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Test Your Retirement Income Knowledge

3 out of 4 failed this quiz!

How would you feel if your child correctly scored only 47 out of 100 on an important exam?

Perhaps you’d take away the child’s smartphone and video games, and restrict TV viewing, until he or she demonstrates scholastic improvement.

Well, lots of adults need to do a better job, too — when it comes to financial literacy.

Nearly three out of four people aged 60 to 74 failed a 38-question quiz on retirement income topics administered by the American College of Financial Services New York Life Center for Retirement Income.

Those surveyed had at least $100,000 in household assets, excluding their primary residence, so one would assume they would be fairly knowledgeable about savings and investments.

But that wasn’t the case. Their average score? 47 percent!

Men answered slightly more questions correctly than women did. Only 5 percent of the 1,224 participants scored a B — 80 percent — or higher.

Those who reported being the primary financial decision-maker in their family had a higher pass rate, the college said.

While 55 percent were extremely confident they would have enough money to live comfortably in retirement, only 42 percent of the extremely confident men and 24 percent of the extremely confident women passed the test.

Here are nine of the easiest questions. Test yourself and see how well you do:

1. A single person who’s likely to live to age 90 or longer will generally be better off claiming Social Security benefits at what age? (a) 62 (b) 66 (c) 70 (d) 75

2. Who pays the majority of long-term care expenses? (a) Medicare (b) Medicaid (c) long-term care insurance (d) individuals

3. True or false: Medicare typically pays for a nursing home for one year.

4. In order to avoid a penalty, you must begin taking distributions from your IRA in the year you attain what age? (a) 55 (b) 59 and a half (c) 65 (d) 72

5. Which of the following long-term bonds typically has the highest yield? (a) triple-A-rated corporate bonds (b) B-rated corporate bonds (c) treasury bonds

6. Suppose your savings account pays you 2 percent a year and inflation is running at 4 percent a year. After one year, you will be able to buy: (a) more (b) less (c) exactly the same amount.

7. Most experts agree that the best way to protect against inflation is to have a diversified portfolio of what? (a) stocks (b) bonds (c) bank CDs

8. True or false: Buying a single stock is usually safer than a stock mutual fund.

9. If 100 percent of a mutual fund’s assets are invested in long-term bonds, and interest rates go up substantially, what will happen to the value of the fund? (a) It will go up substantially. (b) It will drop substantially. (c) It won’t change at all.

Not knowing the correct answers can cause you to make costly mistakes. Show this quiz to your family members and friends; perhaps they’ll discover they could benefit from working with financial professionals like us.

Quiz Answers:

1. (c) 70, not 75, because once you reach age 70, benefits do not increase further.

2. (b) Medicaid, the federal health plan for the poor. You must be in poverty to have the federal government cover your long-term care needs. Medicare doesn’t pay much in long-term care benefits.

3. False. Medicare pays for 100 days — after you’ve first spent three or more days in a hospital getting skilled nursing care. A lot of folks don’t need that. They go straight to a nursing home, in which case Medicare doesn’t pay anything.

4. (d) 72. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you turn 72 (70 ½ if you reached 70 ½ before January 1, 2020).

5. (b) B-rated corporate bonds. The others may be rated higher and have higher quality and safety, but not the highest yield. (Those who don’t know this answer could end up buying bonds that are riskier than they thought or lower in yield than they thought.)

6. (b) less. If inflation is more than your earnings, your buying power goes down. Many people don’t know the basic elements of how inflation works and its impact on paychecks.

7. (a) stocks. Yet today more than half of households don’t own stocks, preferring to have their savings in bonds and CDs, wrongly believing those will protect them against inflation.

8. False. A basket of stocks is safer than a single stock, because if one goes down you still have many others. It’s like having 12 eggs in 12 baskets instead of all 12 in one basket.

9. (b) It will drop substantially. Bond values and interest rates are inversely proportional: When one goes up, the other goes down.

Updated August 9, 2021.

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