Can you pass a retirement literacy quiz?
The American College of Financial Services periodically conducts a retirement literacy quiz for prospective retirees. The 2020 quiz consists of 38 questions covering all important retirement issues. Unfortunately, 8 out of 10 individuals taking the 2020 quiz failed to get a passing grade.
More than half of respondents underestimated the life expectancy of a 65-year-old man. Only 31% have a plan in place to fund long-term care. Although only 8% considered it likely they would need long-term care, the reality is that 70% will need some form of this care.
Only 33% of respondents report having a written retirement plan, and of those who do have a plan, only 47% feel prepared for a market downturn. Of those without a written plan, only 35% feel prepared to deal with a market downturn.
You can take the test at theamericancollege.edu/retirement-income-literacy-survey. Here are some of the questions contained in the survey, along with answers below:
- If you had a well-diversified portfolio of 50% stocks and 50% bonds worth $100,000 at retirement, based on historical returns in the U.S., what is the most you can afford to withdraw each year (not inflation adjusted) to have a 95% chance your assets will last 30 years?
- An immediate income annuity that pays income of $1,000 a month is generally going to be more expensive:
- The younger the owner is when the annuity begins
- For a man rather than for a woman
- If interest rates increase
- For a single person
- A deferred variable annuity with guaranteed lifetime withdrawal benefits:
- Ensures that the investment will not lose value
- Only offers investment alternatives with fixed returns
- Pays guaranteed income that varies based on market performance
- Can pay income even if the investment account goes to zero.
- True or False: A retiree who is working part-time can generally continue to contribute to an IRA or a Roth IRA
- Sarah is single, aged 65, and takes a reverse mortgage with a lump-sum payment. When does the loan have to be repaid?
- At age 75
- Whenever she takes another loan
- When she permanently leaves the home
- Whenever the mortgage company wants it back
- Nationally, who pays the majority of long-term-care expenses provided in nursing homes?
- Private payment
- Insurance purchased by individuals
- Converting a portion of a traditional IRA into a Roth IRA is a good idea, if:
- You have more taxable income than usual, and your marginal tax rate is higher than normal.
- You have a big tax deduction this year, and your marginal tax rate is lower than normal.
- The value of the assets in your IRA has remained the same for 10 years.
- Which of the following types of long-term bonds typically has the highest yield?
- U.S. Treasury bonds
- AAA rated corporate bonds
- BBB rated corporate bonds
- To maximize the safe withdrawal rate from a portfolio over a 30-year retirement period, it is best to hold what percentage of assets in equities throughout retirement?
Answers: 1 b; 2 a; 3 d; 4 True; 5 c, 6 c; 7 b; 8 c; 9 c
The quiz encompasses a comprehensive set of questions and answers including investing, withdrawal options, annuities, Social Security and long-term care.
I recommend that you take the quiz to determine which important retirement topics you should consider learning more about.
Elliot Raphaelson welcomes your questions and comments at firstname.lastname@example.org.
© 2020 Elliot Raphaelson. Distributed by Tribune Content Agency, LLC.