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Choice	Correct?	Score	Feedback	Correct answer
A. $2,000		0
B. $4,000		1
C. $6,000		0
D. $8,000		0
E. Don't know		0

The correct answer is B. Only 38% of survey respondents answered this question correctly. This question reflects the 4% safe withdrawal rule that has been highly publicized and discussed in the press. The 4% rule is based on research that looks back at investment returns in the 20th century in the U.S. The research indicates that if you retire with $1,000,000, you could afford to take a withdrawal of $40,000 (4%) in the first year of retirement, increase it for inflation each year, and sustain that income stream for 30 years. The rule is good to know as it begins to help retirees understand how much can be safely withdrawn each year. It dispels the common misunderstanding that if the average return on the portfolio was 7%-8% then that amount can be withdrawn each year. Because of the ups and downs of the market, the sustainable withdrawal amount is much less than the average return on the portfolio. The rule also is a quick way to get a sense of just how much income can be provided by a lump sum amount. For example, $1,000,000 under this rule only generates $40,000 of inflation-adjusted income. The research is based on historical returns and many question whether it is sustainable going forward. It is also just one of many factors that should be considered in determining how much can be withdrawn in retirement.

Choice	Correct?	Score	Feedback	Correct answer
A. True		0
B. False		0
C. Don't know		0

The correct answer is A. Only 45% of survey respondents answered this question correctly. A life annuity pays the annuitant for as long as he or she lives. Taking a portion of a portfolio and purchasing an annuity ensures that even if the portfolio is depleted, the annuity will continue to pay out monthly benefits. Deferring Social Security benefits to 70 (which increases the annuity payments) and electing a life annuity option with a pension at work are other ways to increase guaranteed lifetime income.

Choice	Correct?	Score	Feedback	Correct answer
A. 15 years prior to retirement		0
B. At retirement		0
C. 15 years after retirement begins		0
D. The timing doesn’t matter		0
E. Don't know		0

The correct answer is B. Only 34% of survey respondents answered this question correctly. The timing of good/bad investment returns does matter, and this is one of the uncertainties faced in retirement. This risk is referred to as sequence of returns risk. Significant negative returns occurring at or near retirement have a much bigger impact on whether portfolio withdrawals will be sustainable throughout retirement than if they occur well before or well after the retirement date. The primary strategy for addressing this risk is to reduce portfolio risk—especially during the 5-year period prior to and after retirement. Reducing risk can mean reducing the allocation to stocks and moving more toward bonds, or buying deferred income annuities that start at or after retirement begins.

Choice	Correct?	Score	Feedback	Correct answer
A. Saving an additional 3% of salary in the five years prior to retirement		1
B. Deferring Social Security benefits for two years longer than originally planned		0
C. Working for two years past the planned retirement date		0
D. Don't know		0

The correct answer is A. Only 33% of survey respondents answered this question correctly. This is an important one to understand. Working longer and deferring Social Security are the two best ways to improve financial security. Saving a little bit more in the years just prior to retirement will not have a big impact on retirement savings as the money does not have a lot of time to grow with investment earnings.

Choice	Correct?	Score	Feedback	Correct answer
A. You have a big tax deduction this year and your marginal tax rate is lower than normal		1
B. You have more taxable income than usual and your marginal tax rate is higher than normal		0
C. The value of the assets in your IRA have remained the same for 10 years		0
D. Don’t know		0

The correct answer is A. Only 34% of survey respondents answered this question correctly. If you have money in a traditional IRA, any withdrawals are going to be taxable. A useful tax rule-of-thumb is to take withdrawals from these plans at a lower-than-normal tax rate. If you do not need withdrawals to live on, convert it to a Roth IRA (and pay taxes at the low rate) and future earnings are now tax-free.

Choice	Correct?	Score	Feedback	Correct answer
A. 62		0
B. 66		0
C. 70		0
D. 75		0
E. Don't know		0

The correct answer is C. 55% of survey respondents answered this question correctly. One factor in determining when to choose Social Security benefits is life expectancy because this affects total benefits provided under the system. Delaying to age 70 is a good idea if the higher benefit is paid for a long time, as in this case. This is tricky though, as most people do not know how long they will live. And for a married couple, the larger benefit is paid for the joint lifetime—so the couple’s joint life expectancy should be considered when thinking about this question. Another way to look at the claiming question is how can you improve your retirement security. Deferring Social Security can do this as deferring “buys” more lifetime income that will receive inflation protection.