TUTORIAL QUESTIONS 9
1. How is the amount of someone’s Social Security benefit determined? What percentage of income does Social Security typically replace? What percentage of full benefits do those retiring at age 62 receive?
2. What is vesting? What does this mean for an employee? An employer? Why is it important when initially considering a job offer? When thinking about changing jobs?
3. Compare and contrast a defined-contribution plan and a defined-benefit plan. Who is responsible for the investment of funds for each plan? How are the benefits determined? Who are these advantageous to an employer?
4. List common examples of a defined-contribution plan. For each, cite any unique advantages or disadvantages for the employees
5. How does traditional IRA differ from the Roth IRA? What characteristics are common to both?
6. Can a nonworking spouse have a traditional IRA? If so, what restrictions apply?
7. What s meant by the term “rollover”? Why is this important?
8. What is annuity? Describe the different annuity variations for retirement distributions?
PROBLEMS AND ACTVITITIES
1. Grady, age 25, just graduated from college, accepted his first job with a $50,000 salary, and is already looking forward to retirement in 40 years. He assumes 3.5% raises for the next 40 years and 3.5% cost of living increases during his 20 years in retirement. He does not want to plan on any Social Security benefits. Assuming a pre-retirement allocation of 75/20/5 (equities, bonds and cash) and a post-retirement allocation of 40/50/10, how much must Grady start saving this year to replace 90% of his salary at retirement? How does this amount change if he waits for five years? How would his first-year savings amount change if he had a Roth IRA with a value of $10,000?
2. Kristen earned $51,250 last year. Calculate her total FICA contribution for the year. How much did her employer pay toward FICA?
3. Anne and Dom...