Most of my entries are with regard to self-directed IRA and 401K accounts
and how you can invest these retirement monies into non-traditional asset
classes (e.g., real estate). However, I came across an August 8, 2008, "USA Today" article, titled, Pop quiz! How
well do you know your finances? by John Waggoner.
This article is a fun little quiz that most people may not do too well at answering the questions. Take a look at the questions and see how you do. Enjoy!
Pop quiz! How well do you know your finances? "by John Waggoner, "USA Today"
If you're saving for retirement, you probably have many questions.
How can I shield my savings from taxes for as long as possible? What can I expect from Social Security and Medicare?
Where can I get the best returns from my money?
We can't give you all the answers for your retirement here, but we can help you check your knowledge in four key areas: taxes; saving and investing; Social Security; and Medicare/Medicaid.
Try our quiz. Answers and explanations are below each question. Try not to peek.
Question: Can you deduct losses from a retirement account?
Yes No
Answer: No.
Losses from the sale of stocks, bonds, mutual funds or other securities in a retirement account aren't deductible. And if you invest through a tax-deferred traditional IRA or a 401(k) savings plan, all the money you withdraw will be taxed as ordinary income. That's why many people prefer Roth IRAs, which hold after-tax dollars. As long as you've owned your Roth at least five years and are 59½ or older, all your withdrawals — your contributions plus the earnings they've produced — are tax-free.
In general, it's best to keep income-oriented investments, such as bonds and bond funds, in traditional IRAs and 401(k) savings plans. Investments aimed at producing capital gains — which are generally taxed at lower rates — might be best held in a taxable account.
Q: Can you deduct contributions to a traditional IRA if you have a pension?
Yes No
Answer: Yes.
But many people can't. Single filers who have a retirement plan need modified adjusted gross income (MAGI) of $52,000 or less to claim a full deduction for their 2008 IRA contribution. Joint filers need MAGI of $103,000 or less to take the full deduction. Anyone can contribute to a non-deductible IRA, which shelters your earnings from taxes until withdrawal.
Q: Can you withdraw the principal from your Roth IRA without penalty?
Yes No
Answer: Yes.
You can do so at any time without penalty.
SOCIAL SECURITY
Q: How much is the average monthly Social Security payout?
A. $934 B. $1,085 C. $1,112
Answer: B.
Social Security also pays survivors insurance to widows and children, as well as disability insurance. You can estimate your payout at socialsecurity.gov.
Q: Do more people believe in UFOs than in Social Security?
Yes No
Answer: No.
The Employee Benefit Research Institute, a non-profit research group, actually investigated this frequently cited statistic and found that 71% of those surveyed had greater confidence in the future of Social Security than in the existence of UFOs.
Q: What percentage of elderly unmarried women end up receiving 90% or more of their income from Social Security?
A. 43.4% B. 57.2% C. 61.3%
Answer: A.
For unmarried women 65 and older, Social Security represents 53.4% of total income. In contrast, Social Security makes up only 38.3% of elderly men's income and 33.1% of elderly couples' income.
SAVING & INVESTING
Q: How much have large-company stocks returned annually, on average, since 1926?
A. 5.9% B. 7.1% C. 10.3%
Answer: C.
Over most long periods of time, stocks outperform safer investments, such as bonds or three-month Treasury bills. But there's plenty of variance in returns, even over 10-year periods. Consider that the S&P 500 fell an average 3.3% a year in the 10 years that ended in April 1939 — a period that encompassed most of the Great Depression.
Q: Consider two mutual funds that each earn an average 8% a year before expenses. Fund A charges 0.5% in expenses. Fund B charges 1.5%. If you invested $10,000 in Fund A today, you'd have $87,500 after 30 years. How much would you have in Fund B?
A. $80,000 B. $78,500 C. $66,000
Answer: C.
Even though they may seem small, fund expenses can clobber your returns over time. You can compare mutual fund expenses at the Securities and Exchange Commission's website: sec.gov. Click on "Calculators."
Q: Assuming you're 25 and earn 8% a year, how much do you have to save each month to have $1 million at 65?
A. $53 B. $187 C. $286
Answer: C.
The earlier you start saving, the less you'll have to save each month. If you start at 21, you'll need to save $206 a month. Start at 55, and you'll have to sock away nearly $5,500 a month to have $1 million in 10 years.
MEDICARE & MEDICAID
Q: At what age can you take Medicare benefits?
A. 62 B. 65 C. 67
Answer: B.
If you retire before 65, you should make sure you have health insurance coverage.
Q: True or false: You're 77 and need full-time nursing care. You can give away your assets to friends and relatives and then receive Medicaid assistance.
A. True B. False
False.
Medicaid is intended for the truly destitute, and if you transfer assets to qualify, you'll be disqualified for a period of time. Typically, for example, if Medicaid pays $150 a day for nursing home care and you gave away $100,000 in assets, you'll be disqualified for about 666 days ($100,000 divided by $150).
Furthermore, states will check back five years to see whether you've transferred assets to someone else.
Thanks to "USA Today" and John Waggoner for the fun little quiz. As individuals we must continually try to educate ourselves on our financial well-being. Many of us take the time and effort to make our minds and body more healthy....we need to do that as well with our financial being.
John R. Park is President of PGI SelfDirected and and co-founding Partner of Fulcrum Investment Network.
This article is a fun little quiz that most people may not do too well at answering the questions. Take a look at the questions and see how you do. Enjoy!
Pop quiz! How well do you know your finances? "by John Waggoner, "USA Today"
If you're saving for retirement, you probably have many questions.
How can I shield my savings from taxes for as long as possible? What can I expect from Social Security and Medicare?
Where can I get the best returns from my money?
We can't give you all the answers for your retirement here, but we can help you check your knowledge in four key areas: taxes; saving and investing; Social Security; and Medicare/Medicaid.
Try our quiz. Answers and explanations are below each question. Try not to peek.
Question: Can you deduct losses from a retirement account?
Yes No
Answer: No.
Losses from the sale of stocks, bonds, mutual funds or other securities in a retirement account aren't deductible. And if you invest through a tax-deferred traditional IRA or a 401(k) savings plan, all the money you withdraw will be taxed as ordinary income. That's why many people prefer Roth IRAs, which hold after-tax dollars. As long as you've owned your Roth at least five years and are 59½ or older, all your withdrawals — your contributions plus the earnings they've produced — are tax-free.
In general, it's best to keep income-oriented investments, such as bonds and bond funds, in traditional IRAs and 401(k) savings plans. Investments aimed at producing capital gains — which are generally taxed at lower rates — might be best held in a taxable account.
Q: Can you deduct contributions to a traditional IRA if you have a pension?
Yes No
Answer: Yes.
But many people can't. Single filers who have a retirement plan need modified adjusted gross income (MAGI) of $52,000 or less to claim a full deduction for their 2008 IRA contribution. Joint filers need MAGI of $103,000 or less to take the full deduction. Anyone can contribute to a non-deductible IRA, which shelters your earnings from taxes until withdrawal.
Q: Can you withdraw the principal from your Roth IRA without penalty?
Yes No
Answer: Yes.
You can do so at any time without penalty.
SOCIAL SECURITY
Q: How much is the average monthly Social Security payout?
A. $934 B. $1,085 C. $1,112
Answer: B.
Social Security also pays survivors insurance to widows and children, as well as disability insurance. You can estimate your payout at socialsecurity.gov.
Q: Do more people believe in UFOs than in Social Security?
Yes No
Answer: No.
The Employee Benefit Research Institute, a non-profit research group, actually investigated this frequently cited statistic and found that 71% of those surveyed had greater confidence in the future of Social Security than in the existence of UFOs.
Q: What percentage of elderly unmarried women end up receiving 90% or more of their income from Social Security?
A. 43.4% B. 57.2% C. 61.3%
Answer: A.
For unmarried women 65 and older, Social Security represents 53.4% of total income. In contrast, Social Security makes up only 38.3% of elderly men's income and 33.1% of elderly couples' income.
SAVING & INVESTING
Q: How much have large-company stocks returned annually, on average, since 1926?
A. 5.9% B. 7.1% C. 10.3%
Answer: C.
Over most long periods of time, stocks outperform safer investments, such as bonds or three-month Treasury bills. But there's plenty of variance in returns, even over 10-year periods. Consider that the S&P 500 fell an average 3.3% a year in the 10 years that ended in April 1939 — a period that encompassed most of the Great Depression.
Q: Consider two mutual funds that each earn an average 8% a year before expenses. Fund A charges 0.5% in expenses. Fund B charges 1.5%. If you invested $10,000 in Fund A today, you'd have $87,500 after 30 years. How much would you have in Fund B?
A. $80,000 B. $78,500 C. $66,000
Answer: C.
Even though they may seem small, fund expenses can clobber your returns over time. You can compare mutual fund expenses at the Securities and Exchange Commission's website: sec.gov. Click on "Calculators."
Q: Assuming you're 25 and earn 8% a year, how much do you have to save each month to have $1 million at 65?
A. $53 B. $187 C. $286
Answer: C.
The earlier you start saving, the less you'll have to save each month. If you start at 21, you'll need to save $206 a month. Start at 55, and you'll have to sock away nearly $5,500 a month to have $1 million in 10 years.
MEDICARE & MEDICAID
Q: At what age can you take Medicare benefits?
A. 62 B. 65 C. 67
Answer: B.
If you retire before 65, you should make sure you have health insurance coverage.
Q: True or false: You're 77 and need full-time nursing care. You can give away your assets to friends and relatives and then receive Medicaid assistance.
A. True B. False
False.
Medicaid is intended for the truly destitute, and if you transfer assets to qualify, you'll be disqualified for a period of time. Typically, for example, if Medicaid pays $150 a day for nursing home care and you gave away $100,000 in assets, you'll be disqualified for about 666 days ($100,000 divided by $150).
Furthermore, states will check back five years to see whether you've transferred assets to someone else.
Thanks to "USA Today" and John Waggoner for the fun little quiz. As individuals we must continually try to educate ourselves on our financial well-being. Many of us take the time and effort to make our minds and body more healthy....we need to do that as well with our financial being.
John R. Park is President of PGI SelfDirected and and co-founding Partner of Fulcrum Investment Network.