For a good portion of life, society does an adequate job of preparing people for the Next Big Step. High school is a springboard to college; college leads to a job; and a series of jobs creates a career.
But what prepares people for retirement?
Survey after survey shows that Americans, for all their desire to collect a gold watch, know little about retirement. There's the broad understanding, of course, that retirement typically involves less work, or at least moving beyond one's current job. And most people recognize the need for, if not the required size of, some type of nest egg.
Few classes, though, and even fewer experiences teach people the particulars: the details about finances, health, work and leisure that make up retirement today.
With that in mind, we offer the following quiz. There is no score, no passing grade, although there is a bonus question. (What's a test without a bonus question?) Rather, these 40 questions and the accompanying answers are designed to highlight some of the most important issues in retirement,and perhaps make the next big step a bit more manageable.
1. What are the average ages at which men and women retire in the U.S.?
a. 61 a. 61
b. 62 b. 62
c. 63 c. 63
d. 64 d. 64
ANSWERS: B (men) and A (women). The exact figures, based on labor-force data for 1999 to 2004, are 61.6 for men and 60.8 for women, according to research by Murray Gendell at Georgetown University. While those ages have fallen significantly in the past five decades (men and women in the early 1950s stopped working at age 67, on average), the percentage of adults 60 or older in the nation's labor force has been increasing in recent years. That change suggests that average retirement ages may be starting to bottom out and could begin to rise in the near future.
2. What percentage of current workers say they plan to retire after age 62?
a. 47 percent
b. 57 percent
c. 67 percent
d. 77 percent
ANSWER: B. That percentage has increased steadily in the past six years, according to a series of retirement surveys by the Gallup Organization for UBS AG. In 2002, 47 percent of current workers said they planned to retire after 62; in 1998, only 36 percent of respondents said they planned to wait until age 62 to leave their jobs.
3. If you retire at age 65, what percentage of your life can you expect to spend in retirement?
a. 16 percent
b. 18 percent
c. 20 percent
d. 22 percent
ANSWER: D. An American who reaches the age of 65 has an average additional life expectancy of 18 years. Thus, if you retire at 65 and die at 83, you would have spent 22 percent of your life in retirement. And remember, 18 years is the average life expectancy; about half of those who reach age 65 can expect to live beyond 83. The point: Many people continue to significantly underestimate their life expectancy and the risk that they will outlive their retirement savings.
4. What is the most important factor in Americans' decision to retire?
a. Employer pressure
b. Health decline
c. Family reasons
d. Qualify for Social Security benefits
ANSWER: D. In a study by the National Council on the Aging, 72 percent of those surveyed said qualifying for Social Security was their most important reason for retiring.
RETIRED ... WORKING ... OR SOMETHING IN BETWEEN?
5. What percentage of Americans ages 65 or older consider themselves completely retired?
a. 58 percent
b. 68 percent
c. 78 percent
d. 88 percent
ANSWER: A. In a survey by the National Council on the Aging, slightly more than half of older adults considered themselves "retired" in the traditional sense. Twenty-three percent said they are retired and working, and 19 percent said they aren't retired.
6. How many people 65 or older are in the labor force?
ANSWER: C. In 2002, more than 2.5-million men and 1.9-million women ages 65 or older were working or actively seeking work. Labor force participation rates among older adults dropped steadily during the 20th century, reaching a low in 1985 of 15.8 percent for men and 7.3 percent for women. By 2002, the rates had climbed back to 18 percent for men and 10 percent for women.
7. What percentage of current workers say they expect to work for pay in some capacity after they retire, and what percentage of current retirees say they have, in fact, worked for pay at any given point in retirement?
a. 38 percent a. 32 percent
b. 48 percent b. 42 percent
c. 58 percent c. 52 percent
d. 68 percent d. 62 percent
ANSWERS: D (current workers) and A (current retirees). Although two-thirds or more of current workers regularly tell researchers that they plan to earn a paycheck in later life, only about one-third of current retirees have done so. The point: "It is unlikely that all of the workers who would like to work in retirement will be able to do so," the Employee Benefit Research Institute concludes. "Many will find themselves unable to work for health reasons."
8. What percentage of the total work force, and what percent of workers 50 or older, are self-employed?
All workers Workers age 50-plus
a. 10.2 percent a. 10.4 percent
b. 12.2 percent b. 12.4 percent
c. 14.2 percent c. 14.4 percent
d. 16.2 percent d. 16.4 percent
ANSWERS: A (all workers) and D (workers age 50-plus). Among workers age 51 to 69 who are self-employed, fully one-third made the jump to self-employment after turning 50, according to a study by AARP and Rand Corp.
SAVING AND SPENDING
9. What percentage of U.S. workers say they or their spouses are currently saving for retirement?
a. 48 percent
b. 58 percent
c. 68 percent
d. 78 percent
ANSWER: B. Put another way, about four in 10 workers currently aren't saving for retirement. Those figures have remained fairly constant in recent years, according to the Employee Benefit Research Institute, "despite efforts at educating the American public about the importance of saving for retirement."
10. What percentage of workers 55 or older report having $100,000 or more in savings and investments (not including the value of their primary residence)?
a. 16 percent
b. 26 percent
c. 36 percent
d. 46 percent
ANSWER: B. Only about one-quarter of older workers have $100,000 or more in savings and investments, according to the Employee Benefit Research Institute. More than one-third (34 percent) of workers 55 or older report having less than $50,000 in savings and investments.
11. What percentage of workers or their spouses have calculated how much money they are likely to need in retirement?
a. 42 percent
b. 52 percent
c. 62 percent
d. 72 percent
ANSWER: A. Estimating financial needs in retirement is among the most fundamental of planning steps for later life. But almost six of 10 workers haven't made the attempt, according to the Employee Benefit Research Institute.
12. What percentage of baby boomer households are estimated to be accumulating sufficient assets to maintain their current standard of living in retirement?
a. 40 percent
b. 50 percent
c. 60 percent
d. 70 percent
ANSWER: B. About half of baby boomer households, according to the Congressional Budget Office, are on track to continue their working-age standard of living in later life. Roughly one-quarter of boomer households "have accumulated very few assets thus far and are likely to find themselves largely dependent on government benefits in retirement," the CBO says.
Many of the remaining quarter of boomer households "appear likely to face relatively modest shortfalls that could be offset by increasing (personal savings) and by working for a few more years."
13. What percentage of Americans 65 or older are living in poverty?
a. 6.4 percent
b. 8.4 percent
c. 10.4 percent
d. 12.4 percent
ANSWER: C. After reaching an all-time low of 9.7 percent in 1999, the poverty rate for older Americans crept back to 10.4 percent in 2002, a total of 3.6-million people.
LIFESTYLES AND LEISURE
14. What percentage of men and women 65 or older are married and living with their spouses?
a. 43 percent a. 40 percent
b. 53 percent b. 50 percent
c. 63 percent c. 60 percent
d. 73 percent d. 70 percent
ANSWERS: D (men) and B (women). In 2003, almost three out of four older men lived with their spouses, while only half of older women did. In contrast, according to the National Institute on Aging, women were twice as likely as men to live alone in later life (40 percent and 19 percent, respectively).
15. What percentage of people 65 or older change residences in later life?
a. 18 percent
b. 23 percent
c. 28 percent
d. 33 percent
ANSWER: B. From 1995 to 2000, 23 percent of older adults moved, compared with 48 percent of people younger than 65, according to the Census Bureau. Among those moves, 60 percent were within the same county, 21 percent were to a different county in the same state, and 19 percent were to a different state.
16. What percentage of adults 65 or older participate in volunteer activities?
a. 24 percent
b. 44 percent
c. 64 percent
d. 84 percent
ANSWER: A. About one-quarter of older Americans did volunteer work in the year ended September 2003, according to the Bureau of Labor Statistics. That was the second-lowest participation rate among all adult age groups.
Older adults, however, devoted the most time to volunteer activities: a median of 88 hours during the year. Religious organizations were the biggest beneficiaries of older adults' charitable efforts; 47 percent of volunteers 65 or older devoted their time to religious groups.
17. What is the most popular sports activity among Americans 65 or older?
b. Exercising with equipment
d. Exercise walking
ANSWER: D. About 9.4-million older adults are involved in exercise walking at least six times a year, according to the National Sporting Goods Association. The next most popular activities are swimming (3.4-million participants), exercising with equipment (3.1-million) and playing golf (2.5-million).
HEALTH AND CAREGIVING
18. What percentage of Americans ages 65 to 74 say they engage in "vigorous physical activity" (lasting 10 minutes or more) at least three times a week?
a. 16 percent
b. 22 percent
c. 28 percent
d. 34 percent
ANSWER: A. Only about one in six older Americans exercises with any frequency. Fully 77 percent of this age group said they "never" engage in vigorous physical activity.
A study published in November by the University of Michigan Medical School and the VA Ann Arbor Health Care System found that adults in their 50s and early 60s who were regularly active were about 35 percent less likely to die in the next eight years than those who were sedentary.
19. What percentage of men and women 65 or older are overweight?
a. 43 percent a. 46 percent
b. 53 percent b. 56 percent
c. 63 percent c. 66 percent
d. 73 percent d. 76 percent
ANSWERS: D (men) and C (women). Almost three-quarters of older men and two-thirds of older women are considered overweight, according to the most recent federal surveys. In July, Medicare for the first time designated obesity as a disease and said it would pay for antiobesity interventions.
20. How many grandparents ages 50 or older in the 2000 census had primary responsibility for their grandchildren who lived with them?
a. 600,000 b. 1.6-million
c. 2.6-million d. 3.6-million
ANSWER: B. In all, about 4.1-million grandparents age 50 or older live with grandchildren.
21. What is the approximate average annual cost of residing in an assisted-living facility or a semiprivate room in a nursing home?
Assisted living Nursing home
a. $30,000 a. $30,000
b. $40,000 b. $40,000
c. $50,000 c. $50,000
d. $60,000 d. $60,000
ANSWER: A (assisted living) and D (nursing home). When asked what source they would use to pay the bulk of long-term care costs, 31 percent of respondents in a study by MetLife Inc. listed Medicare, health insurance or disability insurance, none of which actually covers the cost of long-term care.
ESTATE PLANNING AND INHERITANCE
22. What percentage of U.S. adults have a will?
a. 22 percent
b. 42 percent
c. 62 percent
d. 82 percent
ANSWER: B. That figure, from a survey this year by legal resource Martindale-Hubbell, is down from 47 percent in 2000. Some Americans appear to be postponing various aspects of estate planning, including wills, because of uncertainty about estate taxes. The estate tax is set to phase out in 2010, then return in 2011 unless there's a permanent repeal.
23. To date, what is the median amount of money that baby boomers have inherited from their parents?
a. Less than $50,000
b. $50,000 to $100,000
c. $100,001 to $150,000
d. $150,001 to $200,000
ANSWER: A. According to a study by AARP based on the Federal Reserve Board's Survey of Consumer Finances, the median inheritance as of 2001 is $47,909 (in 2002 dollars). The research also showed that only 15 percent of baby boomers now expect to receive an inheritance, down from 27 percent in 1989. "For most people," the study concludes, "inheritances will remain an elusive, or small, contributor to their retirement security."
24. Life insurance can be subject to:
a. Income taxes
b. Estate taxes
ANSWER: B. Life insurance is free from income tax. If the policy, however, is owned by the insured (instead of his or her beneficiaries or a trust), the proceeds will be included in the insured's estate, and thus possibly subject to estate taxes.
25. What is the current estate tax exemption?
ANSWER: A. The figure will increase gradually to $3.5-million in 2009, before the estate tax disappears altogether for 2010. The exemption represents the amount of money that can be transferred to beneficiaries (during life or at death) free of taxes. Any funds distributed beyond that amount currently are taxed at 50 percent.
26. What percentage of U.S. households have pension coverage that relies solely on a defined-contribution plan, such as a 401(k)?
a. 38 percent
b. 48 percent
c. 58 percent
d. 68 percent
ANSWER: C. In 2001, more than half of all households were dependent solely on defined-contribution plans for pension coverage, up from 37 percent in 1992, according to Alicia Munnell and Annika Sunden at the Center for Retirement Research at Boston College, and authors of Coming Up Short: The Challenge of 401(k) Plans.
In contrast with traditional pensions (also known as defined-benefit plans), 401(k)s and related retirement accounts "shift the risks and responsibilities associated with providing retirement income from the employer to the employee," Munnell and Sunden say. "The employee decides whether or not to participate, how much to contribute, how to invest the assets, and how to withdraw money at retirement."
27. Among individuals ages 50 to 59 _ people approaching retirement _ what is the average balance in their 401(k)s?
ANSWER: A. That figure, for 2002, according to research cited by Munnell and Sunden in their book, was 15 percent below the average balance in 1999, reflecting the downturn in the markets in the intervening period.
28. What percentage of workers rebalance their 401(k)s at least once a year?
a. 17 percent
b. 27 percent
c. 37 percent
d. 47 percent
ANSWER: A. According to a study by Hewitt Associates, only one in six workers who contribute to their 401(k) plans made any transfers in their accounts in 2003. Most financial planners recommend rebalancing a portfolio at least once a year.
29. What percentage of workers 50 or older are taking advantage of "catch-up contributions" in retirement savings plans at work?
a. 14 percent
b. 24 percent
c. 34 percent
d. 44 percent
ANSWER: B. In 2001, Congress raised the contribution limits for retirement savings plans, and made special provisions for workers 50 or older. This year, for instance, individuals 50 or older can put an additional $3,000 into 401(k)s on top of the $13,000 maximum for younger workers.
About 95 percent of corporate retirement plans now permit catch-up contributions, according to the Profit Sharing/401(k) Council of America. Last year, however, only about one-quarter of eligible workers made such contributions.
30. What percentage of workers cash out of their 401(k) plans when changing jobs?
a. 22 percent
b. 32 percent
c. 42 percent
d. 52 percent
ANSWER: C. Almost half of workers, and 33 percent of those ages 50 to 59, withdraw all the assets from their 401(k)s when changing jobs, according to Hewitt Associates. Doing so results in a huge tax bite and can seriously erode an individual's retirement security.
31. What is considered a prudent rate of withdrawal when first tapping retirement savings?
a. 4 percent
b. 6 percent
c. 8 percent
d. 10 percent
ANSWER: A. Research has indicated that a safe rate of withdrawal, so as not to outlive one's nest egg, is about 4 percent a year. Thus, a person who has $500,000 in savings could withdraw $20,000 during the first year of retirement and increase that withdrawal each year by the amount of inflation.
A recent study in the Journal of Financial Planning suggests an initial rate of as much as 6 percent could be safe, as long as investors are willing to limit withdrawals after a down year in their portfolios.
32. What percentage of current retirees say their income needs in retirement are roughly equal to their income before retirement?
a. 9 percent
b. 19 percent
c. 29 percent
d. 39 percent
ANSWER: D. Many current workers seriously underestimate how much of their pre-retirement income will be needed in later life, according to the Employee Benefit Research Institute.
Four in 10 retirees say their current income needs are about equal to their pre-retirement income, but fewer than one in 10 workers think they will need that much money.
33. At what age do Americans qualify for full Social Security benefits?
d. Varies by year of birth
ANSWER: D. Uncle Sam is gradually increasing the age at which individuals become eligible for full Social Security benefits. For those born in 1939, full retirement age is now 65 years and 4 months; for those born in 1940, full retirement age is 65 years and 6 months. Eventually, full retirement age will level off at age 67 for people born in 1960 and later.
That said, almost one-third of today's workers, according to a survey by the Employee Benefit Research Institute, still think they are eligible for full Social Security benefits at age 65, and one in five think they qualify for full benefits before 65.
34. What percentage of eligible Americans begin collecting reduced Social Security benefits at age 62?
a. 29 percent
b. 39 percent
c. 49 percent
d. 59 percent
ANSWER: C. Almost half of workers grab Social Security at 62, the earliest age at which benefits are available.
35. True or false: If you begin collecting benefits from Social Security at age 62, a portion of those benefits could be withheld if you have earned income.
ANSWER: True. Between age 62 and the year in which a worker reaches full retirement age, Social Security benefits currently are reduced $1 for every $2 earned over $11,640. (That cap increases slightly each year, and the rules change in the year an individual reaches full retirement age.) After full retirement age, there is no reduction in benefits tied to earnings.
36. What is the average monthly Social Security payment for retired workers?
ANSWER: A. In 2005, the average monthly benefit, including a new 2.7 percent cost-of-living adjustment, will total about $950.
37. What percentage of people 65 or older depend on Social Security for at least half their income?
a. 36 percent
b. 46 percent
c. 56 percent
d. 66 percent
ANSWER: D. About two-thirds of Social Security beneficiaries 65 or older rely on their monthly check from Uncle Sam for more than half their income. For about 20 percent of Americans 65 or older, Social Security is their only source of income.
Thus, the question: With Social Security's resources stretched increasingly thin as the population ages, and with some type of change to the system seen as a given, will current or future beneficiaries see their benefits reduced? And if so, will those cuts be felt across the board, including those who are dependent on Social Security for much or all of their income, or will the reductions target more affluent families?
38. What is the leading cause of death among Americans 65 or older?
c. Heart disease
d. Respiratory disease
ANSWER: C. In all, 584,000 older adults died of heart disease in 2001, according to the National Center for Health Statistics, followed by cancer (390,000), stroke (145,000) and respiratory disease (108,000).
39. What is the average cost of a funeral in the U.S.?
ANSWER: C. That figure includes what the funeral industry calls an "outer burial container," but not cemetery costs.
40. Among all deaths in 2003, what percentage involved cremation?
a. 14 percent
b. 19 percent
c. 24 percent
d. 29 percent
ANSWER: D. Cremation is the "method of disposition," according to the National Funeral Directors Association, for more than one in four deaths in the United States. That's triple the percentage in 1980.
The first social security program in the United States was established in:
Answer: B. In 1862, Congress and President Lincoln provided benefits for disabled veterans of the Civil War, as well as for widows and orphans of deceased soldiers.
Sandi Hutcheson and Paul Butler play a game of pickleball last March on a court at Sun City Center. According to a recent survey, only about one in six older Americans exercises with any frequency, and 77 percent said they never engage in vigorous physical activity.