Quiz: Test Your Retirement Investment Knowledge!

1. What is the primary purpose of retirement investments?

Buying a new car

Funding post-retirement vacations

Building wealth for retirement

Paying off student loans

2. What is diversification in the context of retirement investments?

Investing in a single stock

Investing in multiple assets to reduce risk

Putting all funds in a savings account

Investing only in real estate

Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.

Explanation

Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.

3. What is a "target-date fund" in retirement investing?

A fund that invests exclusively in stocks

A fund with a specific maturity date designed for a particular retirement year

A fund that only invests in real estate

A fund managed by a financial advisor

4. When planning for retirement, why is it generally advisable to start investing early?

To take advantage of market timing

To minimize taxes on investments

To increase the likelihood of reaching retirement goals

To ensure access to government pensions

5. What is the purpose of an "emergency fund" in retirement planning?

To cover daily expenses after retirement

To fund luxury purchases in retirement

To have funds for unexpected expenses before and during retirement

To provide additional investment options

6. Inflation can affect retirement investments by:

Increasing the purchasing power of money

Reducing the cost of living in retirement

Lowering the value of future income and savings

Making stocks the safest investment option

7. What is an annuity in the context of retirement investments?

A retirement account managed by an employer

A type of tax-advantaged investment account

A fixed sum of money paid out at regular intervals

A government-funded retirement plan

8. What is the maximum annual contribution limit for a 401(k) plan in 2023?

$6,000

$22,500

$25,000

$50,000

For 2023, the 401(k) contribution limit for employees is $22,500, or $30,000 if you are age 50 or older. This amount is up modestly from 2022, when the individual 401(k) contribution limit was $20,500, or $27,000 for employees who were 50 or older.

Explanation

For 2023, the 401(k) contribution limit for employees is $22,500, or $30,000 if you are age 50 or older. This amount is up modestly from 2022, when the individual 401(k) contribution limit was $20,500, or $27,000 for employees who were 50 or older.

9. What is the earliest age at which you can generally start withdrawing from retirement accounts without penalty?

55

59 ½

62

65

10. When does "compounding" have the most substantial impact on retirement savings?

In the early years of investing

Only with high-risk investments

When investing in individual stocks

After reaching retirement age

11. Which of the following investment strategies is based on holding a mix of stocks and bonds that corresponds to your risk tolerance and retirement timeline?

Day trading

Market timing

Dollar-cost averaging

Asset allocation

12. Which investment option is typically considered the least risky for retirement savings?

Stocks

Bonds

Mutual funds

Real estate

13. What does the term "vesting" mean concerning a retirement plan offered by an employer?

Ability to withdraw funds penalty-free

Company's right to change investment options