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The quiz about savings for retirement on the preceding page covered the corporate pension plan, social security early retirement, limits on 401k contributions, social security and work, and more.
This page has the answers:
1. (b) The 4 percent rule advocated by many financial planners holds that if you withdraw no more than 4 percent of your portfolio in the first year of retirement and then increase that amount for inflation each year, your money
should last at least 30 years. That rough guideline about withdrawing from savings for retirement takes into consideration the role of expected earnings on your portfolio as well as inflation.
Adequate Savings for Retirement
2. (b) According to a 2008 study by Aon Consulting and Georgia State University, men need to have 4 to 6.8 times their annual salary from the years just before they leave work in their savings for retirement by the time they retire. Women should aim to have 4.5 to 7.5 times salary because they tend to live longer.
How Much to Put into Savings for Retirement
3. (c) Putting 11 percent to 15 percent of your salary into savings for retirement over a 40-year career can lead to an account balance that, combined with income from Social Security, has a good chance of supporting you through retirement, according to the Principal Financial Group. Trying for 15 percent is a good idea.
Social Security Early Retirement
4. (c) Social Security checks are about 25 percent less for the rest of your life if you take Social Security early retirement by signing up for benefits at 62 instead of full retirement age, which now ranges from 66 to 67 depending on your year of birth. Financial planners generally recommend holding off on taking benefits if possible.
Limits on 401k Contributions
5. (b) Employees age 50 and up can make up to $5,500 in catch-up contributions in 2010, added to a base contribution limit of $16,500 for maximum limits on 401k contributions of $22,000.
Typical Savings for Retirement
6. (b) $124,520 was the typical savings for retirement as of April 1, 2010, according to an estimate by the Employee Benefit Research Institute. Whether you're ahead or behind your neighbors and peers in savings for retirement don't lose sight of the long term – keep saving. Maximize your stash rather than contenting yourself with typical retirement savings.
The Most Efficient Savings for Retirement
7. (a) Thanks to the power of compounding, savings for retirement for only 10 years at a younger age can generate more retirement income than saving for 33 years when older, according to investment management company T. Rowe Price. This assumes the same amount contributed to a tax-deferred account each month.
Social Security and Work
8. (c) In 2010, half of your earnings above $14,160 are deducted from your Social Security benefits if you are younger than full retirement age for the entire year. Once you reach full retirement age, there is no limit on earnings regardless of Social Security and work.
Impact of a Layoff on Wealth
9. (c) 21 percent for couples and 33 percent for single people, according to a 2007 report by the Urban Institute. These statistics serve as a warning to build up emergency savings for retirement and not cut things too close in case of an unexpected job loss late in your working career.
Corporate Pension Plan
10. (b) AARP says only 16.7 percent of workers had defined-benefit pensions, the traditional corporate pension plan, as of the most recent data from 2007, meaning most individuals will have to look after their own finances with retirement accounts, such as 401(k)s and IRAs for their nest eggs.
0-3: Better bone up fast or you'll have to keep working till you drop.
4-5: You need to study some more.
6-7: Not bad, but the road to retirement affluence could still be bumpy for you.
8-9: If your planning matches your knowledge, you should be in good shape.
Topic: Retirement Planning
Subtopics: Introduction • Retirement Planning • Mistakes • Lessons • Savings for Retirement • 15 Tasks • Tips from the Chicago Herald Tribune • Americans in Their 60s • Charles Schwab Timeline • Do This at Age 25 • Do This at 45 • Do This at 65 • AARP Retirement Calculator • Retirement Planning Quiz • The Answers • The Benny Award