Most family child care providers, like most taxpayers, are not saving enough for their retirement.
Many do not have a good understanding of how to plan for their retirement.
Test your retirement knowledge by taking this short quiz.
1) Social Security payments will replace approximately what percentage of the current earnings of the average taxpayer?
a. 20% b. 40% c. 60% d. 70%
2)
If a provider's only work was
doing child care for fifteen years and she had a profit over $400 for
nine of those fifteen years, would she qualify to receive Social
Security benefits?
a. Yes b. No
3) You can start
receiving Social Security retirement benefits at age 62. If you do so
you will receive lower benefits than if you waited until your full
retirement age of 65, 66, or 67 depending on when you were born. Under
what circumstances might you take benefits starting at age 62?
a. Current bad health b. Immediate financial stress c. History of early death in your family d. All of the above
4) If you aren't saving enough now to be able to retire at age 66/67 what can you do?
a. Work beyond age 66/67 b. Save more now c. Live on less in retirement d. All of the above
5) If you save $35 a week and earn 8% a year in a tax deferred IRA, how much will you have in twenty years?
a. $10,232 b. $15,741 c. $25,655
d. $37,143
6) Can a single provider making a profit of $75,000 invest in both a SIMPLE IRS and a Roth IRA each year?
a. Yes b. No
7) If you invest in an index fund you are adopting what type of an investment strategy?
a. Passive b. Active
Answers:
1) 40%. Of course the answer for you may be different. To find out
how much Social Security benefits you will receive when you retire, go
to
www.socialsecurity.gov
and check out their benefits calculator. Because Social Security
benefits will not replace all of the money you will need for retirement,
you need to identify other sources of retirement income: income from
your investments, earned income in retirement, other.
2) No. You must work at least ten years to qualify to reecive Social Security benefits.
3) D. For each year you take Social Security benefits before your
full retirement age of 65, 66 or 67, you benefits will decrease. For
example, if you start claiming benefits at age 62, they will be about
25% less than if you waited until you were age 63. Therefore, before
deciding on when to start taking Social Security benefits you should
consult with your local Social Security office or with a financial
advisor who can advise you.
4) D. Most providers will not have saved enough to be able to
maintain their current standard of living by relying on Social Security
and the interest on their investments. Therefore, all of these options
are viable. Other possibilities can include: move to a less expensive
home, receive an inheritance or change your job to one that pays more.
5) C. $25,655 Even a small amount of money can quickly grow over
time. This means it is never too late to start saving money now for your
retirement.
6) A. All providers are eligible to set up and contribute to a SIMPLE
IRA
(regardless of your income). You can set aside up to $12,000 of
your profit into this tax-deferred IRA (2013 limits). You can contribute
an extra $2,500 if you are age 50 or older. The deadline for
establishing a SIMPLE IRA is September 30th. Single providers are
eligible to contribute to a Roth IRA if their profit is less than
$112,000; married providers can contribute if their family's adjusted
gross income is less than $173,000. You can contribute a maximum of
$5,500 per person to a Roth IRA in 2013. If you are age 50 or older you
can contribute an extra $1,000. You can set up and contribute to a Roth
IRA before April 15.
7) A. Index investing means you are investing in a fund that
identifies specific investments and then holds onto them indefinitely.
For example, an S&P Index Fund invests and holds onto the 500
largest U.S. companies that comprise the S&P 500. Active investing
is when the manager of a fund buys and sells various investments
throughout the year. For example, the XYZ Fund might consist of
investments in thirty different companies at the start of the year, but
the manager could buy stock in ten other companies during the year and
sell the investments of seven other companies. A passive investing
strategy will result in lower management fees because of lower
transaction costs and taxes. Therefore, most index funds will beat the
returns of active managed funds over time.
Score yourself!
0 correct - Time to start paying attention to your retirement planning!
1 - 3 correct - Good start!
4- 6 correct - Excellect!
7 correct - You are a master!
