Retirement Quiz

Most family child care providers, like most taxpayers, are not saving enough for their retirement.

Many do not have a good understanding of how to plan for their retirement.

Test your retirement knowledge by taking this short quiz.

1) Social Security payments will replace approximately what percentage of the current earnings of the average taxpayer?

a. 20% 

b. 40% 

c. 60% 

d. 70%

2) If a provider's only work was doing child care for fifteen years and she had a profit over $400 for nine of those fifteen years, would she qualify to receive Social Security benefits?

a. Yes 

b. No

3) You can start receiving Social Security retirement benefits at age 62. If you do so you will receive lower benefits than if you waited until your full retirement age of 65, 66, or 67 depending on when you were born. Under what circumstances might you take benefits starting at age 62?

a. Current bad health 

b. Immediate financial stress 

c. History of early death in your family 

d. All of the above

4) If you aren't saving enough now to be able to retire at age 66/67 what can you do?

a. Work beyond age 66/67 

b. Save more now 

c. Live on less in retirement 

d. All of the above

5) If you save $35 a week and earn 8% a year in a tax deferred IRA, how much will you have in twenty years?

a. $10,232 

b. $15,741 

c. $25,655 

d. $37,143

6) Can a single provider making a profit of $75,000 invest in both a SIMPLE IRS and a Roth IRA each year?

a. Yes 

b. No

7) If you invest in an index fund you are adopting what type of an investment strategy?

a. Passive 

b. Active

Answers

1) 40%. Of course the answer for you may be different. To find out how much Social Security benefits you will receive when you retire, go to www.socialsecurity.gov and check out their benefits calculator. Because Social Security benefits will not replace all of the money you will need for retirement, you need to identify other sources of retirement income: income from your investments, earned income in retirement, other.

2) No. You must work at least ten years to qualify to receive Social Security benefits.

3) D. For each year you take Social Security benefits before your full retirement age of 65, 66 or 67, you benefits will decrease. For example, if you start claiming benefits at age 62, they will be about 25% less than if you waited until you were age 63. Therefore, before deciding on when to start taking Social Security benefits you should consult with your local Social Security office or with a financial advisor who can advise you.

4) D. Most providers will not have saved enough to be able to maintain their current standard of living by relying on Social Security and the interest on their investments. Therefore, all of these options are viable. Other possibilities can include: move to a less expensive home, receive an inheritance or change your job to one that pays more.

5) C. $25,655 Even a small amount of money can quickly grow over time. This means it is never too late to start saving money now for your retirement.

6) A. All providers are eligible to set up and contribute to a SIMPLE IRA (regardless of your income). You can set aside up to $13,500 of your profit into this tax-deferred IRA (2021 limits). You can contribute an extra $3,000 if you are age 50 or older. The deadline for establishing a SIMPLE IRA is September 30th. You can contribute a maximum of $6,000 per person to a Roth IRA in 2021. If you are age 50 or older you can contribute an extra $1,000. You can set up and contribute to a Roth IRA before April 15.

7) A. Index investing means you are investing in a fund that identifies specific investments and then holds onto them indefinitely. For example, an S&P Index Fund invests and holds onto the 500 largest U.S. companies that comprise the S&P 500. Active investing is when the manager of a fund buys and sells various investments throughout the year. For example, the XYZ Fund might consist of investments in thirty different companies at the start of the year, but the manager could buy stock in ten other companies during the year and sell the investments of seven other companies. A passive investing strategy will result in lower management fees because of lower transaction costs and taxes. Therefore, most index funds will beat the returns of active managed funds over time.

Score yourself!

0 correct – Time to start paying attention to your retirement planning!

1 – 3 correct – Good start!

4- 6 correct – Excellect!

7 correct – You are a master!

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.investmentexecutive.com/news/industry-news/4-rule-is-no-longer-an-ideal-retirement-strategy-milevsky-says/

For more information see my book Family Child Care Money Management and Retirement Guide