It#s never too soon to begin planning for retirement. Take this quiz to see how ready you are.
True or False:
1. Social Security and Medicare won#t support you comfortably in retirement.
Answer: True. It#s a hot topic as to whether social security will even exist in the next 20 years or so! Along with an IRA, pension and 401(k), think about adding a long-term care policy to your future plans. Funds could come in handy for nursing home or assisted living expenses.
2. There are limits to how much you can save for retirement on a tax-deferred basis.
Answer: False. You#ve got some options here. You can contribute $3,000 per year in an IRA during 2002, and this can increase gradually to $5,000 in 2008. You also can contribute the greater of 100 percent of earnings or $11,000 per year in a 401(k) in 2002, with a gradual increase to $15,000 in 2006. However, unlimited contributions are permitted to tax-deferred annuities.
3. Most retirees should not invest solely in bonds.
Answer: True. A combination of growth- and income-oriented investments are usually the best option. Bonds preserve wealth and earn income, but choose the combination option to stay ahead of inflation and maintain the purchasing power of your assets.
4. There is a tax penalty on all premature withdrawals from your IRA.
Answer: False. Usually, there is a tax penalty of 10 percent, but there are exceptions for certain medical or educational expenses.