Investment and Retirement Planning Flashcards

A client contributing 3% to their 401(k) has a 50% employer match on up to 6%. What should the counselor recommend?

Answer: Increase contributions to at least 6% to capture the full employer match

The employer match represents an immediate 50% return on investment. Contributing 6% captures the full match.

What is the key difference between a Traditional IRA and a Roth IRA regarding tax treatment?

Answer: Traditional IRA contributions may be tax-deductible with taxable withdrawals, while Roth contributions are after-tax with tax-free withdrawals

Traditional IRA contributions may be deductible now with taxes on withdrawals; Roth contributions are after-tax with tax-free qualified withdrawals.

A 28-year-old asks whether to invest aggressively or conservatively for retirement. What principle should guide the recommendation?

Answer: Time horizon is critical - longer horizons generally support higher equity allocations

With approximately 37 years until retirement, the client's long time horizon allows them to weather volatility and benefit from higher equity returns.

What is dollar-cost averaging and why do counselors recommend it?

Answer: Investing a fixed dollar amount at regular intervals regardless of market conditions

Dollar-cost averaging involves investing a fixed amount at regular intervals, automatically buying more shares when prices are low and fewer when high.

A client nearing retirement has 90% of their portfolio in employer stock. What risk should the counselor highlight?

Answer: Concentration risk: both income and savings depend on one company

Both employment income and retirement savings depend on one company's performance, creating dangerous concentration risk.

At what age can an individual begin receiving reduced Social Security retirement benefits?

Answer: 62

Reduced benefits can begin at age 62, though they are permanently reduced compared to full retirement age.