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21 Questions to Test Your Retirement Smarts

Philip Moeller

As you get ready for what I hope will be a bountiful day of thanks, food, and football on Thanksgiving, try not to laugh if I ask you to consider adding retirement planning to your agenda. Financial planners note that having lots of family members gathered for a pleasant day might serve as a supportive setting for discussing financial matters with children and even grandchildren.

To help stimulate your thoughts, here are two quizzes. One, from MetLife's Mature Market Institute, deals with the realities of retirement and how they differ from what many people think. The second is from Limra, a private insurance and financial-product research company. Its questions are about target-date funds, which have emerged to become the dominant investment choice within 401(k) retirement plans.

[Read: 50 Smart Money Moves.]

For each question, we've presented the possible answers and the percentage of people who chose that answer (both quizzes were given to test groups). The correct answers are at the end.

From MetLife:

1. If an individual needed long-term care today, what would be the average annual cost for a private room in a nursing home?

A) $44,000 (16 percent) B) $63,000 (30 percent) C) $72,000 (27 percent) D) $84,000 (28 percent)

2. What percent of pre-retirement income do experts think retirees need to use as a benchmark for determining the amount of annual income in retirement to maintain their living standard?

A) 20-30 percent (11 percent) B) 40-50 percent (37 percent) C) 80-90 percent (45 percent) D) 90-100 percent (6 percent)

3. An individual who reaches age 65 has a life expectancy of age 85. What are the chances that he or she will live beyond that age?

A) 10 percent (22 percent) B) 25 percent (41 percent) C) 50 percent (32 percent) D) 85 percent (5 percent)

4. At what age would a person who is age 55 in 2011 be able to collect full Social Security benefits?

A) 59 and 6 months (3 percent) B) 65 (18 percent) C) 66 and 4 months (25 percent) D) 67 (54 percent)

[Read: How Family Ties Shape Retirement Success.]

5. Expenses for extended long-term care (e.g., nursing home care, assisted living, or home care) are generally covered by ... ?

A) Health insurance (8 percent) B) Medicare (28 percent) C) Disability insurance (6 percent) D) None of the above (57 percent)

6. To help ensure that an individual has enough money to make savings last his or her lifetime, experts are now recommending limiting the percent they withdraw from their savings each year to ...?

A) 1-3 percent (20 percent) B) 4-6 percent (40 percent) C) 7-10 percent (29 percent) D) 11-15 percent (11 percent)

7. How much do people age 65 and older spend annually on out-of-pocket costs for healthcare?

A) $1,190 (5 percent) B) $2,200 (23 percent) C) $4,900 (40 percent) D) $6,900 (32 percent)

8. Which of the following is always true regarding income annuities?

A. They have account balances that grow over time (22 percent)

B. They are not cost-effective because the fees are higher than mutual funds (14 percent)

C. There is a specific age to withdraw money (27 percent)

D. They provide income that is guaranteed (36 percent)

9. What has the average annual rate of inflation been over the past 20 years?

A) 3 percent (23 percent) B) 5 percent (37 percent) C) 10 percent (21 percent) D) 15 percent (19 percent)

10. Suppose an individual retired at age 65 with a savings of $100,000. Approximately how much money could be withdrawn each month assuming annual earnings of 6 percent and that no savings, that is principal plus interest, remained after 30 years?

A) $600 (56 percent) B) $800 (25 percent) (C) $1,000 (14 percent) D) $1,200 (6 percent)

11. What was the average monthly Social Security benefit paid in 2010 to a retired worker?

A) $909 (24 percent) B) $1,175 (46 percent) C) $1,364 (24 percent) D) $1,573 (6 percent)

[Read: 8 Long-Term Retirement Planning Realities.]

12. What is the greatest financial risk facing retirees?

A) Inflation (28 percent) B) Longevity (62 percent) C) Investment (7 percent) D) Interest rate (2 percent)

13. How much more will a person's monthly benefit be if they delay their Social Security benefits from age 66 to age 69?

A) 0 percent (4 percent) B) 3 percent (27 percent) C) 15 percent (52 percent) D) 24 percent (17 percent)

14. What percent of middle-income Americans in their mid-50s to early 60s are at risk of not having adequate income to cover basic expenses (i.e., food, apparel, transportation, entertainment, education, housing and basic health expenses) throughout retirement?

A) 80 percent (26 percent) B) 65 percent (44 percent) C) 45 percent (26 percent) D) 20 percent (4 percent)

Answers: 1. D; 2. C; 3. C; 4. C; 5. D; 6. B; 7. C; 8. D; 9. A; 10. A; 11. B; 12. B; 13. D; 14. C.

From Limra:

Here's the Limra quiz on target-date funds. Limra says target-date fund holdings are nearing half a trillion dollars and are projected to contain 80 percent of all 401(k) assets by the end of this decade. Answer each question true or false:

1. You have to draw income from the fund by the target year.

2. It is risk-free when it reaches the retirement year.

3. It has a diversified mix of stocks and bonds.

4. It provides a guaranteed return.

5. The asset allocation becomes more conservative over time.

6. It offers all-in-one, hands-off investing.

7. It will provide guaranteed income in retirement.

Answers: 1) False, 91 percent answered correctly; 2) False, 91 percent; 3) True, 58 percent; 4) False, 90 percent; 5) True, 67 percent; 6) True, 49 percent; 7) False, 92 percent.

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