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Questions and Answers
What is the first step in the 7 Steps to fund Retirement needs?
What is the first step in the 7 Steps to fund Retirement needs?
What is the main purpose of a tax-deferred retirement account?
What is the main purpose of a tax-deferred retirement account?
Which of the following is NOT a characteristic of Saving on a Non-Tax-Deferred Account?
Which of the following is NOT a characteristic of Saving on a Non-Tax-Deferred Account?
What is the hardest step in the retirement planning process?
What is the hardest step in the retirement planning process?
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Which of the following plans is considered an employer-sponsored retirement plan?
Which of the following plans is considered an employer-sponsored retirement plan?
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What contribution limit was set for 401(k) and 403(b) plans in 2021?
What contribution limit was set for 401(k) and 403(b) plans in 2021?
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What type of plan is a Cash Balance Plan classified under?
What type of plan is a Cash Balance Plan classified under?
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Which of the following tools can help in online retirement planning?
Which of the following tools can help in online retirement planning?
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At what age can you begin to withdraw from your IRA account without incurring a 10% penalty?
At what age can you begin to withdraw from your IRA account without incurring a 10% penalty?
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What percentage of retirement income comes from Social Security according to the provided content?
What percentage of retirement income comes from Social Security according to the provided content?
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What is the function of probate in estate planning?
What is the function of probate in estate planning?
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What is the catch-up contribution limit for individuals aged 50 and above in 2021?
What is the catch-up contribution limit for individuals aged 50 and above in 2021?
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Who are typically considered heirs in terms of estate planning?
Who are typically considered heirs in terms of estate planning?
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What happens if an individual does not have a will at the time of death?
What happens if an individual does not have a will at the time of death?
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Which of the following statements about early retirement age is accurate?
Which of the following statements about early retirement age is accurate?
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What is the role of a will in estate planning?
What is the role of a will in estate planning?
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What is the primary focus of a liquid fund?
What is the primary focus of a liquid fund?
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Which of the following is a benefit of being rated above credit level 700?
Which of the following is a benefit of being rated above credit level 700?
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Which step is NOT part of the estate planning process?
Which step is NOT part of the estate planning process?
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What characterizes a bequest in a will?
What characterizes a bequest in a will?
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What is a primary disadvantage of probate?
What is a primary disadvantage of probate?
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What is the purpose of a codicil?
What is the purpose of a codicil?
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What does a trust primarily do?
What does a trust primarily do?
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Which of the following is NOT a common clause included in a will?
Which of the following is NOT a common clause included in a will?
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What is a primary characteristic of an irrevocable living trust?
What is a primary characteristic of an irrevocable living trust?
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Which of the following is NOT a preventive measure against identity theft?
Which of the following is NOT a preventive measure against identity theft?
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Who is eligible to apply for Direct PLUS Loans?
Who is eligible to apply for Direct PLUS Loans?
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What is a key benefit of open credit, such as credit cards?
What is a key benefit of open credit, such as credit cards?
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What type of trust becomes effective after a person dies?
What type of trust becomes effective after a person dies?
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What is the main purpose of Direct Consolidation Loans?
What is the main purpose of Direct Consolidation Loans?
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What occurs during forbearance of a loan?
What occurs during forbearance of a loan?
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Which clause in a loan agreement allows a lender to demand full repayment under certain conditions?
Which clause in a loan agreement allows a lender to demand full repayment under certain conditions?
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Which of the following statements is true regarding consumer loans?
Which of the following statements is true regarding consumer loans?
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Which repayment plan is NOT listed among the repayment methods?
Which repayment plan is NOT listed among the repayment methods?
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Which of the following describes an installment purchase contract?
Which of the following describes an installment purchase contract?
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Which of the following statements about private loans is accurate?
Which of the following statements about private loans is accurate?
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What does a home equity loan require as collateral?
What does a home equity loan require as collateral?
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What is the primary function of collateral in a collateral loan?
What is the primary function of collateral in a collateral loan?
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How is the state interest rate calculated?
How is the state interest rate calculated?
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Which of the following represents an inexpensive source of loans?
Which of the following represents an inexpensive source of loans?
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What is the purpose of the Debt Resolution Rule?
What is the purpose of the Debt Resolution Rule?
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What is a characteristic of a Direct Unsubsidized Loan?
What is a characteristic of a Direct Unsubsidized Loan?
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What is the formula for calculating the debt limit ratio?
What is the formula for calculating the debt limit ratio?
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Which type of loan is classified as the most expensive source?
Which type of loan is classified as the most expensive source?
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What is a common strategy recommended if someone cannot pay their bills?
What is a common strategy recommended if someone cannot pay their bills?
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Study Notes
Retirement Planning
- Pension: Retirement plan providing regular income payments after work, funded by contributions from employee, employer, or both. Defined-benefit plans pre-determine payout amounts based on factors like years of service and salary history.
- Social Security: Primary retirement income source for many seniors. FICA taxes pay for today's retirees' benefits, not saved for future use. Eligibility depends on 40 credits.
- Retirement Benefits: Formula replaces 42% of average earnings, based on the number of earnings years and average earnings level, adjusted for inflation. Full benefits at retirement age 62. Increasing benefits possible by delaying retirement.
- Disability and Survivor Benefits: Social Security provides coverage for those unable to work due to impairments for at least a year. Monthly survivor benefits are provided when the breadwinner dies, including a one-time death benefit.
- Employer Funded Pensions: Traditional defined benefit pension plans are less common today as companies may not provide the same level of support for retirement.
Funding Status
- Funding Pension Plan: Contributions come from the employer, employee, or both. Funds grow over time to support retirement payments.
- Unfunded Pension Plan: Employer does not set aside funds in advance, using current income to pay for future benefits.
Tax-Deferred Retirement Account
- Retirement account delaying tax payments on earnings until withdrawal. Traditional IRAs and 401(k) plans are examples.
Saving on a Non-Tax-Deferred Account
- Earnings (interest, dividends, capital gains) are taxed in the year they're earned. Regular savings accounts and brokerage accounts follow this method.
Retirement Plans for Self-Employed/Small Businesses
- Various plans including Keogh, SEP-IRA, SIMPLE IRA, and others.
Individual Retirement Arrangements (IRAs)
- Traditional IRA: Contributions may or may not be tax-deductible, depending on income and whether the individual is covered by a company retirement plan. Distributions are taxed in retirement.
- Roth IRA: Contributions are not tax deductible, made from after-tax income. Money grows tax-free and withdrawals are free. Choosing a Roth IRA is preferable to a traditional IRA if you can pay taxes now.
- Coverdell Education Savings Account: Similar to Roth IRA, specifically targeted for educational expenses.
Estate Planning
- Estate Planning: Planning for what happens to wealth and dependents after death, involving determining estate value, selecting heirs, anticipating estate costs, and implementing estate planning tools.
- Probate: Legal process for distributing assets after death, overseeing distribution based on the will or state law.
- Will: Legal document outlining how assets are to be distributed posthumously to heirs.
- Heirs: Individuals entitled to inherit from a deceased person.
- Liquid Fund: Mutual fund primarily investing in short-term, high quality debt instruments.
Possible Complications/Features
- Inflation significantly impacts retirement planning, impacting the amount needed to maintain a comfortable lifestyle.
- Investment strategies should factor in expected longevity.
Retirement Age and Benefits
- Reaching specific ages unlocks certain benefits, such as early retirement ages, social security, and Medicare eligibility.
- Social Security benefits can grow if one waits to claim them.
Annuity or Lifetime Payments
- Single Life Annuity: Payouts are typically taxed as normal income while you live. A disadvantage is the inability to make withdrawals during emergencies.
- Joint and Survivor Annuity: Benefit continues for a surviving spouse until both parties die, providing income security.
- Lump Sum Payment: Payout option for a single amount used to cover large expenses. A disadvantage is that if money is spent quickly, it might run out or be difficult to manage.
Credit Cards
- Types of credit cards: premium, affinity, secured cards, travel, single-purpose cards, and traditional charge accounts.
- Variables affect credit cards: interest rates, grace periods, teaser rates, annual fees, and credit limits.
Student and Consumer Loans
- Consumer loans: borrowed for personal/household expenses.
- Four types include single-payment/balloon, bridge/interim, secured, and unsecured installment.
- Factors impacting loan decisions include creditworthiness, length of term, debt limits, type of repayment, and other costs.
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Description
This quiz covers essential concepts related to retirement planning, including pension plans, social security benefits, and disability coverage. Understand how these components work together to secure financial stability in your retirement years. Test your knowledge on employer-funded pensions and the calculations behind retirement benefits.
