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Quiz: Retirement and Long-term Planning

Test your understanding of retirement and long-term planning concepts.

1. Why is starting retirement savings early so powerful?

  1. Because retirement accounts didn't exist in the past
  2. Because of compound growth over many decades—time is more powerful than amount
  3. Because older people can't open retirement accounts
  4. Because contributions were cheaper in the past
Show Answer

The correct answer is B. Starting retirement savings early allows compound growth to work over many decades. Saving $500/month from age 25-65 results in $1.31 million (contributing $240,000). Starting at age 35 results in only $609,000 (contributing $180,000). Starting 10 years earlier means contributing only $60,000 more but ending with $701,000 more! Time is more powerful than amount—it's better to save $200/month for 40 years than $500/month for 15 years.

Concept Tested: Compound Growth and Retirement Planning

See: The Power of Starting Early

2. What is a 401(k) plan?

  1. A type of checking account
  2. An employer-sponsored retirement account with pre-tax contributions and tax-deferred growth
  3. A government pension program
  4. A type of health insurance
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The correct answer is B. A 401(k) is an employer-sponsored retirement account that lets you contribute pre-tax money (reducing current taxable income), grows tax-free until retirement, and is often matched by employers. The 2024 contribution limit is $23,000 ($30,500 if age 50+). Money is taxed when withdrawn in retirement. The biggest mistake is not contributing enough to get the full employer match—that's leaving free money on the table.

Concept Tested: 401(k) Plan

See: Understanding 401(k) Plans

3. What is employer matching in a 401(k)?

  1. The employer matches your salary
  2. The employer contributes money to your 401(k) based on how much you contribute—free money
  3. The employer invests in the same stocks you choose
  4. The employer takes money from your paycheck
Show Answer

The correct answer is B. Employer matching is when your company contributes to your 401(k) based on your contributions—typically "50% match on first 6%" or similar. This is free money and provides an instant 50-100% return on your investment. If your company offers matching, contribute at least enough to get the full match before doing anything else with your money. Over 30 years, a 50% match can add $183,000+ to your retirement savings.

Concept Tested: Employer Matching

See: Employer Matching Power

4. What is the main advantage of a Roth IRA over a Traditional IRA?

  1. Higher contribution limits
  2. Contributions are tax-free now and withdrawals are taxed later
  3. Contributions are taxed now but growth and withdrawals are tax-free in retirement
  4. You can only contribute to Roth IRAs, not Traditional IRAs
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The correct answer is C. Roth IRAs are funded with after-tax money (no immediate deduction) but offer tax-free growth and tax-free withdrawals in retirement. For young adults in lower tax brackets who expect to earn more later, Roth IRAs are usually the better choice. All gains grow tax-free forever, there are no Required Minimum Distributions, and you can withdraw contributions (not earnings) anytime penalty-free. Maximum contribution for 2024: $7,000 ($8,000 if age 50+).

Concept Tested: Roth IRA

See: Roth IRA Benefits

5. What is the correct priority for retirement savings?

  1. Max out Roth IRA first, then contribute to 401(k)
  2. Only contribute to 401(k), ignore IRAs
  3. Contribute to 401(k) to get full match, then max out Roth IRA, then return to max out 401(k)
  4. Only save in a regular savings account
Show Answer

The correct answer is C. The optimal retirement savings priority: (1) Contribute to 401(k) to get full employer match (free money!), (2) Max out Roth IRA ($7,000/year—best tax treatment), (3) Go back and max out 401(k) if you can ($23,000/year), (4) If still have money, invest in taxable brokerage account. This strategy maximizes employer contributions, captures tax-free growth in Roth IRA, and takes full advantage of tax-advantaged space.

Concept Tested: Retirement Savings Strategy

See: Retirement Savings Priority

6. Can you rely on Social Security alone for retirement?

  1. Yes, Social Security provides plenty of income
  2. No, the average benefit of $23,000/year is not enough to live on comfortably
  3. Yes, everyone gets at least $100,000/year from Social Security
  4. Social Security doesn't exist
Show Answer

The correct answer is B. The average Social Security benefit in 2024 is about $1,907/month ($22,884/year)—near poverty level and not enough to live on comfortably. Social Security should supplement your retirement savings, not replace them. The system also faces funding challenges with potential benefit cuts in the 2030s. Plan to have Social Security provide 25-40% of retirement income, with your savings providing the rest. Don't count on Social Security alone!

Concept Tested: Social Security Benefits

See: Social Security Reality

7. According to the "25x rule," how much should you save for retirement?

  1. 25 times your current salary
  2. 25 times your annual expenses in retirement
  3. 25% of your annual income
  4. $25,000 total
Show Answer

The correct answer is B. The 25x rule suggests saving 25 times your expected annual expenses in retirement. This is based on the 4% safe withdrawal rate—you can withdraw 4% of your savings annually without running out of money. If you plan to spend $50,000/year in retirement, you need $1,250,000 saved (25 × $50,000). Another guideline: Save 10x your salary by retirement at age 67. These are targets to aim for, adjusted based on your specific situation.

Concept Tested: Retirement Savings Target

See: Savings Targets

8. At what age should you have 3x your annual salary saved for retirement, according to Fidelity guidelines?

  1. Age 30
  2. Age 40
  3. Age 50
  4. Age 67
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The correct answer is B. Fidelity's age-based milestones suggest: 1x salary at age 30, 3x salary at age 40, 6x salary at age 50, 8x salary at age 60, and 10x salary at age 67. So if you earn $75,000, aim for $75,000 saved by 30, $225,000 by 40, $450,000 by 50, $600,000 by 60, and $750,000 by 67. These are benchmarks to track your progress—behind schedule means you need to increase savings rate.

Concept Tested: Retirement Savings Target

See: Age-Based Milestones

9. What is a will?

  1. A retirement account
  2. A legal document stating who gets your assets after death and naming guardians for minor children
  3. A type of life insurance
  4. A savings account
Show Answer

The correct answer is B. A will is a legal document that specifies who receives your assets after you die, names guardians for minor children, and designates an executor to handle your estate. Everyone needs a will, especially if you have children, are married, or have significant assets. Without a will, state law determines who gets your assets and who raises your children—not your wishes. Basic wills can be created online for $100-200 or through an estate attorney for more complex situations.

Concept Tested: Estate Planning Basics

See: Basic Estate Planning

10. Why are beneficiary designations on retirement accounts so important?

  1. They're not important
  2. They override your will and transfer assets directly to beneficiaries, skipping probate
  3. They determine your contribution limits
  4. They set your investment allocation
Show Answer

The correct answer is B. Beneficiary designations on retirement accounts, life insurance, and bank accounts override your will and transfer assets directly to named beneficiaries, bypassing probate court. This is why keeping beneficiaries updated is critical—even if your will says one thing, the beneficiary designation determines who actually receives the money. Review and update after major life events (marriage, divorce, children, death of beneficiary). Outdated beneficiaries are a common estate planning mistake.

Concept Tested: Estate Planning Basics

See: Beneficiary Designations