#1
What is the primary goal of financial planning for retirement?
Ensuring a comfortable retirement
ExplanationStriving for financial security and a comfortable lifestyle during retirement.
#2
Which of the following is considered a guaranteed source of retirement income provided by an employer?
Pension
ExplanationEmployer-provided income guarantee during retirement.
#3
Which investment strategy involves spreading investments across different asset classes to reduce risk?
Diversification
ExplanationRisk management approach by investing across various asset classes.
#4
Which insurance product provides coverage for damage to your own vehicle in the event of an accident?
Auto insurance
ExplanationCoverage for own vehicle damage in accidents.
#5
What is the primary purpose of a will in estate planning?
Distributing assets after death
ExplanationFacilitating the distribution of assets upon death.
#6
What is the purpose of a 529 plan in financial planning?
Saving for college education
ExplanationDesignated for saving funds for future college education expenses.
#7
Which type of insurance provides coverage for a specific period and pays a death benefit if the insured dies during that period?
Term life insurance
ExplanationTemporary coverage with a death benefit during a specified time period.
#8
What is the 4% rule in retirement planning?
Withdrawing 4% of retirement savings annually for income
ExplanationGuideline suggesting a sustainable annual withdrawal rate from retirement savings.
#9
In retirement planning, what does the term 'sequence of returns risk' refer to?
The order in which investment returns occur
ExplanationRisk associated with the timing of investment returns during retirement.
#10
What is the penalty for early withdrawal from a traditional IRA before the age of 59½?
10%
ExplanationImposition of a 10% penalty for withdrawing from a traditional IRA before the specified age.
#11
What is the purpose of disability insurance in financial planning?
Replacing lost income due to illness or injury
ExplanationFinancial protection by replacing income during illness or injury.
#12
Which investment option typically offers a fixed interest rate and guarantees the return of principal?
Certificate of deposit (CD)
ExplanationInvestment with fixed interest and principal guarantee.
#13
Which retirement account allows for tax-free withdrawals if certain conditions are met and is often used for medical expenses?
Roth IRA
ExplanationTax-free withdrawals under specified conditions, commonly utilized for medical expenses in retirement.
#14
What is the purpose of long-term care insurance in retirement planning?
Protecting against the costs of extended care services
ExplanationProviding financial protection for extended care services in retirement.
#15
What is the purpose of an annuity in retirement planning?
Generating a stream of income for life
ExplanationInstrument for creating a lifetime income stream in retirement.
#16
What is the purpose of a Roth 401(k) in retirement planning?
Providing tax-free withdrawals in retirement
ExplanationOffering tax-free withdrawals as part of retirement planning.
#17
Which factor is considered in determining the life insurance premium for an individual?
Age and health condition
ExplanationAge and health impact the cost of an individual's life insurance premium.
#18
What is the purpose of a revocable living trust in estate planning?
Avoiding probate
ExplanationLegal tool to bypass probate, facilitating the seamless distribution of assets.