Tuesday, November 17, 2009

Test Your Financial Prowess

How much do you know about retirement security? Find out by taking this quiz from the Wall Street Journal:

1) What percentage of surveyed workers said that—in the wake of the financial crisis—they still plan to retire on their original schedule?

a. 21%
b. 31%
c. 41%
d. 51%

(ANSWER: b. Only about one-third of workers, according to a survey in September by Bankrate Inc., said the recession hasn't affected their planned retirement date. One in five said they anticipated leaving the office between one and five years later than planned.)

2) An analysis of trading behavior over a two-year period in 401(k) plans found that the greatest percentage of workers made a change in their accounts:

a. Once during the two years
b. Twice during the two years
c. Once each quarter
d. Twice each year
e. Never made any change

(ANSWER: e. Looking at a group of 1.2 million workers in more than 1,500 retirement plans, a report from the University of Michigan found that 80% of workers initiated no trades in their accounts during the two-year period. Eleven percent made only one trade."For the overwhelming majority of retirement savers," according to the report, "there is no evidence of portfolio rebalancing, shifts in risk tolerance with age, or tactical portfolio changes.")

3) What percentage of participants age 55-64 in employer retirement programs made the maximum contribution to their accounts in 2008—and what percentage of workers age 50-plus took advantage of catch-up contributions?

Maximum Catch-up
a. 10%a. 13%
b. 20%b. 23%
c. 30%c. 33%
d. 40%d. 43%

(ANSWERS: B (maximum) and A (catch-up). Vanguard Group, in a survey of its defined-contribution plans, with more than three million participants, found that only one in five workers approaching retirement made the maximum contribution to their employer savings accounts—and only one in seven workers took advantage of catch-up contributions. )

4) What percentage of workers and/or their spouses have tried to calculate how much money they will need to save for a comfortable retirement?

a. 34%
b. 44%
c. 54%
d. 64%

(ANSWER: B. Fewer than half of surveyed workers in 2009, according to the Employee Benefit Research Institute, had put pencil to paper—a fundamental step in any effective retirement plan. The same percentage said they simply guessed at how much money they will need in later life.)

5) In retirement, Social Security will likely replace what percentage of your pre-retirement income?

a. 23%
b. 33%
c. 43%
d. 53%

(ANSWER: b. Thus, the question: If Social Security, according to the agency's board of trustees, will provide approximately one-third of the amount needed for retirement, will your savings and assets be sufficient to generate the balance?)

6) The single best cure for a battered nest egg is to:

a. Invest more aggressively
b. Save more money
c. Work longer
d. Plan to withdraw less money from retirement savings

(ANSWER: c—for many people. There is, of course, no single best answer for patching a nest egg. A combination of two or more of these tactics probably would help many current and would-be retirees.)

* WISER has many resources to help you plan for your secure retirement, including a worksheet to help you add up your sources of retirement income as well as a general budget sheet to help you get on track today!

Source: Ruffenach, Glenn. “Have You Learned Your Lessons?” 14 Nov. 2009. The Wall Street Journal, Personal Finance. .

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