#1
Which of the following is NOT a benefit of starting retirement planning early?
Higher risk tolerance in investments
ExplanationStarting early allows more conservative investment approaches.
#2
What is the primary purpose of a pension plan?
To provide regular income during retirement
ExplanationPensions offer fixed income post-retirement.
#3
What is the purpose of a target-date retirement fund?
To automatically adjust asset allocation based on the investor's age and retirement timeline
ExplanationTarget-date funds adapt investments as retirement approaches.
#4
Which of the following retirement plans is NOT subject to required minimum distributions (RMDs) after age 72 in the United States?
Roth IRA
ExplanationRoth IRAs do not mandate withdrawals post-age 72.
#5
What is the purpose of an annuity in retirement planning?
To provide a guaranteed income stream for life
ExplanationAnnuities offer fixed payments, ensuring income stability.
#6
Which of the following retirement accounts allows for tax-free withdrawals if certain conditions are met?
Roth IRA
ExplanationQualified withdrawals from Roth IRAs are tax-free.
#7
At what age can individuals start making catch-up contributions to their retirement accounts, such as 401(k)s or IRAs, in the United States?
50
ExplanationCatch-up contributions are allowed at age 50 to boost retirement savings.
#8
What is a '401(k) rollover'?
Moving funds from one employer's 401(k) plan to another employer's 401(k) plan
ExplanationRollover allows transferring retirement funds without penalty.
#9
What is the '4% rule' commonly used in retirement planning?
A strategy for withdrawing retirement savings at a sustainable rate
ExplanationIt suggests withdrawing 4% annually to sustain retirement funds.
#10
What does ERISA stand for in the context of retirement planning?
Employee Retirement Income Security Act
ExplanationERISA sets standards for retirement plans to protect employees.
#11
What is the purpose of a spousal IRA?
To allow a non-working spouse to contribute to an IRA based on the working spouse's income
ExplanationSpousal IRAs enable non-working spouses to save for retirement.
#12
What is a 'defined benefit plan' in the context of retirement?
A retirement plan where the employer makes contributions based on a fixed formula
ExplanationEmployers contribute based on preset formulas in defined benefit plans.
#13
What does the 'Safe Harbor' provision in retirement plans refer to?
A legal provision ensuring certain employer contributions to employee retirement accounts
ExplanationSafe Harbor ensures minimum employer contributions to retirement plans.
#14
In the context of retirement planning, what is 'sequence risk'?
The risk of experiencing poor investment returns early in retirement
ExplanationPoor early returns can deplete retirement funds faster.
#15
What does the 'rule of 72' help estimate in retirement planning?
The rate at which investments will double in value given a fixed annual return
ExplanationIt estimates investment doubling time using a fixed annual return.
#16
What is the primary purpose of a Roth conversion in retirement planning?
To convert pre-tax retirement savings into after-tax savings
ExplanationRoth conversions shift funds from pre-tax to after-tax status.
#17
What is the purpose of a Monte Carlo simulation in retirement planning?
To estimate the probability of achieving retirement goals based on various market scenarios
ExplanationMonte Carlo simulations assess retirement plan success rates under different market conditions.