Can you pass this simple retirement questionnaire? – The madman

When it comes to retirement, everyone can talk about all the fun activities they want to do, the trips they want to take and their enthusiasm to finally spend all their time doing things. that he likes.

But saving for retirement is another story. In fact, according to a Gallup poll, only 38% of investors have a written financial plan. According to a Northwestern Mutual report, 21% of Americans have no savings for retirement.

There is no doubt that many Americans are behind their retirement goals, but the hard part is sometimes to start. The financial world is filled with jargon and confusing concepts that the average careless person of finance may not understand – or, let's be honest, worry about understanding. But it is important to understand these things if you want to give yourself the best chance to retire comfortably.

Ready to test your retirement knowledge and see how many of these terms and concepts you know? Let's start.

Question: At what age can you start withdrawing from your 401 (k) or IRA without incurring penalties?

Answer: 59 1/2. If you withdraw funds from your 401 (k), your traditional IRA or your Roth IRA before reaching 59 and a half years, you will usually have to pay a penalty of 10%. There are, however, some exceptions to the sentence. For example, if you have a 401 (k) and you leave your employer after age 55, you can withdraw from that 401 (k) without any penalty. And if you have an IRA, you will not be penalized if you withdraw funds to cover deductible medical expenses that exceed 7.5% of your adjusted gross income, or if you need money as a result of 39, total and permanent disability.

Question: At what age can you start applying for social security benefits?

Answer: 62. You can start claiming at age 62, but the longer you wait, until age 70, the more you receive each month. In theory, you will receive the same amount in benefits over a lifetime. If you apply earlier, you will only receive smaller but more numerous checks, and if you wait a few years, you will receive fewer larger checks.

The exact size or size of these checks depends on your retirement age – the age at which you will receive 100% of the benefits you are theoretically entitled to – and the age you claim. If, for example, your retirement age is set to 67 and you claim to be 62, your monthly benefits will be reduced by 30%. However, wait until you reach the age of 70 to receive an additional allowance of 24%, in addition to your full amount.

Question: What is the 4% rule?

Answer: A guideline indicating the amount you can withdraw from your pension fund each year. In summary, the 4% rule states that you can withdraw 4% of your savings in the first year of your retirement. Then, for each subsequent year, you can withdraw this adjusted amount of inflation.

For example, if you have $ 700,000 in your pension fund, you can withdraw 4% of that amount – or $ 28,000 – in the first year. Then, if you increase that figure by 3% to take inflation into account, you will withdraw about $ 28,840 the following year, then $ 29,705 thereafter, and so on. The 4% rule has its disadvantages – for example, it assumes that your retirement has a relatively equal balance of shares and obligations. If your portfolio is biased in one way or another, the amount you can withdraw each year can be affected. But it's good advice to give you a general idea of ​​what you can spend each year while limiting the risk of running out of money in retirement.

Question: Will Medicare cover all your medical expenses?

Answer: no Generally, you will still have to pay premiums, deductibles, contributions and co-insurance, even if you are covered by Medicare. In addition, although Medicare covers most hospital visits and emergency care, it does not usually cover routine care (dental work, eye exams with glasses, tests hearing and hearing aids). So, if you need an emergency dental surgery, for example, Medicare is likely to cover it. But for routine dental cleansings or fillings, you have the bill.

One potential solution for addressing this lack of coverage is to enroll in a Medicare Advantage plan (sometimes referred to as Part C plan). Advantage plans are similar to the types of insurance you have probably taken out with your employer, in that they are offered through third-party insurance companies. There are a wide variety of options to choose from, so the costs vary depending on factors such as your location and your health care needs.

So how did you do it? You may have succeeded handily (in this case, give yourself a pat on the back!) Or you realize that you still have a lot to do before you retire. Whatever the case may be, all of these concepts are important to understand so that you can retire as prepared as possible.