FFC FFC Retirement and Estate Planning 1 — Questions and Answers
Question 1: At what age must traditional IRA and 401(k) account holders begin taking Required Minimum Distributions (RMDs) under current U.S. law (SECURE 2.0)?
- 70½
- 72
- 73 (Correct answer)
- 75
Correct answer: 73
Under the SECURE 2.0 Act enacted in 2022, the RMD starting age was raised to 73 for individuals who turn 72 after December 31, 2022.
Question 2: What is the primary function of a revocable living trust in estate planning?
- To reduce estate taxes below the federal exemption threshold
- To allow assets to pass to heirs without going through probate (Correct answer)
- To permanently protect assets from creditors
- To replace the need for a will entirely
Correct answer: To allow assets to pass to heirs without going through probate
A revocable living trust allows assets held in the trust to transfer directly to beneficiaries upon death, bypassing the probate process and maintaining privacy.
Question 3: Which Social Security claiming strategy generally maximizes lifetime benefits for a healthy individual who can delay claiming?
- Claiming at age 62 for the longest benefit period
- Claiming at full retirement age for a moderate benefit
- Delaying until age 70 to maximize monthly benefit (Correct answer)
- Claiming spousal benefits at 62 then switching to own at 70
Correct answer: Delaying until age 70 to maximize monthly benefit
Delaying Social Security until age 70 increases benefits by approximately 8% per year beyond full retirement age, maximizing monthly income for those with longer life expectancies.
Question 4: What document grants a designated person the authority to make financial decisions on behalf of another if they become incapacitated?
- Revocable living trust
- Last will and testament
- Durable power of attorney (Correct answer)
- Beneficiary designation form
Correct answer: Durable power of attorney
A durable power of attorney remains effective even if the principal becomes mentally incapacitated, allowing the agent to manage financial affairs on their behalf.
Question 5: In retirement planning, what does the '4% rule' suggest?
- Invest 4% of income into retirement accounts annually
- Withdraw no more than 4% of your portfolio in the first year of retirement, adjusting for inflation thereafter (Correct answer)
- Keep 4% of your portfolio in cash equivalents at all times
- Allocate 4% of the portfolio to international investments
Correct answer: Withdraw no more than 4% of your portfolio in the first year of retirement, adjusting for inflation thereafter
The 4% rule is a guideline suggesting retirees can withdraw 4% of their portfolio in year one, then adjust for inflation, with a high probability of not outliving assets over a 30-year retirement.
Question 6: Which type of life insurance provides a death benefit and also accumulates a cash value that the policyholder can borrow against?
- Term life insurance
- Whole life insurance (Correct answer)
- Group term insurance
- Accidental death and dismemberment insurance
Correct answer: Whole life insurance
Whole life insurance combines a permanent death benefit with a cash value component that grows on a tax-deferred basis and can be accessed through policy loans.
FFC FFC Retirement and Estate Planning 1
At what age must traditional IRA and 401(k) account holders begin taking Required Minimum Distributions (RMDs) under current U.S. law (SECURE 2.0)?