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Retirement income strategies you need to know about

When preparing for retirement, taking advantage of a wide variety of strategies is key.

Open Enrollment is an important time to review all your benefits and make sure you are prepared for the coming year and beyond. One of your most important benefits is your retirement plan, and we urge you to carefully consider whether you are taking full advantage of this benefit.

What you save today will play a major part in generating the income you will need for your future retirement.

According to the 2020 Retirement Income Literacy Survey, 4 in 5 older Americans aren’t aware of some of the retirement income strategies that can help to successfully plan for a financially secure retirement – even though 88% of those surveyed described themselves as being at least moderately knowledgeable about retirement income planning.

Here are some of the questions included in the survey. Test yourself and see how well you do:

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

(a) Working for two years past the planned retirement date (b) Deferring Social Security benefits for two years longer than originally planned (c) Saving an additional 3% of salary in the five years prior to retirement

  1. A 65-year-old man has an average life expectancy of approximately an additional:

(a) 10 years (b) 15 years (c) 20 years (d) 25 years

  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

  1. According to the Social Security Administration, around 2033 they will only have funds to pay for approximately ___ of promised benefits.

(a) 0% (b) 25% (c) 50% (d) 75%

  1. What is the proportion of the population that is going to need assistance with activities of daily living (need long-term care) at some point?

(a) 10% (b) 25% (c) 50% (d) 70%

  1. Historically, which one of the following generates the highest returns over a long time period?

(a) Small company stock funds (b) Large company stock funds (c) Dividend-paying stock funds (d) High-yield bond funds

  1. Although a minimum distribution will not be required in 2020, distributions from an IRA generally must be made every year once an individual has attained age …

(a) 55 (b) 59½ (c) 65 (d) 70½ (e) 72

  1. Which of the following long-term bonds typically has the highest yield?

(a) AAA-rated corporate bonds (b) B-rated corporate bonds (c) treasury bonds

  1. True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.

(a) True (b) False

  1. If 100% of a mutual fund’s assets are invested in long-term bonds and the investment climate changes so that interest rates rise significantly, then the value of the mutual fund shares …

(a) Increases significantly (b) Decreases significantly (c) Will not change at all (d) May rise or fall depending on the type of bond

Quiz answers:

  1. (c) Out of the options, saving an additional 3% of salary in the five years prior to retirement is least likely to improve one’s retirement security.
  2. (c) On average, a 65-year-old man will live another 20 years. And many will live even longer.
  3. (b) A general rule of thumb is that withdrawals should be limited to 4% of your retirement savings per year. Of course, the amount you should withdraw will depend on your life expectancy, desire to leave an estate and many other factors.
  4. (d) 75%, but that assumes that Congress does nothing in the meantime.
  5. (d) 70%. More people are living longer than ever before. That means the chances are pretty good you may need LTC at some point.
  6. (a) Smaller companies generally have higher growth potential, but they also tend to be more risky and more volatile.
  7. (d) 70½ or (e) 72. You generally have to start taking withdrawals from your traditional IRA, SEP-IRA, SIMPLE IRA or retirement plan account when you turn 72 (70½ if you reached 70½ before Jan. 1, 2020).
  8. (b) B-rated corporate bonds. The others are rated higher and have higher quality and lower risk, but not the highest yield.
  9. False. A basket of stocks usually takes less risk than a single stock, because if one goes down, you still have many others in your portfolio. It’s like having 12 eggs in 12 baskets instead of all 12 in one basket.
  10. (b) It will likely decrease significantly. Bond values and interest rates are inversely related: When one goes up, the other typically goes down.

How did you do? Don’t be discouraged if you missed a few questions. You are not alone. But you do have resources you can rely on to help you with your retirement income strategies. If you have questions, why not call the experienced professionals at Edelman Financial Engines? Their financial advisors can help to answer your questions and help you with your retirement income planning.

Source: The American College of Financial Services. 2020 Retirement Income Literacy Survey. Retrieved August 26, 2021, from https://retirement.theamericancollege.edu/2020-retirement-income-literacy-survey

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