Lesson

Social security and pensions are crucial components of a client's financial situation, as they provide a source of income during retirement. Understanding these benefits will help you make informed decisions about the client's investment needs and risk tolerance.

Practice Question #1

Which of the following is a type of pension plan where the employer guarantees a specific retirement benefit based on a formula?

Options

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Terms

Social Security:
A federal program that provides retirement, disability, and survivor benefits to eligible individuals based on their work history and contributions.
Pension:
A retirement plan that provides employees a monthly income after retirement, typically based on their years of service and salary.
Defined Benefit Plan:
A pension plan where the employer guarantees a specific retirement benefit based on a formula, usually involving the employee's salary and years of service.

Practice Question #2

What is the minimum age at which an individual must begin taking Required Minimum Distributions (RMDs) from certain retirement accounts?

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Do Not Confuse With

IRA (Individual Retirement Account):
A tax-advantaged retirement savings account that is not tied to an employer, unlike pensions and 401(k) plans.
401(k) Plan:
A defined contribution plan offered by employers, allowing employees to contribute a portion of their salary to a retirement account on a pre-tax basis.
Roth IRA:
A type of individual retirement account where contributions are made with after-tax dollars, and qualified withdrawals are tax-free.

Practice Question #3

Which of the following Social Security benefits is available to a surviving spouse or dependent based on the deceased worker's work history and contributions?

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Historical Example

In the 1980s, many companies began shifting from defined benefit pension plans to defined contribution plans, such as 401(k) plans. This shift was driven by the desire to reduce traditional pension plans' financial risk and long-term liabilities. As a result, employees have become more responsible for their retirement savings and investment decisions.

Practice Question #4

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Real-World Example

A 65-year-old client is planning to retire in the next year. They have a pension from their employer, providing a monthly income of $2,000. They are also eligible for Social Security benefits, which provide $1,500 per month. Understanding these sources of income will help you determine the appropriate investment strategy for the client, considering their need for additional income and their risk tolerance.

Practice Question #5

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Practice Question #9

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Practice Question #10

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