If you are in or near retirement, here are some things you probably should know. Let’s see if you do.
1.
True or false? Cash is the only asset class considered free of risk.
(See answer below.)
2.
Which is the biggest expense for most retirees?
(Choose one.)
- Food
- Health care
- Housing
- Taxes
(See answer below.)
3.
At what age are IRA holders required to begin withdrawing annual amounts from their accounts?
(Choose one.)
- 59½
- 65
- 70½
- 73
(See answer below.)
4.
True or false? With Medicare, you don’t need to worry about health care costs in retirement.
(See answer below.)
5.
True or false? Small differences in investment fund fees don’t matter much, especially if you plan to hold an exchange-traded fund (ETF) or mutual fund for a long time.
(See answer below.)
Answers
1.
False.
Although it tends to face less risk than other assets, cash is not risk-free. For instance, cash can lose value to inflation, especially after subtracting any fees you pay for keeping your cash somewhere. Also, depending on where that cash is held – a bank account, a certificate of deposit, a money market mutual fund – it might not be insured against the failure of the financial institution holding it. Even accounts at federally insured financial institutions have coverage limits.
Learn more
- Money Market Funds, from Investor.gov
- Certificates of Deposit (CDs), from Investor.gov
- Finding a better place for our cash, by Joel Dresang
- The role of cash in a portfolio, a Money Talk Video with Brian Kilb
2.
c. Housing
On average, housing accounted for 35% of the annual living costs of Americans 65 and older, according to the latest Consumer Expenditure Survey, from the Bureau of Labor Statistics. Three-fourths of adults surveyed by the National Institute of Retirement Security were concerned about rising housing costs in retirement. With shelter costs outpacing overall inflation, retirement planning needs to include discussions of how housing will be covered.
Learn more
- Putting housing in its place, by Joel Dresang
- Investor, you need a budget, by Tom Pappenfus
- The Impact of High Housing Costs on Retirement, from the Center for Retirement Research
3.
d. 73
The required minimum distributions (RMDs) are based on the size of the IRA and the life expectancy of the account holder (based on IRS estimates). The RMD is considered taxable income. Federal penalties for failing to take an RMD include an additional tax on the amount that was supposed to be withdrawn. In other words, be mindful of and plan for these withdrawals.
Learn more
- Retirement plan and IRA required minimum distributions FAQs, from the IRS
- Required Minimum Distribution Calculator, from Investor.gov
- When should I …take my required minimum distribution?
- Deciding which retirement accounts to tap, a Money Talk Video with Dave Sandstrom
Retirement spending with heirs in mind, a Money Talk Video with Dave Sandstrom
4.
False
Medicare can provide crucial medical coverage for older Americans, but it isn’t free. Medicare Part B has monthly premiums ($185 for most enrollees in 2025), deductibles and out-of-pocket costs, including for doctor visits and treatment. Fidelity Investments estimates that the average person who turned 65 in 2024 would need to have saved $165,000 to pay for health care in retirement. That’s a figure you’ll want to individualize and account for in your retirement budgeting.
Learn more
- Costs, from Medicare.gov
- How to plan for rising health care costs, from Fidelity Investments
- Longer living afterthought to retirement, by Joel Dresang
- Taking care of both health and wealth, by Joel Dresang
5.
False
Fees and expenses matter, especially over long periods. An illustration by the Securities and Exchange Commission shows that a hypothetical investment of $10,000 returning 4% a year over 20 years would generate about $30,000 less with an ongoing 1% fee than with a fee of 0.25%. Understand fees and expenses before you invest. Know from the get-go how much you’ll pay because costs affect the net total return on your investments. Ask questions, including how your investment professional will be compensated. Monitor statements afterward to make sure the charges are correct.
Learn more
- How Fees and Expenses Affect Your Investment Portfolio, from Investor.gov
- Making the most of mutual fund fees, a Money Talk Video with Isabelle Wiemero
- Indexes: Low costs, less flexibility, a Money Talk Video with Kyle Tetting
Compiled by Joel Dresang