Think you’re savvier than the average person about retirement? Try your hand at these three basic questions.

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Think you’re savvier than the average person about retirement? Try your hand at these basic questions:

1. If someone saves $1 million for retirement, how much will he or she be able to spend each year?

A. $40,000.

B. $40,000 in the first year, then $40,000 plus an inflation adjustment the next year, and so on.

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C. $50,000 in the first year. Subsequent years are determined by market performance.

Answer: Many people are confused about the 4 percent withdrawal-rate rule of thumb first put forward by financial adviser William Bengen. His research showed that a withdrawal rate as described in choice B above would safely sustain a portfolio through retirement, but due to low interest rates and other factors, many financial advisers today are recommending retirees should make withdrawals dynamic, meaning they need to be cut back when markets underperform. So an investor may indeed be able to start with taking out 5 percent ($50,000 on a $1 million nest egg) but would need to forgo inflation adjustments or even take a pay cut if markets decline substantially.

2. True or false: You’re better off delaying Social Security payments as long as possible.

Answer: It depends. Benefits are designed to be actuarially equal regardless of when you begin them, assuming you live exactly to your life expectancy. In reality, people who are already sick or who simply need the money right away will be better off taking their benefits sooner than later.

3. How much do I need to save to be able to retire?

Answer: This is the inverse of the first question, and one that pre-retirees tend to focus on most. Old rules of thumb — like amassing 10 times final pay — don’t take into consideration what you’ll actually spend in retirement. A better answer is to calculate how much you’ll need to live on, including an estimate of taxes, and multiply that by 25. So if you need $20,000 a year over and above Social Security, the savings target is roughly $560,000.