The formula for a financially successful retirement used to be straightforward: Work for decades for one employer and then live happily ever after on the pension, Social Security and whatever personal savings you were able to amass.
With regular checks from your company and Uncle Sam, the amount of savings was important but not critical.
Today, with pensions vanishing and an economic crisis withering savings, it's increasingly up to individuals to take charge of their finances to fund retirements that can stretch for up to 30 years because of longer lifespans.
Is your retirement IQ up to the challenge? Take the test and find out. (Answers at bottom):
1. What percentage of your savings can you withdraw annually in retirement without risk of running out of money?
(a) 3 percent (b) 4 percent (c) 7 percent (d) 10 percent
2. Approximately what percentage of pre-retirement income is generally needed to maintain a person's current lifestyle in retirement?
(a) 45 to 60 percent (b) 60 to 75 percent (c) 75 to 99 percent (d) 100 percent or more
3. Working full-time for three years past one's anticipated retirement date and continuing to save 15 percent of salary could raise annual retirement income by how much?
(a) 7 percent (b) 12 percent (c) 17 percent (d) 22 percent
4. At what age will most of today's workers be eligible for full Social Security retirement benefits?
(a) 62 or 63 (b) 64 or 65 (c) 66 or 67 (d) 70
5. How much extra can workers 50 or older contribute to their retirement plans in 2009?
(a) $6,000 extra, for a maximum $21,000 (b) $5,500 extra, for a maximum $22,000 (c) $7,000 extra, for a maximum $24,000 (d) $7,500 extra, for a maximum $25,000.
6. The typical person age 50 and older with a 401(k) account with his or her current employer holds about how much in the account?
(a) $47,000 (b) $97,000 (c) $147,000 (d) $247,000
7. The number of workers age 65 and over is expected to grow by how much over the next decade?
(a) More than 20 percent (b) More than 40 percent (c) More than 60 percent (d) More than 80 percent
8. What percent of homeowners age 50 to 65 plan to use home equity to finance ordinary living expenses in retirement?
(a) 6 percent (b) 10 percent (c) 20 percent (d) 50 percent
9. A job layoff in one's 50s or 60s typically reduces total household wealth by what percent?
(a) 11 percent for married couples and 23 percent for single people (b) 16 percent for married couples and 28 percent for single people (c) 21 percent for married couples and 33 percent for single people (d) 31 percent for married couples and 43 percent for single people
10. What percent of U.S. workers are covered by traditional defined-benefit retirement plans (pensions)?
(a) 10 percent (b) 20 percent (c) 50 percent (d) 75 percent
1. (b) The 4 percent rule advocated by many financial planners holds that if you withdraw no more than 4 percent of your portfolio in the first year of retirement and then increase that amount for inflation each year, your money should last at least 30 years. That rough guideline takes into consideration the role of expected earnings on your portfolio as well as inflation.
2. (c) Most employees will need an average of between 77 and 94 percent, according to Aon Consulting's 2008 Replacement Ratio Study. It's best to plan for the high side since health and medical costs are impossible to predict. Also, people tend to spend more money when they have more leisure time.
3. (d) Investment management company T. Rowe Price says retirement income goes up about 7 percent for each additional year of work, or around 22 percent after three years.
4. (c) Between 66 and 67, depending on date of birth. Retire before that and your benefits will be reduced by 20 to 30 percent. Check retirement benefits by year of birth at the Social Security site (
5. (b) Employees age 50 and up can make up to $5,500 in catch-up contributions in 2009, added to a base contribution limit of $16,500 for a maximum $22,000.
6. (b) $96,809 as of Feb. 26, according to the Employee Benefit Research Institute. Whether you're ahead or behind your neighbors and peers in retirement savings, don't lose sight of the long term — keep saving.
7. (d) The number of workers age 65 or older is predicted to soar by more than 80 percent by 2016 (from 2006 totals), according to the U.S. Bureau of Labor Statistics.
8. (a) 6 percent, according to a 2007 report by the Center for Retirement Research at Boston College. You should try to avoid tapping home equity for routine retirement expenses if possible. The housing crisis has called into question projections that home equity is likely to become an increasingly important source of retirement income.
9. (c) 21 percent for married couples and 33 percent for single people, according to a 2007 report by the Urban Institute. These statistics serve as a warning to build up emergency savings and not cut things too close in case of an unexpected job loss late in your working career.
10. (b) AARP says only 20 percent are covered, meaning most people have to look after their own finances with such vehicles as 401(k)s and IRAs for their nest eggs.
0-3: Better bone up fast or you'll have to keep working till you drop.
4-5: You need to study some more.
6-7: Not bad, but the road to retirement affluence could still be bumpy for you.
8-9: If your planning matches your knowledge, you should be in good shape.
10: Congratulations! May you live long and prosper.