Retirement: You know this, right?

Take our quiz to see what you know about Social Security, investment blends, dividends and more.

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If you are in or near retirement, here are some things you probably should know. Let’s see if you do.

1.

The latest projections show the trust fund for Social Security retirement benefits will run out in 2033. Unless Congress helps, what should retirees expect after that date?

(Choose one.)

  1. Nothing. Payroll taxes will automatically increase by 23% to cover the difference.
  2. Taxes on Social Security benefits will increase by 23%.
  3. Benefits will be reduced by 23%.
  4. Benefits will be cut for 23% of recipients, based on their income.

(Answer below.)

2.

What is the significance of the rule-of-thumb ratio 60/40?

(Choose one.)

  1. Sources of your retirement cash flow: 60% from pensions and Social Security; 40% from investments.
  2. Sources of your retirement cash flow: 60% from investments and 40% from pensions and Social Security.
  3. The blend of your investments: 60% stocks and 40% bonds.
  4. The blend of your investments: 60% bonds and 40% stocks.

(Answer below.)

3.

True or false? Unless you claim Social Security retirement benefits sooner, you’re automatically enrolled when you turn 70, at which age you’ll receive the maximum benefit.

(Answer below.)

4.

Which of the following best describes the concept of dollar-cost averaging?

(Choose one.)

  1. An accounting trick for estimating an investment’s cost basis.
  2. An investing practice that ignores trying to time the market.
  3. A shorthand approach for forecasting investment returns.
  4. A calculation of currency exchange effects on overseas investments.

(Answer below.)

5.

What is a dividend?

Want more? 
Try another retirement quiz.
Oh, and here’s another.
And yet another.
How about this one?

(Choose one.)

  1. Part of a company’s profits, paid to shareholders.
  2. The difference between a stock’s value and the investor’s cost basis.
  3. An insurance some stocks provide to shareholders.
  4. A portion of stock distributed by a shareholder.

(Answer below.)

Answers

1.

c. Benefits will be reduced by 23%.

Mostly because of lower birthrates and longer life spans, payroll taxes from fewer workers have been supporting more retirees. In 1965, the U.S. had four workers supporting every Social Security recipient, vs. 2.7 in 2023, according to the Pew Research Center. Wage earners will continue to outnumber retirees, but without the trust fund, benefits must be reduced. Congress has known for decades that the trust fund is running out. Among the options: Raising taxes, lowering benefits and limiting eligibility.

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2.

c. The blend of your investments: 60% stocks and 40% bonds.

Rules of thumbs are starting guidelines, and the exact ratio varies according to individual needs and tolerance. But the idea is that investors benefit from a mix of assets that balance risk and reward, that provide long-term growth and short-term reliability. Historically, portfolios holding 60% stocks and 40% bonds have held up for investors. One exception was in 2022, which was a rough year for both stocks and bonds.

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3.

False.

Social Security doesn’t start sending you checks until you say so. You can start claiming as young as 62, and 70 is when your benefits max out. But you still need to enroll.

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4.

b. An investing practice that ignores trying to time the market.

Regular contributions to an investment – for instance, automatic deductions from a paycheck to a 401(k) – allow an investor to disregard the uncertainty of market prices. Over time, those consistent investment purchases will include buying fewer shares when the price is high and more when the price is low. But on average, it evens out and beats the impossible task of continually trying to guess when prices are lowest.

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5.

a. Part of a company’s profits, paid to shareholders.

Some companies share profits directly with their investors by paying them out either regularly or on special occasions. Dividends let shareholders make money from stock ownership without having to sell shares. If they don’t need the cash from the dividends, shareholders can consider reinvesting the dividends to buy more shares. That’s a form of dollar-cost averaging. Traditionally, dividend payers have tended to be financially sound businesses that are less Inclined to plow their profits back into operations.  

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Compiled by Joel Dresang