Retirement Planning and Your Personal Finance Skills

Retirement planning is all for naught if you don't bring some basic knowledge to the process. Below is the first of a three part quiz published by the Federal Reserve to help tally your personal finance, economic, and investing skills. There is no reward for right answers. In fact, I have taken the answers below and added explanations to help you understand why.

Part two and three come later this week.

Federal Reserve Quiz

Part One

Personal Financial Literacy Quiz:
(Answers with explanations - from me - at bottom of page)

1. Inflation can cause difficulty in many ways. Which group would have the greatest problem during periods of high inflation that last several years?

a.) Older, working couples saving for retirement.
b.) Older people living on fixed retirement income.
c.) Young couples with no children who both work.
d.) Young working couples with children.

2. Which of the following is true about sales taxes?

a.) The national sales tax percentage rate is 6%.
b.) The federal government will deduct it from your paycheck.
c.) You don't have to pay the tax if your income is very low.
d.) It makes things more expensive for you to buy.

3. Rebecca has saved $12,000 for her college expenses by working part-time. Her plan is to start college next year and she needs all of the money she saved. Which of the following is the safest place for her college money?

a.) Locked in her closet at home.
b.) Stocks.
c.) Corporate bonds.
d.) A bank savings account.

4. Which of the following types of investment would best protect the purchasing power of a family's savings in the event of a sudden increase in inflation?

a.) A 10-year bond issued by a corporation.
b.) A certificate of deposit at a bank.
c.) A twenty-five year corporate bond.
d.) A house financed with a fixed-rate mortgage.

5. Under which of the following circumstances would it be financially beneficial to you to borrow money to buy something now and repay it with future income?

a.) When you need to buy a car to get a much better paying job.
b.) When you really need a week vacation.
c.) When some clothes you like go on sale.
d.) When the interest on the loan is greater than the interest you get on your savings.

6. Which of the following statements best describes your right to check your credit history for accuracy?

a.) Your credit record can be checked once a year for free.
b.) You cannot see your credit record.
c.) All credit records are the property of the U.S. Government and access is only available to the FBI and Lenders.
d.) You can only check your record for free if you are turned down for credit based on a credit report.

7. Your take home pay from your job is less than the total amount you earn. Which of the following best describes what is taken out of your total pay?

a.) Social security and Medicare contributions.
b.) Federal income tax, property tax, and Medicare and social security contributions.
c.) Federal income tax, social security and Medicare contributions.
d.) Federal income tax, sales tax, and social security contribution.

8. Retirement income paid by a company is called:

a.) 401 (k).
b.) Pension.
c.) Rents and profits.
d.) Social Security.

9. Many people put aside money to take care of unexpected expenses. If Juan and Elva have money put aside for emergencies, in which of the following forms would it be of LEAST benefit to them if they needed it right away?

a.) Invested in a down payment on the house.
b.) Checking account.
c.) Stocks.
d.) Savings account.

10. David just found a job with a take-home pay of $2,000 per month. He must pay $900 for rent and $150 for groceries each month. He also spends $250 per month on transportation. If he budgets $100 each month for clothing, $200 for restaurants and $250 for everything else, how long will it take him to accumulate savings of $600.

a.) 3 months.
b.) 4 months.
c.) 1 month.
d.) 2 months.

ANSWERS: 1) b; 2) d; 3) d; 4) d; 5) a; 6) a; 7) c; 8) b; 9) a; 10) b

Retirement Planning and Universal Health Care: A Medical Army

The Medical Army of Massachusetts

Mention the word conscription and shudders can be felt throughout the populace. Parents concerned about kids, kids being concerned about an accustomed life interrupted by forced service from some authority they know little and care less about to civil researchers who point to the unfairness of drafting someone, who they have determined will be from a largely underprivileged class, all mire the inherit value of citizenship and service.

But this isn’t about the drafting of soldiers into military duty and in the truest sense of the word, it might not even be conscription. What universal health care needs is way to ensure that it works. In country where capitalism is also a political force that cannot be denied, even if it leads us into recessionary times, it would be difficult to rebuff those kinds of headwinds.

One of the main roadblocks facing the success of the Massachusetts attempt at providing universal health care is the key link in any health plan: prevention. With so many people coming into the system, many of whom have not had adequate access to care, the current system is overwhelmed. These people come with problems and ailments that have not been treated, many of which have grown into full fledged maladies, preventable in many cases had they had access to care.



That is problem number one. Problem number two should not have come as a surprise to the authors of this legislation. There were not enough doctors at the general practice level to accommodate the throngs of new patients. The New York Times recently reported the “The situation may worsen as large numbers of general practitioners retire over the next decade. The incoming pool of doctors is predominantly female, and many are balancing child-rearing with part-time work. The supply is further stretched by the emergence of hospitalists — primary care physicians who practice solely in hospitals, where they can earn more and work regular hours.”

Politicians are leaning towards some sort of tuition relief for doctors. This group, many of who claim that they did not enter into the medical profession for the monetary reward, has borrowed over six figures to complete the required training. Eager to recoup those costs, medical school graduates gravitate toward specialty practices that pay better than general practice, often three times better.

But we are thinking about relieving the tuition costs of the wrong group. If physician assistants, nurses and social workers could be given a free ride through college and, if their field of studies requires, beyond, couldn’t we conscript them to provide into four years of service for the plans in their state? Wouldn’t it be a small price to pay for the promise of a debt free career after their term of service was complete?

Social workers could visit patients before they become patients, providing them with the initial visit and the help them navigate the system. They could determine the level of care they might need, which for the home bound might be as little as a phone call reminder once or twice a day from a nurse to take their medicines.



Nurses would be given regions of the state, lording over their districts in much the same way the school nurse might. This second wave of care would provide the comfort many illnesses need and because of their position in the system, they would assess whether a doctor would be needed or a physician assistant could make the diagnosis. Care would be given in small regional clinics, perhaps set-up as a storefront in a small town.

Regular wages would be paid to each of groups. Dropping out of the program would always be an option but your deferred tuition would be yours once again.

But what about doctors and their better-paid counterparts, the specialists, the folks who are in such short supply, who would rather work in a hospital setting? How would we get the most critical part of the system to help?

They would be given volunteer status in the program. How do you give them similar benefits without making them sign a contract for long-term service? You give them tax incentives. Each year a doctor serves as a general practitioner allows them to work tax-free. No income tax on the federal or state level. Nothing.

Once a patient has been assessed by a social worker, visited a nurse, been diagnosed by a physician assistant, the once a week visit to the clinic to see the patients who required a doctor’s care or the reference needed to see a specialist, would be almost negligible. He could charge them as he would any other patient under the plan but the income he generated from these visits would not come with a tax penalty.

The same could be offered to nurses, social workers, and physician assistants who chose to stay on after their four-year conscription was finished.

Of course there are just as many cons to this kind of health care solution. How do you weed out the bad ones who simply want a free ride to college? Make GPA’s earned in college the determining factor for admittance to the program.



How do rate the care given once these professionals begin their post-collegiate service? Exit polls of patients would be the simplest answer. The system would spawn a more motivated and engaged workforce, a sort of homespun medical Peace Corp, out in the field, doing work where work needs to be done.

Wouldn’t more populace states would be overrun with help while smaller, more rural states would be left wanting? There is always that but it has always been my impression that those rural states view their relative isolation as a way of life and not so much an obstacle. States could further sweeten the pot by providing free housing and transportation and do so with the hope that the medical worker might stay long-term.

Massachusetts could be the perfect place to test just such a program. They show great economic and often geographic diversity, often within a few miles of a major metropolitan area. No one said the plan would come off with some tweaking but the creativeness of how it should be done is often left in the hands of people too close to the original plan.

Retirement Planning and the Disgruntled Worker

You will be able to pick them out much easier in the coming months. You will see them with disappointed looks on their faces, trudging through their day wondering if they will ever be able to retire. Not just because they haven’t saved enough. Some of these folks have and were fully prepared to quit their day job in favor of a new life after work. Instead the angst they wear on their shirt sleeves is because they underestimated the volatility of the equity markets and over estimated the value of their homes.

The latest release form the Employee Benefit Research Institute portrayed an American worker who has lost confidence in their ability to save enough to retire. According to the report, “The percentage of workers very confident about having enough money for a comfortable retirement decreased sharply, from 27 percent in 2007 to 18 percent in 2008, the biggest one-year drop in the 18-year history of the survey. Retiree confidence in having a financially secure retirement also decreased, from 41 percent to 29 percent, a drop of 12 percentage points. Decreases in confidence occurred across all age groups and income levels but was particularly acute among younger workers and those with lower income.”



Those that had already retired, also part of the survey were just as concerned as though who seem to be putting off their plans until the markets recover. Among those 54 percent told the surveyors that they left the workforce because of health problems or disability. What incomes they received from pensions and savings was largely eaten up by expenses, with 44% of those who responded telling that they spent “more than expected on health care expenses”.

Once retired, the primary concern is not outlasting your savings. It is what we focus on, mostly in the abstract while we are working. But once we leave the workforce, those concerns become very real. The EBRI found that “More than half of retirees (54%) say they are now more concerned about their financial future than they were right after they retired, a 14 percentage- point increase from a year ago (40 percent in 2007)”.

While health concerns both while working and retired have deeply impacted this confidence indicator, the real day-to-day expenses have begun to erode the average workers ability to save for retirement.

Cost of living wage increases have all but ceased, with number showing that over the last seven years, the average worker has lost one percent in the category of take home pay. Premiums for health insurance, while workers were still employed have grown by an average of 6% and those number look to increase. Couple that with wage stagnation and you can see why some workers feel as though they were moving in reverse.



The housing crisis has shaken many people to the core, even if they are confident that they are well positioned with their mortgages. Even if your debt level is manageable, the economy will make its downtrodden presence known to even you. Fuel costs will make an ever-increasing impact. Inflation will erode not only your current dollar but future ones as well. And if the economy seems bad now, wait until the job market begins to deteriorate as the credit markets continue to tremble with fear. That fear is very real. Creditors wonder, almost out loud, will they get paid back?

One bright spot: those fears seem to lessen with income. The fewer dollars you gross, the report seems to indicate, the lesser the chances are you are worried about retirement. Perhaps that is because you may never know what retirement is.