Quiz | January 2011

Retirement Planning: How Prepared Are You?

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Take our quiz to see how much you know about saving for retirement. With a little extra knowledge and some free advice, you should be well on your way to a comfortable future.

Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 1 of 10

You just started a new job and have been automatically enrolled in your company 401(k) plan. But money is tight. Should you opt out and plan to start saving later?

A. Yes
B. No

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 1 of 10

You just started a new job and have been automatically enrolled in your company 401(k) plan. But money is tight. Should you opt out and plan to start saving later?

You're right! B. No is correct.

Sorry, wrong! is incorrect.

The right answer is B. No.

Even if it seems like you can't afford to squeeze an extra dime out of your paycheck, with automatic payroll deductions, you'll probably never miss the money and you will benefit from the magic of compounding. Start saving $100 a month at age 22 and you'll have more than $450,000 by the time you are 65, assuming your savings earn an average 8% return. Wait until you are 32 to start saving the same amount, and your nest egg will be worth less than $195,000 by age 65.

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 2 of 10

Your company offers matching contributions to your 401(k), but you don't like your plan's investment choices. What should you do?

A. Boycott your company plan.
B. Contribute just enough to your company plan to capture your employer match. Then, invest in an IRA on your own.
C. Play the stock market.

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 2 of 10

Your company offers matching contributions to your 401(k), but you don't like your plan's investment choices. What should you do?

You're right! B. Contribute just enough to your company plan to capture your employer match. Then, invest in an IRA on your own. is correct.

Sorry, wrong! is incorrect.

The right answer is B. Contribute just enough to your company plan to capture your employer match. Then, invest in an IRA on your own..

Don't pass up this important employer benefit. If you ignore your employer's offer to match your 401(k) contributions, it's like walking away from free money. Employers typically match employee contributions 50 cents on the dollar up to the first 6% of pay. In that case, you should contribute at least 6% of your salary to the 401(k). Even if you don't like the investment choices, you are guaranteed a 50% return on your money. If you have money to spare, you can fund an IRA and select your own investments.

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 3 of 10

Your company offers a built-in escalation option to automatically increase your 401(k) contributions each year. Once you sign up for it, your retirement-savings worries are over, right?

A. True
B. False

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 3 of 10

Your company offers a built-in escalation option to automatically increase your 401(k) contributions each year. Once you sign up for it, your retirement-savings worries are over, right?

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Automatic escalation options are a great way to boost your retirement savings, but don't stop there. Many companies' 401(k) escalation options top out at 6% of pay. Generally, workers are encouraged to save at least 15% of gross pay to fund a comfortable retirement.

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 4 of 10

You are switching jobs. What can you do with your existing 401(k) savings?

A. Cash it out.
B. Leave it in your current employer’s plan.
C. Roll it over to an IRA.
D. Transfer it to your new employer’s 401(k) plan.
E. All of the above

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 4 of 10

You are switching jobs. What can you do with your existing 401(k) savings?

You're right! E. All of the above is correct.

Sorry, wrong! is incorrect.

The right answer is E. All of the above.

You should consider each option carefully. Although you can cash out your 401(k) plan when you switch jobs, it's usually a bad idea. You will have to pay state and federal income taxes on the distribution, and if you are younger than 55, you will have to pay a 10% early withdrawal penalty, too. Plus, you will forfeit years or even decades of tax-deferred growth. If you have a balance of at least $5,000 in your 401(k), you can leave it with your current employer. Or, regardless of the size of your balance, you can roll it over into an IRA or your new employer's plan if it accepts transfers. Consolidating your retirement savings into one or two accounts makes it easier to keep track of your investments and reduces management fees.

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Retirement Planning: How Prepared Are You?

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Question 5 of 10

You are trying to balance saving for your kids' college and your own retirement at the same time. You should:

A. Put education savings first and fund retirement when the kids get to college.
B. Hope your kids get scholarships and focus solely on saving for retirement.
C. Fund both at the same time.

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 5 of 10

You are trying to balance saving for your kids' college and your own retirement at the same time. You should:

You're right! C. Fund both at the same time. is correct.

Sorry, wrong! is incorrect.

The right answer is C. Fund both at the same time..

Don't put your retirement savings on hold while you feed your kids' college fund. Your kids may get scholarships, but there is no financial aid for retirement. You can balance your long-term savings goals by saving for both at once. Just make sure you contribute at least enough to your 401(k) to capture your employer's matching contribution and dedicate a portion of each raise to retirement savings.

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 6 of 10

You are 50-plus years of age and behind in your retirement savings. What can you do to catch up?

A. Take advantage of extra “catch up” contributions.
B. Plan to work a few years longer.
C. Reconsider your investment strategy.
D. All of the above.

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 6 of 10

You are 50-plus years of age and behind in your retirement savings. What can you do to catch up?

You're right! D. All of the above. is correct.

Sorry, wrong! is incorrect.

The right answer is D. All of the above..

You have plenty of options. Workers 50 and older can contribute an extra $5,500 to their 401(k) plans or other workplace-based retirement plans for a total of $22,000 in 2010. Working a few years longer can make a huge difference by adding to your nest egg, reducing the number of years in retirement that you will have to rely on your savings and giving you a few more years of employer-provided health insurance. Also, make sure your investment strategy is appropriate for your goals, keeping at least half of your money invested in stocks for growth but not overloading on employer stock, which can be very risky.

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 7 of 10

You could contribute up to $5,000 in a traditional IRA or Roth IRA in 2009. How much can you contribute in 2010?

A. $5,000
B. $7,000
C. $9,000

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 7 of 10

You could contribute up to $5,000 in a traditional IRA or Roth IRA in 2009. How much can you contribute in 2010?

You're right! A. $5,000 is correct.

Sorry, wrong! is incorrect.

The right answer is A. $5,000.

The amount remains the same this year. Like last year, if you are 50 or older, you can stash an extra $1,000 in an IRA for a total of $6,000 in 2010. You can fund a traditional IRA or Roth IRA even if you contribute to a retirement plan at work.

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 8 of 10

Why are Roth IRAs such an attractive retirement investment option?

A. Tax-free income in retirement
B. No mandatory distribution requirements
C. Tax-free legacy for heirs
D. All of the above

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 8 of 10

Why are Roth IRAs such an attractive retirement investment option?

You're right! D. All of the above is correct.

Sorry, wrong! is incorrect.

The right answer is D. All of the above.

Yes, contributions are taxed as regular income when they go into a Roth IRA. But all the investment distributions are tax-free as long as you are at least 59½ years old and the account has been open at least five years. And because contributions are made with after-tax dollars, you can withdraw the contributions (but not earnings) tax-free and penalty-free at any time. Roth IRAs are great for young workers who will benefit from decades of tax-free growth and for older workers who want to avoid mandatory distributions and leave a tax-free legacy to their heirs. But there are income eligibility restrictions. You can't fully contribute to a Roth IRA in 2010 if your income exceeds $105,000 if you are single or $167,000 if you are married filing jointly.

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 9 of 10

There are no income restrictions for employer-sponsored Roth 401(k) plans.

A. True
B. False

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Quiz

Retirement Planning: How Prepared Are You?

Istockphoto

Question 9 of 10

There are no income restrictions for employer-sponsored Roth 401(k) plans.

You're right! A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

Here's a good deal. Now that Roth 401(k) plans have been made permanent, more employers are beginning to offer them. The contribution limits are the same as traditional 401(k) plans -- $16,500 plus $5,500 in catch-up contributions for those 50 and older in 2010. But, unlike the Roth IRA, there are no income eligibility limits. So people who earn too much to contribute to a Roth IRA and who want to have tax-free income in retirement can contribute to a Roth 401(k) if their employer offers one.

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 10 of 10

In the future, Social Security benefits will replace an increasingly smaller portion of retirees' income.

A. True
B. False

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Retirement Planning: How Prepared Are You?

Istockphoto

Question 10 of 10

In the future, Social Security benefits will replace an increasingly smaller portion of retirees' income.

You're right! A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

Because the normal retirement age for full Social Security benefits is gradually increasing to 67 for those born in 1960 or later, Social Security will replace a smaller portion of retirement income for future retirees. Under current law, you can still qualify for early retirement benefits at 62, but your benefits will be permanently reduced by 25% compared to your full benefit at age 66 or by 30% if your normal retirement age is 67. With disappearing pensions and shrinking Social Security benefits, workers are more responsible than ever for saving for their own retirement.

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Retirement Planning: How Prepared Are You?

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Quiz | January 2011

Retirement Planning: How Prepared Are You?

Quiz

Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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Retirement Planning: How Prepared Are You?

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