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Exercise - Planning for Retirement
Planning for Retirement Look at the budget you created in Pamphlet F1. Estimate what would change if you were retired. Would some

expenses go away or be less? Would you have other expenses you don’t have now? Here are additional things
When do you want to retire? What kind of lifestyle do Three Main Sources of to consider:
you want to have when you retire? How long do you Retirement Income: Your current age: Savings:
expect to live after you retire? These are some of the Your desired retirement age: 401(k) contributions:
questions you have to ask yourself when planning for „ Social Security Government
retirement. sponsored retirement and How long you expect to live: 401(k) matches from
health care plan (Medicare) company:
„ As a guide you should plan on having 65-80% of your Current income: IRA’s:
current annual income to live on each year after you retire. „ Pensions and annuities Desired annual income during retirement: Other Investments:
So, if you currently make $25,000 per year, you need to Company sponsored retirement
have invested your money wisely while working to draw plans / investments that earn Expected retirement income:
between $16,250 and $20,000 per year when you retire. money tax free and pay out
In this example, suppose you want to have 75% of your when you reach retirement age. - from current investments
current income when you retire at 67 and you plan to live to „ Your savings - from Social Security
87, how much total income would you need to have? 401(k), IRA’s, and other - from employer pensions or retirement
25,000 x .75 = 18,750/ year x 20 years = $375,000. investments funds
- from inheritances
You can go online to http://finance.yahoo.com/calculator/career-work/ret02 and use the Retirement
Calculator to help you estimate the amount you need to save for your retirement.
Tax Deferred Investments Investment Basics: 401 (K) Retirement Savings

When you put money into a savings Stock A portion of ownership in a company. The better
account you earn interest on the More Risk/ the company does, the more money it can make. A 401K is a retirement plan that may be provided by an employer, and it is one of the
money. At the end of the year, you are Higher You can also lose money depending on how well best ways to save towards retirement. You tell your employer how much to take out of
each paycheck to contribute to the fund. The company takes the money you pay and
taxed on that interest income. When potential $$ the company does and what the economy is doing they invest in your behalf. You usually have the option to specify the percent to be
saving for retirement, you want to Bonds A loan you give a company or the government for a invested in high risk stock or lower risk investments.
look for tax-deferred investments. defined period of time at a fixed interest rate. They
This means that the money you put in Less Risk/ guarantee to pay it back Why contribute to a 401K?
won’t be taxed until you start drawing Moderate $
the money out when you retire. The Mutual Funds A combination of stocks and bonds, grouped to „ The money is taken out of your paycheck automatically - it’s easier to save if you
money sits and accumulates and provide a balance of risk and safety don’t see the money as income.
builds. Tax exempt investments Individual Tax deferred investment account designed for „ The money is taken out before you pay taxes so it won’t be treated as income. Many employers will
retirement savings. You can invest up to $5,000
are special bonds that are excluded Retirement per year and it can be a deduction on your income match your contributions to your 401K up to a certain amount, so it’s like getting money for free. You
from tax. These can also be a good Account tax. A Roth IRA is a special IRA that cannot be should try to invest as much as possible per year so you get that extra income.
investment for retirement. (IRA) deducted on taxes, but will have no tax at all „ When you change jobs you can take the money with you and put it in the next company’s 401K.
when it is taken out.