Can you pass this 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 people taking the 2020 quiz failed to get a passing grade.
More than half of respondents underestimated the life expectancy of a 65year-old man. Only 31% have a plan in place to fund long-term-care. Only 8% considered it likely theywould need long-term care. However, 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 amarket downturn; 35% of those without a written plan feel prepared to deal with a market downturn.
You can take the test at theamericancollege.edu/retirement-income-literacysurvey. Here are some of the questions in the survey, along with answers.
1. If you had awell-diversified portfolio of 50% stocks and 50% bondsworth $100,000 at retirement, based on historical returns in theU.S., what is the most you can afford towithdraweach year (not inflation adjusted) to have a 95% chance your assets will last 30 years?
A. $2,000
B. $4,000
C. $6,000
D. $8,000
2. An immediate income annuity that pays income of $1,000 amonth is generally going to be more expensive:
A. The younger the owner is when the annuity begins
B. For a man rather than for awoman C. If interest rates increase
D. For a single person
3. Adeferred variable annuity with guaranteed lifetime withdrawal benefits:
A. Ensures that the investment will not lose value
B. Only offers investment alternative with fixed returns
C. Pays guaranteed income that varies based on market performance
D. Can pay income even if the investment account goes to zero.
4. True or false: Aretiree who isworking part time can generally continue to contribute to an IRA or a Roth IRA
5. Sarah is single, age 65 and takes a reverse mortgage with a lump-sum payment. When does the loan have to be repaid?
A. At age 75
B. Whenever she takes another loan C. When she permanently leaves the home
D. Whenever the mortgage company wants it back
6. Nationally, who pays the majority of long-term-care expenses provided in nursing homes?
A. Medicare
B. Private payment
C. Medicaid
D. Insurance purchased by individuals
7. Converting a portion of a traditional IRA into a Roth IRA is a good idea, if:
A. You havemore taxable income than usual, and yourmarginal tax rate is higher than normal.
B. You have a big tax deduction this year, and your marginal tax rate is lower than normal.
C. The value of the assets in your IRA has remained the same for 10 years.
8. Which of the following types of long-term bonds typically has the highest yield?
A. U.S. Treasury bonds
B. AAA rated corporate bonds
C. BBB rated corporate bonds
9. To maximize the safewithdrawal rate froma portfolio over a 30-year retirement period, it is best to hold what percentage of assets in equities throughout retirement?
A. 0-10%
B. 25-35%
C. 50-60%
D. 90-100%
Answers: 1B; 2 A; 3D; 4True; 5C, 6 C; 7 B; 8 C; 9C
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 determinewhich areas you should consider learning more about important retirement topics.