-term-care insurance..
Most long-term care requires help with the activities of daily living, such as bathing, dressing and eating -- not medical care. Consequently, health insurance does not cover most long-term-care costs. Neither does Medicare. Once you run out of money -- and a year or two of paying for a nursing home, assisted living or even care in your own home can wipe out a nest egg -- you can turn to the government for help. But Medicaid will pay your long-term-care bills only if you are poor enough to qualify for assistance. There is another option: You can purchase long-term-care insurance, which can pay your bills wherever you receive care and preserve your retirement savings for your spouse or heirs.
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Quiz
Are You Ready to Retire?
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