What’s Your Financial IQ? The Ultimate Quiz

If you take distributions before you’re 59½, in most cases, you’ll pay income tax at your current rate on the amount you withdraw, plus a 10% early withdrawal penalty, although there are a few situations in which you can take a hardship withdrawal without owing a 10% penalty. Hardship withdrawals are costly in the short term when you pay taxes, and in the long run when the withdrawn funds are not there to grow with the help of compounding.

You must start taking required minimum distributions by April 1 of the year following the year you turn 70½, and you must pay income taxes on that money, too.

The difference is in the guarantees, not the rate of growth. Furthermore, you can invest through the brokerage arm of many banks, and you can save through some accounts arranged through a brokerage firm (money market funds are an example).

The typical stay in a nursing home lasts 2.8 years. And the cost for that stay in a private room will average nearly $250,000 (or close to $220,000 for a semi-private room), according to Genworth, a leading provider of long term care insurance. And many people don’t realize that Medicare does not pay your long-term care expenses.

An asset is truly liquid only if you can convert it to cash when you need it, for whatever you need, without begging or applying for it, with no penalties for accessing it, and without sustaining a loss. Bonds may need to be sold at a loss, and most CDs are liquid for only a few days at the end of each term. The fact that you may be able to use an asset as collateral for a loan does not make the asset liquid.

You finance everything you buy because you either pay interest when you finance or lease, or you lose interest and investment income you could have had if you had kept your money invested. By the way, contrary to what most automobile dealers would have you believe, leasing is usually the least efficient way to finance anything. There’s a better way to make major purchases that solve the problem of having to constantly interrupt the growth of your money when you spend or invest it. This method lets you fire your banker and become your own source of financing. It beats financing, leasing, or even directly paying cash.

Fees of only 1% would slash the value of your retirement account by 28% over the next 35 years, assuming your returns average 7% per year, according to the U.S. Department of Labor. But most people pay at least 1% in fees each year. On average, participants in small retirement plans pay 1.9% in fees annually, and participants in large plans pay 1.08%.

Payments of principal you make into your home do not earn interest or make you any money. Furthermore, the equity in your home is neither liquid nor guaranteed.

There have been three crashes since 1929 that took between 16 and 25 years to recover.

25% will live past 90. And 10% will live past 95. A couple aged 65 and in good health has a 60% chance that one of them will reach age 90, according to the Social Security Administration. But those numbers are just averages—they don’t tell you how long you will live. 

Fully 80% underperform, according to the highly respected Hulbert Financial Digest. And it’s not only because of the fees they charge. The experts are humans, too, and they’re predictably irrational like the rest of us, buying and selling at the wrong times.

The average return that asset allocation investors actually received was only 1.85% per year over the last 30 years, according to the 2014 annual report from DALBAR, Inc., a well-respected research firm. These investors, who were doing exactly what they had been advised to do, didn’t even come close to beating inflation, which averaged 2.8% per year over the same period. The average investor in equity mutual funds averaged only 3.69% per year, beating inflation by less than 1% per year.

 If your tax bracket and the tax rates don’t change, you’ll end up paying the same amount in taxes. But if you’re successful with investing your nest egg, and if tax rates go up (as most observers believe they will), you’ll end up paying more (potentially much more) in taxes by deferring them.

Almost half of all retirees were forced out of work earlier than planned, due to layoffs, poor health, or the need to take care of a loved one, according to the Employee Benefit Research Institute.

Studies show that a sixty-five-year-old couple retiring now will need $220,000 to cover out-of-pocket health care costs during retirement—costs that government programs do not cover, except for the indigent (those with no significant assets). Unfortunately, many couples don’t even have $220,000 in savings. And in case you think that figure must include possible nursing home and long-term care costs, it doesn’t. And the figure assumes you do have Medicare.

It protects your employer from liability—as long as your employer automatically invests your 401(k) money in certain types of mutual funds. The problem is those funds are often costly and perform poorly. If you lose your shirt, you have no recourse. You may choose to opt-out of these automatic investments, but 90% of all new hires let their plan administrators choose where their money will be invested for them, according to Towers Watson, a global financial consulting firm.

You generally have 30-60 days to pay back your loan in full, plus interest. An estimated 75% of workers who leave their jobs with a loan outstanding end up defaulting and getting stuck paying penalties and taxes, according to research by Harvard economist Brigitte Madrian. Government-sponsored retirement plans have more strings attached to them than a puppet. Your money is essentially in prison.

According to Morningstar, Inc., they lost an average of 11% per year—every year—for ten years, even though the fund’s prospectus boasted an 18% annual gain. That’s because mutual funds are legally required to advertise only the results of “buy-and-hold” investors. So when a fund advertises returns for any given period—in this case, a decade—it assumes investors bought the fund on the first day of that period and held it until the last day of the period—no matter how wild the ride got. But that rarely happens in real life. In fact, on average, investors hold mutual funds for less than five years.

Barely $26,000, according to John Bogle, founder of Vanguard. Gold reached a high of $1,011.25 in 2008 when Bogle made that calculation. Seven years later, in March 2015, gold was only slightly higher, at $1,148 (and that’s not accounting for inflation since 2008).