Test Your Retirement Planning Knowledge

These four simple questions will help identify gaps in your retirement planning know-how.

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You’re eligible to participate in your district's 403(b) or 457 plan, but you think it would be best to wait until you pay off your student loans (about five years from now). Is this a good strategy?

Even if finances are tight right now, contributing to your 403(b) or 457 plan is a smart move. The younger you are, the more years you have to take advantage of tax-deferred compounding, since taxes won't be due until you start taking distributions in retirement. (Premature distributions may be subject to a 10% penalty.) Plus, automatic payroll deductions can make saving practically painless.


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To maintain your current lifestyle after you retire, what percentage of your pre-retirement income will you need?

You could need 100%. Although many financial experts recommend having 70% to 80% of your pre-retirement income to maintain your current lifestyle when you retire, that may not be enough. If you plan to be more active in retirement than during your working years – such as traveling frequently, pursuing hobbies or starting a new career – you may require 100% or more of your pre-retirement income. In addition, health care expenses are likely to eat up a large part of retirement income.




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What is the maximum amount you can contribute to your 403(b) or 457 plan in 2011 if you are under age 50?

You can contribute up to $16,500 to a 403(b) or 457 plan in 2011. If you’re 50 or older, you can make an additional catch-up contribution up to $5,500, or up to a total of $22,000.




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True or false: It is possible to have a 403(b) plan, a 457 plan and an individual retirement account (IRA).

True. If you have both a 403(b) and 457 plan available in your district, you can choose to sign up for both and contribute up to the maximum to both plans. In addition, anyone with earned income can open and contribute to an IRA at a financial institution.