15 Questions to Test Your Financial Knowledge

By Mitchell J. Smilowitz, CPA

Test your knowledge about personal money management, retirement planning and building an investment portfolio. We hope you get all the questions right. If not, we encourage you to contact us via email or by calling 888-JRB-FREE (572-3733) to discuss.

1. What is the most important factor affecting the size of your retirement savings?

A. The general economy
B. The amount contributed to your retirement account
C. Your asset allocation
D. Taxes
E. Investment fees

Answer – B

All of the items listed above affect your retirement savings, but the amount contributed to your retirement account is the most important factor affecting the balance of your retirement savings. Most financial planners recommend that you save 10% - 20% of your salary each year to your retirement account. If that’s too big a stretch, start with what you can – the most important thing is to begin saving as soon as possible – and commit to gradually increasing the percentage you save. If you increase your contribution when you receive a salary increase, you won’t even notice the difference.

2. What is the most important factor affecting the investment return you receive on your retirement savings?

A. The general economy
B. Fiscal policy
C. Your asset allocation
D. Taxes
E. Investment fees

Answer – C

While the amount you save is the most important factor determining the balance in your retirement account, your asset allocation is the most important factor determining your overall investment return on the amount you save. Asset allocation means balancing risk and reward by diversifying your portfolio by investing in a variety of stocks, bonds and stable value investments. Your risk tolerance, goals and investment time frame will all affect your decision. The JRB offers a wide variety of high-quality investment offerings you can use to build a diversified portfolio.

3. Long-term investors generally have at least a 5-year time horizon. Looking at the overlapping five-year periods since 1926, in what percentage have stocks gained in value?

A. 68%
B. 73%
C. 79%
D. 87%

Answer – D

Although some consider them a risky investment, over the long-term, stocks have historically provided positive returns.  Over the 89 overlapping five-year periods since 1926, stocks increased in value 87% of the time. Extend the period to 15 years, and stocks increased in value every time.

4. How much of your income will you need to replace in retirement?

A. 60%
B. 80%
C. 100%
D. 120%

Answer – B

Experts estimate that the average retiree will need to replace about 80% of their pre-retirement income to maintain their lifestyle in retirement. Some expenses, such as commuting costs, go down once you retire. You may move to a less expensive area. You’re also likely to be in a lower tax bracket. These are some of the reasons a person earning $100,000 per year before retirement is likely to need $80,000 per year once they retire. Factoring in inflation, however, that amount will increase over time. Social Security will account for some of this income, but the average Social Security benefit is only about $18,000 per year. The rest will come from your savings. Since retirement often lasts 20-30 years, it is important to start saving early, to save consistently and to allocate your assets effectively so they meet your need for growth with an acceptable level of risk.

5. If you are 40-years-old and earning $60,000 a year, how much should you have in your retirement account?

A. $60,000
B. $120,000
C. $180,000
D. $240,000

Answer – C

It can be hard to see your retirement clearly, especially when it could be many years away. Fortunately, there’s a way to estimate whether you are on track for your retirement savings. It’s called the “X” Times Salary Method.

  • Age 30 – Savings Equal Income. If you earn $30,000, you should have $30,000 saved
  • Age 40 – Savings Equal 3x Income.  If you earn $60,000, you should have $180,000 saved
  • Age 50 – Savings Equal 6x Income. If you earn $75,000, you should have $450,000 saved
  • Age 60 – Savings Equal 8x Income. If you earn $90,000, you should have $720,000 saved
  • Full Retirement Age (67) – Savings Equal 10x Income. If you earn $100,000, you should have $1,000,000 in savings

Don’t despair if you’re behind. The JRB can work with you to develop a plan so you can reach your retirement goal.

6. What percentage of your savings do you think you can realistically take out of your retirement account each year during retirement and not run out of money?

A. 2%
B. 4%
C. 5%
D. 7%
E. 10%

Answer – B

Withdrawing 4% of your retirement savings each year results in a 95% probability that your savings will last 25 years. This “4% rule” also has the advantage of simplicity. The basic idea is to limit annual spending to 4% of your total savings (both retirement and other savings), excluding Social Security, when you begin retirement.

7. To leave your JRB retirement account to your family after you die, you should:

A. Provide instructions in your Will or Trust
B. Tell your family
C. Make sure your JRB beneficiary information is up-to-date
D. Provide instructions to the Executor of your estate

Answer – C

Your JRB retirement account passes to your beneficiaries outside your estate, so your Will or Trust does not govern the inheritance of your retirement accounts. To designate who receives the funds remaining in your JRB retirement account, make sure the beneficiary form on file with the JRB reflects your current thinking. You should update your beneficiary choices as your life changes. Marriage, divorce, the birth of children and grandchildren may all prompt changes in your beneficiary designations. Look at these eight mistakes to avoid when naming beneficiaries.

8. If inflation averages 3% a year, how long will it take prices to double?

A. 6 years
B. 12 years
C. 18 years
D. 24 years

Answer – D

Inflation is the rate at which the price of goods and services rises. It has a big effect on your spending in retirement. If the annual inflation rate is 3%, prices will double in about 24 years. You can use the Rule of 72 to estimate how long it will take prices to double at a specific rate of inflation. Simply divide 72 by the rate of inflation, 3% in our example, to approximate how much time it will take inflation to double the cost of goods and services.

9. What is the average annual rate of inflation for college tuition around the country?

A. 2%
B. 5%
C. 8%
D. 11%

Answer – C

According to CNBC, the inflation rate for college tuition averages 8%. At 8% annual inflation, college tuition doubles about every nine years. Learn more about saving for your child’s education.

10. How many months of living expenses should you aim to have in an emergency fund?

A. One-to-three months
B. Three-to-six months
C. One year or more

Answer – B

As a general rule, you should have three-to-six months of living expenses in your emergency fund. This money should be easily accessible in a bank account or money market fund. If you lose your job or are unable to work for a while, your emergency fund can help ease the strain and keep you from falling into debt.

11. If you purchase a bond, and interest rates rise, what will happen to the value of the bond?

A. The value of the bond will rise
B. The value of the bond will stay the same
C. The value of the bond will fall

Answer – C

Most bonds pay a fixed interest rate. When interest rates fall, a bond with a higher interest rate becomes more attractive. Investors will pay more for a bond that earns more interest. On the other hand, when interest rates rise, people will no longer prefer the lower fixed interest rate paid by a bond, and its value will fall. For an example of how this works, see the JRB’s Introduction to Bonds.

12. How much life insurance should you purchase if your annual income is $75,000?

A. $75,000
B. $150,000
C. $750,000
D. $1,500,000

Answer – C

Life insurance provides replacement income for your dependents should you die. As a general rule, multiply your income by 10 to estimate how much life insurance you might need. Consider adding $100,000 per child for college expenses. You may not need as much, or any, life insurance once your children are on their own.

13. What’s the maximum debt-to-income ratio most banks will accept to qualify for a mortgage?

A. Not more than 27%
B. Not more than 33%
C. Not more than 43%
D. Not more than 50%

Answer – C

The debt-to-income ratio is a personal finance measure that compares your monthly debt payment to your monthly gross income. Your gross income is your salary before taxes and other deductions. A debt-to-income ratio of 43% is typically the highest ratio a borrower can have and still qualify for a mortgage, but lenders generally seek ratios of no more than 36%. Lenders prefer borrowers with low debt-to-income ratios because it indicates that these borrowers are more likely to have the financial capacity to repay the loan.

14. You can begin to take Social Security benefits when you reach age 62, but your monthly benefit will increase until you reach age 70. How much will your benefit increase each year you delay claiming Social Security between age 62 and age 70?

A. 5%
B. 6%
C. 7%
D. 8%

Answer – D

When you choose to begin Social Security has a big impact on the size of your benefit. You can begin claiming Social Security once you reach age 62. Doing so, however, permanently reduces the size of your Social Security benefit. Each year you delay starting Social Security, you can increase your monthly benefit about 8%. You reach your maximum benefit amount when you turn 70, so it doesn’t make financial sense to postpone collecting Social Security beyond that point.

15. How much could the typical healthy married couple, retiring this year at age 65, covered by Medicare, expect to spend on out-of-pocket costs for healthcare through retirement (in today’s dollars)?

A. $146,000
B. $157,000
C. $232,000
D. $285,000
E. $330,000

Answer – D

While costs vary greatly, the average 65-year-old couple covered by Medicare parts B, D and a supplemental insurance policy, can plan on spending around $285,000 on health care in retirement.


Congratulations on completing the quiz! How well did you do? We hope you found it informative and we encourage you to click on the links for more details on individual topics. If you have any questions about the quiz, please call us at 888-JRB-FREE (572-3733) or send us an email.


June 2020