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Retirement & Investment Planning Flashcards

7 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Retirement & Investment Planning flashcards as text

  1. A 58-year-old client wants to withdraw from her traditional IRA due to a financial hardship. What is the federal penalty tax for early withdrawal?

    Answer: 10%

    Withdrawals from a traditional IRA before age 59½ are subject to a 10% early withdrawal penalty in addition to ordinary income tax.

  2. Which of the following investment strategies involves systematically investing a fixed dollar amount at regular intervals regardless of market price?

    Answer: Dollar-cost averaging

    Dollar-cost averaging reduces the impact of volatility by purchasing more shares when prices are low and fewer when prices are high.

  3. A client has a defined benefit pension plan. Which factor primarily determines the monthly benefit at retirement?

    Answer: Years of service and final salary

    Defined benefit plans calculate retirement income using a formula that typically includes years of service and the employee's salary history.

  4. What is the primary tax advantage of a Health Savings Account (HSA) when used as a retirement savings tool after age 65?

    Answer: Withdrawals for any purpose are penalty-free and taxed as ordinary income

    After age 65, HSA funds can be withdrawn for any purpose without a penalty, though non-medical withdrawals are taxed as ordinary income like a traditional IRA.

  5. A client's portfolio has a standard deviation of 15% and an expected return of 10%. The risk-free rate is 3%. What does the Sharpe ratio measure?

    Answer: Excess return earned per unit of total risk

    The Sharpe ratio is calculated as (portfolio return − risk-free rate) / standard deviation, measuring return earned per unit of risk taken.

  6. Which type of annuity guarantees payments for a specified number of years regardless of whether the annuitant is living?

    Answer: Period-certain annuity

    A period-certain annuity makes guaranteed payments for a fixed term (e.g., 10 or 20 years), and if the annuitant dies early, payments continue to the beneficiary.

  7. Under the Rule of 72, approximately how many years will it take for an investment earning 6% annually to double?

    Answer: 12 years

    Dividing 72 by the annual interest rate (72 ÷ 6 = 12) gives the approximate number of years needed to double the investment.