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  • Jay Blanchard

What is your Retirement Income IQ? Pass this Test before you Fail to Save Enough.


When you think of retirement, you probably think of spending extra time doing the things you love most. While retirement can be a very exciting time, it is a topic that causes many pre-retirees to worry. Approximately 49% of Americans say that running out of money is their top concern.

This is no surprise considering that many Americans have little knowledge about retirement income options. A retirement income literacy quiz was distributed by The American College of Financial Services. Of the 1,244 Americans aged 60-75 with at least 100,000 in household assets, only 26% passed. The females who participated in the study fair worse than men. Only 17% of women passed compared to 35% of men.

The first step to becoming more secure in your retirement literacy is understanding how much you know and where you need some education. While no test result can definitively say if you will be secure in retirement or not, scoring low on a knowledge assessment can indicate room for improvement. As with most things the more you know the better prepared you will be. The original survey is 38 questions and can be found here: https://retirement.theamericancollege.edu/sites/retirement/files/2017_Retirement_Income_Literacy_Report.pdf. We have pulled the short version and have 6 questions listed here. You can also take the test here: https://retirement.theamericancollege.edu/sites/retirement/files/2017_Retirement_Income_Literacy_Report.pdf

1. If you had a well-diversified portfolio of 50% stocks and 50% bonds that was worth $100,000 at retirement, based on historical returns in the United States the most you can afford to withdraw each year is about ____ plus inflation each year to have a 95% chance that your assets will last for 30 years.


a. 2,000

b. 4,000

c. 6,000

d. 8,000

2. Taking a portion (20-40%) of a retirement portfolio and buying a life annuity can protect against the uncertainty of life expectancy, ensuring that a basic level of spending is available throughout retirement.


a. True

b. False


3. A 25% negative single year return in a retirement portfolio would have the biggest impact on long-term retirement security if it occurs:


a. 15 years before retirement

b. At retirement

c. 15 years after retirement begins

d. The timing doesn’t matter


4. Which of the following strategies is least likely to improve retirement security?


a. Saving an additional 3% of salary in the five years before retirement

b. Deferring Social Security benefits for two years longer than originally planned

c. Working two years past the planned retirement date


5. Converting a portion of a traditional IRA into a Roth IRA is a good idea this year if:


a. You have a big tax deduction this year and your marginal tax rate is lower than normal

b. You have more taxable income than usual and your marginal tax rate is higher than normal

c. The value of the assets in your IRA has remained the same for 10 years


6. A single person who is likely to live to age 90 is generally going to be better off claiming Social Security benefits at age...


a. 62

b. 66

c. 70

d. 75

If you are nervous about your current retirement plan or in need of creating a retirement plan. Contact 716-568-6868 and get a free consult today!

Answers: 1.B 2.A 3. B4.A 5.A 6. C

Sources:

https://retirement.theamericancollege.edu/node/1241/quiz-results/963411/view

https://retirement.theamericancollege.edu/sites/retirement/files/2017_Retirement_Income_Literacy_Report.pdf

https://www.aarp.org/retirement/planning-for-retirement/info-2019/retirees-fear-losing-money.html

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