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Exam 25: Extension: Managing Personal Finances

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Question 81

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Compare the basic features of the traditional IRA and Roth IRA.

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Both the traditional and Roth IRAs offer...

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Question 82

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About half of the U.S. population accumulates enough money to afford a comfortable retirement.

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Question 83

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Variable annuities offer investment choices identical to mutual funds.

A simple IRA, which allows workers to contribute larger amounts than a regular IRA, is available to employees who work for firms with fewer than 100 employees.

The U.S. government provides several types of financial incentives to encourage people to attend college.

What advice might a personal financial advisor offer a recent college graduate desiring to become financially secure?

Shorty is worried that his health may soon deteriorate to the point where he will no longer be able to take care of his own finances. One way he could ease his mind would be to:

Mini-Case Ira Roth and Penny Weiss met and married in the early 1990s, during their days at State University. Both came from families with limited financial resources. They had to work at part-time jobs during school, and still needed student loans to help pay for their college education. Ira and Penny shared a strong work ethic and had a great desire to succeed financially and enjoy the good life. Penny and Ira quickly experienced financial success in the latter half of the booming 1990s. Ira used his marketing major and extensive knowledge of computers to obtain a high-paying job in a successful dot-com business. Penny, who cleaned homes to earn money during college, used her experience to start her own business. Her entrepreneurial spirit surprised Ira and their friends, and she built a successful cleaning business with a growing base of residential clients and even a few commercial customers. She soon had to hire several part-time employees to keep up with demand. With money rolling in, Ira and Penny began to live the good life, buying an expensive new car, a state-of-the-art home entertainment center, and expensive wardrobes. As busy as they were, and as hard as they both worked, they often found it easier to dine at a nice restaurant rather than fix meals at home. When the dot-com bubble burst in the early 2000s, Ira was lucky enough to keep his job, but was forced to take a significant pay cut. The economic downturn forced some of the households and businesses that used Penny's company to cut back on professional cleanings, so her business suffered too. Soon the couple was struggling to pay the rent on their upscale apartment. They began relying on credit cards to cover expenses, but after a few months the credit limits on their cards had been reached. They fell behind in paying off their student loans and started getting some unpleasant calls from bill collectors. The stress and frustration led to arguments that began to threaten their personal relationship. With their personal finances out of control, Ira and Penny knew that they had to make changes to save not only their financial dreams, but also their marriage. However, they were at a loss as to where to start. Family members encouraged them to seek the advice of a financial planner. The couple reluctantly agreed that this was something they needed to do. -Once Ira and Penny achieved a more solid financial foundation, they began to consider the purchase of a home. From a financial standpoint, a sound strategy for them to consider would be to:

Keogh plans are most useful for stockholders of major corporations who earn most of their income from dividends rather than wages or salaries.

Leonardo is in the habit of using his credit card for expenditures made on business trips. The most likely reason he does this is to:

Interest paid on a home loan is deductible from taxable income.

The tax-deferred investment plan that allows employees to save part of their income for retirement is called a(n) :

Employers often match part of the contribution of their employees into a 401(k) retirement plan.

An individual retirement account (IRA) is a tax-deferred investment plan designed to encourage workers to save for retirement.

With respect to personal financial planning, the first thing to do with any extra money you have is to start a savings plan.

Personal financial planners often encourage their clients to write down every single penny they spend each day. The main purpose of this is to:

An umbrella policy is an inexpensive policy that provides financial protection only in the event of clearly defined major catastrophes such as hurricanes or earthquakes-events which are referred to in the insurance industry as "rainy days."

In the future, the Social Security system is likely to:

One problem with the Social Security system is that the number of people retiring and living longer is declining dramatically.

The chances of becoming disabled at an early age are much higher than your chances of dying from an accident.