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A FINANCIAL WARMUP

Most of us know it is smart to save money for those big-ticket items we really want to buy a new television or car or home. Yet you may not realize that probably the most expensive thing you will ever buy in your lifetime is your... retirement.

Perhaps you've never thought of "buying" your retirement. Yet that is exactly what you do when you put money into a retirement nest egg. You are paying today for the cost of your retirement tomorrow.

The cost of those future years is getting more expensive for most Americans, for two reasons. First, we live longer after we retire - with many of us spending 15, 25, even 30 years in retirement and we are more active.

Second, you may have to shoulder a greater chunk of the cost of your retirement because fewer companies are providing traditional pension plans and are contributing less to those plans. Many retirement plans today, such as the popular 401(k), are paid for primarily by the employee, not the employer. You may not have a retirement plan available at work or you may be self-employed. This puts the responsibility of choosing retirement investments squarely on your shoulders.To Top Of Page

Unfortunately, just about half of all Americans are earning retirement benefits at work, and many are not familiar with the basics of investing. Many people mistakenly believe that Social Security will pay for all or most of their retirement needs. The fact is, since its inception, Social Security has provided a minimum foundation of protection. A comfortable retirement usually requires Social Security, pensions, personal savings and investments.

In short, paying for the retirement you truly desire is ultimately your responsibility. You must take charge. You are the architect of your financial future.

That may sound like an impossible task. Many of us live paycheck to paycheck, barely making ends meet. You may have more pressing financial needs and goals than "buying" something so far in the future. Or perhaps you've wasted until close to retirement before starting to save. Yet you still may be able to afford to buy the kind of retirement you want. Whether you are 18 or 58, you can take steps toward a better, more secure future.

That's what this booklet is all about. The U.S. Department of Labor and Certified Financial Planner Board of Standards Inc. (CFP Board) want you to succeed in setting financial and retirement goals. Savings Fitness: A Guide to Your Money and Your Financial Future starts you on the way to setting goals and putting your retirement high on the list of personal priorities.

The Department of Labor's interest in retirement planning stems from its desire to improve the security of American workers in retirement. In 1995, the Department launched its Retirement Savings Education Campaign. Saving is now a national priority, with the passage of the Savings Are Vital to Everyone's Retirement Act of 1997 (SAVER). With this congressional mandate, the Department brings front and center the need to educate Americans about retirement savings.
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CFP Board also has a keen interest in helping Americans meet their personal and financial goals. A nonprofit, professional regulatory organization, CFP Board exists to benefit the public by fostering professional standards in personal financial planning so that the public values, has access to and benefits from competent and ethical financial planning. To this end, CFP Board authorizes individuals who meet its competency, ethics, and professional standards to use its trademarks CFP® and CERTIFIED FINANCIAL PLANNER™.

This article shows you the key tool for making a secure retirement a reality financial planning. It will help clarify your retirement goals as well as other financial goals you want to "buy" along the way. It will show you how to manage your money so you can afford today's needs yet still fund tomorrow's goals. It will help you make saving for retirement and other goals a habit. You'll learn there is no such thing as starting to save too early or too late only not starting at all! You'll learn how to save your money to make it work for you, and how to protect it so it will be there when you need it for retirement. It explains how you can take the best advantage of retirement plans at work, and what to do if you're on your own.

Yes, retirement is a big purchase. The biggest one you may ever make. Yet you can afford it-with determination, hard work, a sound savings habit, the right knowledge, and a well-designed financial plan.

YOUR SAVINGS FITNESS DREAM

Getting Fit...
Managing Your Financial Life

It starts with a dream, the dream of a secure retirement. Yet like many people you maywonder how you can achieve that dream when so many other financial issues have priority. Besides trying to pay for daily living expenses, you may need to buy a car, pay off debts, save for your children's education, take a vacation, or buy a home. You may have aging parents to support. You maybe going through a major event in your life such as starting a new job, getting married or divorced, raising children, or coping with a death in the family.To Top Of Page

How do you manage all these financial challenges and at the same time try to "buy" a secure retirement? How do you turn your dreams into reality?

Start by writing down each of your goals on a 3"x 5" card so you can organize them easily. You may want to have family members come up with ideas. Don't leave something out at this stage because you don't think you can afford it. This is your "wish list."

Sort the cards into two stacks: goals you want to accomplish within the next 5 years or less, and goals that will take longer than 5 years. It's important to separate them because, as you'll see later, you save for short-term and long-term goals differently.

Sort the cards within each stack in order of priority.

Make retirement a priority! This needs to be among your goals regardless of your age. Some goals you maybe able to borrow for, such as college, but you can't borrow for retirement.

Write on each card what you need to do to accomplish that goal: When do you want to accomplish it, what will it cost (we'll tell you more about that later), what money have you set aside already, and how much more money will you need to save each month to reach the goal.

Look again at the order of priority. How hard are you willing to work and save to achieve a particular goal? Would you work extra hours, for example? How realistic is a goal when compared with other goals? Reorganize their priority if necessary. Put those that are unrealistic back into your wish list. Maybe later you can turn them into reality too.

We'll come back to these goals when we put together a spending plan.To Top Of Page

Beginning Your Savings Fitness Plan

Now let's look at your current financial resources. This is important because, as you will learn later in this booklet, your financial resources affect not only your ability to reach your goals, but your ability to protect those goals from potential financial crises. These are also the resources you will draw on to meet various life events. Calculate your net worth. This isn't as difficult as it might sound. Your net worth is simply the total value of what you own (assets) minus what you owe (liabilities). It's a snapshot of your financial health.

First, add up the approximate value of all your assets. This includes personal possessions, vehicles, home, checking and savings accounts, and the cash value (not the death benefits) of any life insurance policies you may have. Include the current value of investments, such as stocks, real estate, certificates of deposit, retirement accounts, IRAs, and the current value of any pensions you have.

Now add up your liabilities: the remaining mortgage on your home, credit card debt, auto loans, student loans, income taxes due, taxes due on the profits of your investments, if you cashed them in, and any other outstanding bills. To Top Of Page

Subtract your liabilities from your assets. Do you have more assets than liabilities? Or the other way around?

Your aim is to create a positive net worth, and you want it to grow each year. Your net worth is part of what you will draw on to pay for financial goals and your retirement. A strong net worth also will help you through financial crises.

Review your net worth annually. Recalculate your net worth once a year. It's a way to monitor your financial health.

Identify other financial resources. You may have other financial resources that aren't included in your net worth but that can help you through tough times. These include the death benefits of your life insurance policies, Social Security survivors benefits, health care coverage, disability, insurance, liability insurance, and auto and home insurance. Although you may have to pay for some of these resources, they offer financial protection in case of illness, accidents, or other catastrophes.

AVOIDING FINANCIAL SETBACKS

Will you have other sources of income?
For instance, will you receive a pension that provides a specific amount of retirement income each month? Is the pension adjusted for inflation?To Top Of Page

What savings do I already have for retirement?
You'll need to build a nest egg sufficient to make up the gap between the total amount of income you will need each year and the amount provided annually by Social Security and any pension income. This nest egg will come from your retirement plan accounts at work, IRAs, annuities, and personal savings.

What adjustments must be made for inflation?
The cost of retirement will likely go up every year due to inflation-that is, $35,000 won't buy as much in year 5 of your retirement as it will the first year because the cost of living usually rises. Although Social Security benefits are adjusted for inflation, any other estimates of how much income you need each year - and how much you'll need to save to provide that income - must be adjusted for inflation. The annual inflation rate is 3.0 percent currently, but it varies over time. In 1980, for instance, the annual inflation rate was 13.5 percent; in 1998, it reached a low of 1.6 percent. When planning for your retirement it is always safer to assume a higher, rather than a lower, rate and have your money buy more than you previously thought. Retirement calculators should allow you to make your own estimate for inflation.

What will my investments return?
Any calculation must take into account what annual rate of return you expect to earn on the savings you've already accumulated and on the savings you intend to make in the future. You also need to determine the rate of return on your savings after you retire. These rates of return will depend in part on whether the money is inside or outside a tax-deferred account.

It's important to choose realistic annual returns when making your estimates. Most financial planners recommend that you stick with the historical rates of return based on the types of investments you choose or even slightly lower.To Top Of Page

How many years do I have left until I retire?
The more years you have, the less you'll have to save each month to reach your goal.

How much should I save each month?
Once you determine the number of years until you retire and the size of the nest egg you need to "buy" in order to provide the income not provided by other sources, you can calculate the amount to save each month.

It's a good idea to revisit this worksheet at least every 2 or 3 years. Your vision of retirement, your earnings, and your financial circumstances may change. You'll also want to check periodically to be sure you are achieving your objectives along the way.

How's Your Financial Fitness?

Envision Your Retirement

Retirement is a state of mind as well as a financial issue. You are not so much retiring from work as you are moving into another stage of your life. Some people call retirement a "new career."

What do you want to do in that stage? Travel? Relax? Move to a retirement community or to be near grandchildren? Pursue a favorite hobby? Go fishing or join a country club? Work part time or do volunteer work? Go back to school? What is the outlook for your health? Do you expect your family to take care of you if you are unable to care for yourself? Do you want to enter this stage of your life earlier than normal retirement age or later?To Top Of Page

The answers to these questions are crucial when determining how much money you will need for the retirement you desire - and how much you'll need to save between now and then. Let's say you plan to retire early, with no plans to work even part time. You'll need to build a larger nest egg than if you retire later because you'll have to depend on it far longer.

Estimate How Much You Need to Save For RetirementTo Top Of Page

Now that you have a clearer picture of your retirement goal, it's time to estimate how large your retirement nest egg will need to be and how much you need to save each month to buy that goal. This step is critical! The vast majority of people never take this step, yet it is very difficult to save adequately for retirement if you don't at least have a rough idea of how much you need to save every month.

There are numerous worksheets and software programs that can help you calculate approximately how much you'll need to save. Professional financial planners and other financial advisors can help as well. At the end of this booklet, we provide some sources you can turn to for worksheets.

Regardless of what source you use, here are some of the basic questions and assumptions the calculation needs to answer.

How much retirement income will I need?
An easy rule of thumb is that you'll need to replace 70 to 90 percent of your pre-retirement income. If you're making $50,000 a year (before taxes), you might need $35,000 to $45,000 a year in retirement income to enjoy the same standard of living you had before retirement. Think of this as your annual "cost" of retirement. The lower your income, generally the higher the portion of it you will need to replace.

However, no rule of thumb fits everyone. Expenses typically decline for retirees: taxes are smaller (though not always) and work-related costs usually disappear. But overall expenses may not decline much if you still have a home and college debts to pay off. Large medical bills may keep your retirement costs high. Much will depend on the kind of retirement you want to enjoy. Someone who plans to live a quiet, modest retirement in a low-cost part of the country will need a lot less money than someone who plans to be active, take expensive vacations, and live in an expensive region. To Top Of Page

For younger people in the early stages of their working life, estimating income needs that maybe 30 to 40 years in the future is obviously difficult. At least start with a rough estimate and begin saving something-10 percent of your gross income would be a good start. Then every 2 or 3 years review your retirement plan and adjust your estimate of retirement income needs as your annual earnings grow and your vision of retirement begins to come into focus.

How long will I live in retirement?To Top Of Page
Based on current estimates, a male retiring at age 55 today can expect to live approximately 23 years in retirement. A female retiring today at age 55 can expect to live approximately 27 years. And the likelihood of living at least 20 years for someone retiring at 55 today is high-over 60 percent for a man and about 75 percent for a woman.

These are average figures and how long you can expect to live will depend on factors such as your general health and family history. But using today's average or past history may not give you a complete picture. People are living longer today than they did in the past, and virtually all expert opinion expects the trend toward living longer to continue.

What other sources of income will I have?
Since October 1999, Social Security has been mailing statements to workers age 25 and older showing all the wages reported and an estimate of retirement, survivors and disability benefits. You can also request a statement by visiting the Social Security Administration's Web site at http://www.ssa.gov or by calling 800-772-1213 and requesting a free Personal Earnings and Benefit Estimate Statement.

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Boost Your Financial Performance

"Spend" For Retirement

Now comes the tough part. You have a rough idea of how much you need to save each month to reach your retirement goal. But how do you find that money? Where does it come from?

There's one simple trick for saving for any goal: spend less than you earn. That's not easy if you have trouble making ends meet or if you find it difficult to resist spending whatever money you have in hand. Even people who make high incomes often have difficulty saving. But we've got some ideas that may help you.
Let's start with a "spending plan" - a guide for how we want to spend our money. Some people call this a budget, but since we're thinking of retirement as something to buy, a spending plan seems more appropriate.

A spending plan is simple to set up. Consider the following steps as a guide, but you may want to use a computer program.To Top Of Page

Income. Add up your monthly income: wages, average tips or bonuses, alimony payments, investment income, unemployment benefits, and so on. Don't include anything you can't count on, such as lottery winnings or a bonus that's not definite.

Expenses. Add up monthly expenses: mortgage or rent, car payments, average food bills, medical expenses, entertainment, and so on. Determine an average for expenses that vary each month, such as clothing, or that don't occur every month, such as car insurance or self-employment taxes. Review your checkbook, credit card records, and receipts to estimate expenses. You probably will need to track how you spend cash for a month or two. Most of us are surprised to find out where and how much cash "disappears" each month.

Include savngs as an expense. Better yet, put it at the top of your expense list. Here's where you add in the total of the amounts you need to save each month to accomplish the goals you wrote down earlier on the 3"x 5" cards.

Subtract income from expenses. What if you have more expenses (including savings) than you have income? Not an uncommon problem. You have three choices: cut expenses, increase income, or both.

Cut expenses. There are hundreds of ways to reduce expenses, from clipping grocery coupons and bargain hunting to comparison shopping for insurance and buying new cars less often. The section that follows on debt and credit card problems will help. You also can find lots of expense-cutting ideas in books, magazine articles, and financial newsletters. To Top Of Page

Increase income. Take a second job, improve your job skills or education to get a raise or a better paying job, make money from a hobby, or jointly decide that another family member will work.

Tips. Even after you've tried to cut expenses and increase income, you may still have trouble saving enough for retirement and your other goals. Here are some tips.

Pay yourself first. Put away first the money you want to set aside for goals. Have money automatically withdrawn from your checking account and put into savings or an investment. Join a retirement plan at work that deducts money from your paycheck. Or deposit your retirement savings yourself, the first thing. What you don't see you don't miss.

Put bonuses and raises toward savings.

Make saving a habit. It's not difficult once you start.

Revisit your spending plan every few months to be sure you are on track. Income and expenses change overtime.

Avoid Debt And Credit Problems

High debt and misuse of credit cards make it tough to save for retirement. Money that goes to pay interest, late fees, and old bills is money that could earn money for retirement and other goals.
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How much debt is too much debt? Debt isn't necessarily bad, but too much debt is. Add up what you pay monthly in car loans, student loans, credit card and charge card loans, personal loans-everything but your mortgage. Divide that total by the money you bring home each month. The result is your "debt ratio." Try to keep that ratio to 10 percent or less. Total mortgage and non-mortgage debt should be no more than 36 percent of your take-home pay.

What's the difference between "good debt" and "bad debt"? Yes, there is such a thing as good debt. That's debt that can provide a financial pay off. Borrowing to buy or remodel a home, pay for a child's education, advance your own career skills, or buy a car for getting to work can provide long-term financial benefits.

Bad debt is when you borrow for things that don't provide financial benefits or that don't last as long as the loan. This includes borrowing for vacations, clothing, furniture, or dining out.

 

PERSONAL FINANCIAL FITNESS Saving For Retirement Once you've reduced unnecessary debt and created a workable spending plan that frees up money, you're ready to begin saving toward retirement. You may do this through a company retirement plan or on your own-options that are covered in more detail later in this booklet. First, however, let's look at a few of the places where you might put your money for retirement. To Top Of Page Savings accounts, money market mutual funds, certificates of deposit, and U.S. Treasury bills. These are sometimes referred to as cash or cash equivalents because you can get to them quickly and there's little risk of losing the money you put in. Domestic bonds. You loan money to a U.S. company or a government body in return for its promise to pay back what you loaned, with interest. Domestic stocks. You own part of a U.S. company. Mutual funds. Instead of investing directly in stocks, bonds, or real estate, for example, you can use mutual funds. These pool your money with money of other shareholders and invest it for you. A stock mutual fund, for example, would invest in stocks on behalf of all the fund's shareholders. This makes it easier to invest and to diversify your money. Tips On How To Save Smart For Retirement Start now. Don't wait. Time is critical. Start small, if necessary. Money may be tight, but even small amounts can make a big difference given enough time, the right kind of investments, and tax-favored vehicles such as company retirement plans, IRAs, and SEPs. Use automatic deductions from your payroll or your checking account for deposit in mutual funds, IRAs, or other investment vehicles. Save regularly. Make saving for retirement a habit. Be realistic about investment returns. Never assume that a year or two of high market returns will continue indefinitely. The same goes for market declines. Roll over retirement account money if you change jobs. Don't dip into retirement savings. Choosing where to put your money. How do you decide where to put your money? Look back at the short-term goals you wrote down earlier -a family vacation, perhaps, or the down payment for a home. Remember, you should always be saving for retirement. But, for goals you want to happen soon - say within a year - its best to put your money into one or more of the cash equivalents- a bank account or CD, for example. You'll earn a little interest and the money will be there when you need it.To Top Of Page For goals that are at least 5 years in the future, however, such as retirement, you may want to put some of your money into stocks, bonds, real estate, foreign investments, mutual funds, or other assets. Unlike savings accounts or bank CDs, these types of investments typically are not insured by the federal government. There is the risk that you can lose some of your money. How much risk depends on the type of investment. Generally, the longer you have until retirement and the greater your other sources of income, the more risk you can afford. For those who will be retiring soon and who will depend on their investment for income during their retirement years, a low-risk investment strategy is more prudent. Only you can decide how much risk to take. Why take any risk at all? Because the greater the risk, the greater the potential reward. By investing carefully in such things as stocks and bonds, you are likely to earn significantly more money than by keeping all of your retirement money in a savings account, for example.To Top Of Page The differences in the average annual returns of various types of investments over time is dramatic. Since 1926, the average annual return of short-term U.S. Treasury bills, which roughly equals the return of other cash equivalents such as savings accounts, has been 3.8 percent. The annual return of long-term government bonds over the same period has been 5.3 percent. Large-company stocks, on the other hand, while riskier in the short term, have averaged an annual return of 11.2 percent. Lets put that into dollars. If you had invested $1 in Treasury bills in 1926, that $1 would have grown to approximately $15 today. However, inflation, at an annual average of 3.1 percent, would have eaten $9 of that gain. If the $1 had been invested in government bonds, it would have grown to $44. But invested in large-company stocks, it would have grown to over $2,300. None of these rates of returns is guaranteed in the future, but they clearly show the relationship between risk and potential reward. Many financial experts feel it is important to save at least a portion of your retirement money in higher risk-but potentially higher returningassets. These higher risk assets can help you stay ahead of inflation, which eats away at your nest egg over time. Which assets you want to invest in, of course, is your decision. Never invest in anything you don't thoroughly understand or don't feel comfortable about. Reducing investment risk. There are two main ways to reduce risk. First, diversify within each category of investment. You can do this by investing in pooled arrangements, such as mutual funds, index funds, and bank products offered by reliable professionals. These investments typically give you a small share of different individual investments and will allow you to spread your money among many stocks, bonds, and other financial instruments, even if you don't have a lot of money to invest. Your risk of losing money is less than if you buy shares in only a few individual companies. Distributing your investments in this way is called diversification. Second, you can reduce risk by investing among categories of investments. Generally speaking, you should put some of your money in cash, some in bonds, some in stocks, and some in other investment vehicles. Studies have shown that once you have diversified your investments within each category, the choices you make about how much to put in these major categories is the most important decision you will make and should define your investment strategy.To Top Of Page Why diversify? Because at any given time one investment or type of investment might do better than another. Diversification lets you manage your risk in a particular investment or category of investments and decreases your chances of losing money. In fact, the factors that can cause one investment to do poorly may cause another to do well. Bond prices, for example, often go down when stock prices are up. When stock prices go down, bonds have often increased in value. Over a long time -the time you probably have to save for retirement-the risk of losing money or earning less than you would in a savings account tends to decline. By diversifying into different types of assets, you are more likely to reduce risk, and actually improve return, than by putting all of your money into one investment or one type of investment. The familiar adage "Don't put all your eggs in one basket" definitely applies to investing. Deciding on an investment mix. How you diversifythat is, how much you decide to put into each type of investment-is called asset allocation. For example, if you decide to invest in stocks, how much of your retirement nest egg should you put into stocks:    10 percent ... 30 percent ... 75 percent? How much into bonds and cash? Your decision will depend on many factors: how much time you have until retirement, your life expectancy, the size of your current nest egg, other sources of retirement income, how much risk you are willing to take, and how healthy your current financial picture is, among others. Your asset allocation also may change over time. When you are younger, you might invest more heavily in stocks than bonds and cash. As you get older and enter retirement, you may reduce your exposure to stocks and hold more in bonds and cash. You also might change your asset allocation because your goals, risk tolerance, or financial circumstances have changed. To Top Of Page Rebalancing your portfolio. Once you've decided on your investment mix and invested your money, over time some of your investments will go up and others will go down. If this continues, you may eventually have a different investment mix than you intended. Reassessing your mix, or rebalancing as it is commonly called, brings your portfolio back to your original plan. Rebalancing also helps you to make logical, not emotional, investment decisions. For instance, instead of selling investments in a sector that is declining, you would sell an investment that has made gains and, with that money, purchase more in the declining investment sector. This way, you rebalance your portfolio mix, lessen your risk of loss, and increase you chance for greater returns in the long run. Here's how rebalancing works: let's say your original investment called for 10 percent in U. S. small company stocks. Because of a stock market decline, they now represent 6 percent of your portfolio. You would sell assets that had increased and purchase enough U. S. small company stocks so they again represent 10 percent of your portfolio. How do you know when to rebalance? There are two methods of rebalancing: calendar and conditional. Calendar rebalancing means that once a quarter or once a year you will reduce the investments that have gone up and will add to investments that have gone down. Conditional rebalancing is done whenever an asset class goes up or down more than some percentage, such as 25 percent. This method lets the markets tell you when it is time to rebalance.To Top Of Page

MAXIMIZING YOUR WORKOUT POTENTIAL The Power Of Compounding To Top Of Page Regardless of where you choose to put your money- cash, stocks, bonds, real estate, or a combination of places - the key to saving for retirement is to make your money work for you. It does this through the power of compounding. Compounding investment earnings is what can make even small investments become larger given enough time. You're probably already familiar with the principle of compounding. Money you put into a savings account earns interest. Then you earn interest on the money you originally put in, plus on the interest you've accumulated. As the size of your savings account grows, you earn interest on a bigger and bigger pool of money. POWER OF COMPOUNDING The value of $1,000 compounded at various rates of return overtime is as follows: Years 4% 6% 8% 10% 10 $1,481 $1,791 $ 2,159 $ 2,594 20 $2,191 $ 3,207 $ 4,661 $ 6,728 30 $3,243 $5,743 $10,063 $17,449 The chart provides an example of how an investment grows at different annual rates of return over different time periods. Notice how the amount of gain gets bigger each 10 year period. That's because money is being earned on a bigger and bigger pool of money.To Top Of Page Also notice that when you double your rate of return from 4 percent to 8 percent, the end result after 30 years is over three times what you would have accumulated with a 4 percent return. That's the power of compounding! The real power of compounding comes with time. The earlier you start saving, the more your money can work for you. Look at it another way. For every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up. That's why no matter how young you are, the sooner you begin saving for retirement, the better.

Financial Fitness for the Self-Employed Types Of Defined Contribution Plans The following are some of the most common types of defined contribution plans. For a more detailed description and comparison of some of these plans, go to the Web site http://www.dol.gov/ebsa and click on the Retirement Savings Education Campaign, then follow the prompt to the Small Business Advisor. 401(k) Plan. This is the most popular of the defined contribution plans and is most commonly offered by larger employers. Employers often match employee contributions. To Top Of Page 403(b) Tax-Sheltered Annuity Plan. Think of this as a 401 (k) plan for employees of school systems and certain nonprofit organizations. Investments are made in tax-sheltered annuities or mutual funds. SIMPLE IRA. The Savings Incentive Match Plan for Employees of Small Employers is one of the newest types of employer-based retirement plans. There is also a 401 (k) version of the SIMPLE. Profit-Sharing Plan. The employer shares company profits with employees, usually based on the level of each employee's wages. ESOP. Employee stock ownership plans are similar to profit-sharing plans, except that an ESOP must invest primarily in company stock. Under an ESOP, the employees share in the ownership of the company. SEP. Simplified employee pension plans are used by both small employers and the self-employed. Other retirement plans you may want to learn more about include money purchase plans; 457 plans, which cover state and local government workers; and the Federal Thrift Savings Plan, which covers federal employees. If you are eligible, you may also want to open a Roth IRA. What To Do If You Can't Join an Employer-Based Plan  To Top Of Page You may not be able to join an employer-based retirement plan because you are not eligible or because the employer doesn't offer one. Fortunately, there are steps you can still take to build your retirement strength. Take a job with a plan. If two jobs offer similar pay and working conditions, the job that offers retirement benefits maybe the better choice. Start your own plan. If you can't join a company plan, you can save on your own. You can't put away as much on a tax-deferred basis, and you won't have an employer match. Still, you can build a healthy nest egg if you work at it.

Staying on Track Open an IRA. You can put up to $3,000 a year into an individual retirement account on a tax-deductible basis if your spouse isn't covered by a retirement plan at work, or as long as your combined incomes aren't too high. This amount remains the same through 2004 and will increase in 2005 to $4,000. Persons who are 50 or older can contribute an additional $500 for years 2002 through 2005. You also can put the same amount tax-deferred into an IRA for a nonworking spouse if you file your income tax return jointly. (By the way, you don't have to put in the full amount; you can put in less.) With a traditional IRA, you delay income taxes on what you put in and on the earnings until you withdraw the money. With a Roth IRA, the money you put in is already taxed, but you won't ever pay income taxes on the earnings as long as the account is open at least 5 years.  To Top Of Page CAUTION Don't borrow from your retirement plan or permanently withdraw funds before retirement unless absolutely necessary. Your retirement plan may allow you to borrow from your account, often at very attractive rates. However, borrowing reduces the accounts earnings, leaving you with a smaller nest egg. Also, if you fail to pay back the loan, you could end up paying income taxes and penalties. As an alternative, consider budgeting to save the needed money or pursue other affordable loan options. Also avoid permanently withdrawing funds before retirement. This often happens when people change jobs. According to a study by the Employee Benefits Research Institute and Hewitt Associates, only 40 percent of workers changing jobs rolled over into an IRA or a new employer's retirement plan the money they received from their former employer's retirement plan. They spent 6 out of every 10 dollars, rather than letting it grow in another plan or IRA. Pre-retirement withdrawals reduce the ultimate size of your nest egg. In addition, you'll probably pay federal income taxes on the amount you withdraw (10 percent to as high as 39.1 percent) and a 10 percent penalty may be tacked on if you're younger than age 59-1/2. In addition, you may have to pay state taxes. If you're in a SIMPLE IRA plan, that early withdrawal penalty climbs to 25 percent if you take out money during the first 2 years you're in the plan.   Consider an annuity. An annuity is when you pay money to an insurance company in return for its agreement to pay either a regular fixed amount when you retire or an amount based on how much your investment earns. There is no limit on how much you can invest in a private annuity, and earnings aren't taxed until you withdraw them. However, annuities present complex issues regarding taxes, fees, and withdrawal strategies that may not make them the best investment choice for you. Consider discussing this type of investment first with a financial planner. To Top Of Page Build your personal savings. You can always save money on your own, either in mutual funds, stocks, bonds (such as U.S. Savings Bonds), real estate, CDs, or other assets. It's best to mark these investments as part of your retirement fund and don't use them for anything else unless absolutely necessary. Investing in an IRA, an annuity, or in personal savings means you are totally responsible for directing your own investments. How conservatively or aggressively you invest is up to you. It will depend in part on how willing you are to take investment risks, your age, the stability of your job, and other financial needs. Learn as much as you can about investing and about specific investments you are considering. You also may want to seek the help of a professional financial planner. Go to www.CFP.net/learn for tips on choosing a financial planner who puts your interests first. What To Do If You Are Self-Employed   To Top Of Page Many people today work for themselves, either fulltime or in addition to their regular job. They have several tax-deferred options from which to choose. SEP. This is the same type of SEP described earlier under employer-based retirement plans. Only here, you're the employer and you fund the SEP from your earnings. You can easily set up a SEP through a bank, mutual fund, or other financial institution. Keogh. Keoghs are more complicated to set up and maintain, but they offer more advantages than a SEP For one thing, they come in several varieties. Some of the varieties allow you to sock away more money sometimes a lot more money-than a SEP SIMPLE IRA. Described earlier under employer-based retirement plans, a SIMPLE IRA can be used by the self-employed. However, generally you can't save as much as you can with a SEP or Keogh. IRA. Usually you are better off funding a SEP or a Keogh unless your self-employment income is small.

A Workout Worth Doing  To Top Of Page Monitor Your Progress Financial planning is not a one-time process. Life, your goals, tax laws, and your financial world have a way of changing, sometimes dramatically. Periodically review your spending plan. Monitor the performance of investments. Make adjustments if necessary. Make sure you contribute more toward your retirement as you earn more. Update your various insurance safety nets to reflect changes in income or personal circumstances. Keep your finances in order. Where To Go From Here You now realize that saving for your own retirement is critical and that it is primarily your responsibility. You may get help along the way, but most of the work is going to rest on your shoulders. No one will work harder or care more about your retirement and your other financial goals than you. Look back on those 3"x 5" cards outlining your goals. Perhaps they seem more realistic now. Even if you can't do as much as you would like to right away, you can do something. Think of this booklet as a starting point. Continue to educate yourself about managing your money and investing. Consider professional resources, as well, such as your benefits department, financial planners, and other financial experts who can help you not only with your financial questions, but, more importantly, can help motivate you into action.To Top Of Page Finally, there is only one real key to "buying" that retirement you've dreamed of. It doesn't matter whether you are still young or whether retirement is just around the corner. It doesn't matter whether you're in your first job, trying to save for a home, or putting a child through college. All that matters is that you start saving ... now!

Resources This publication is presented by the: Employee Benefits Security Administration U.S. Department of Labor 200 Constitution Ave., N.W. Washington, DC 20210 Web site: www.dol.gov/ebsa Toll-free Publication request line: 1-866-444-ebsa (3272) Certified Financial Planner Board of Standards, Inc. 1670 Broadway, Suite 600 Denver, CO 80202-4809 Web site: www.CFP.net/learn Toll-free number: 1-888-237-6275  To Top Of Page Sample Financial Calculator Web Sites: www.kiplinger.com - Click on "Planning," then "Retirement." www.moneymag.com - Click on "Your Money," then "Retirement." www.usnews.com - Click on "Money and Business," then "Retirement." www.asec.org - Click on "Ballpark Estimate." www.nasd.com - Click on "Investor Education," then "Tools You Can Use." (Note: The sites above are only a sample of calculators available on the Web. The Department of Labor does not endorse a specific calculator or the products and services offered on these Web sites.) Paying Off Your Credit Card Balance: Consolidated Credit Counseling Services, Inc. www.debtfree.org Other Web sources that highlight savings and retirement planning: www.sec.gov View the U.S. Securities and Exchange Commission's Investor Information section for online help with investing and consumer protection questions. The site also offers resources for teachers and a student quiz, "Test Your Month $marts." Toll-free consumer information number: 1-800-732-0330 To Top Of Page www.ftc.gov Check out the Federal Trade Commission's section on "Consumer Protection," including a section on investment scams. www.pueblo.gsa.gov The Federal Citizen Information Center's site contains text versions of hundreds of consumer publications. See the "Money" section for a list of brochures on money management and retirement planning. www.socialsecurity.gov Visit the Social Security Administration's Web site for pages on retirement and a kids page that includes information for parents and teachers. Wage earners can request a Personal Earnings and Benefits Estimate Statement or can estimate their retirement benefits www.irs.gov/retirement The IRS Web site provides tax information on IRAs, 401 (k) plans, SEP and SIMPLE plans, and much more. www.savingsbonds.gov The Bureau of the Public Debt's Web site features pages on savings bonds, a savings bond calculator, and instructions for buying bonds online. www.investoreducation.org Investors of all ages can link to "Investing Basics," and for kids, the site includes a "Kid's Savings Calculator." All are sponsored by the Alliance for Investor Education (AIE). To Top Of Page www.aarp.org The AARP site provides advice on a host of retirement planning issues. Link to "Money and Work" for a wealth of information on financial planning. www.nefe.org Check out the "High School Financial Planning Program" at this site, sponsored by the National Endowment for Financial Education. www.jumpstartcoalition.org JumptartCoalition for Personal Financial literacy offers personal financial education materials aimed at grades K-12. www.consumerfed.org The Consumer Federation of America offers several financial publications, including 66 Ways to Save Money. You can also download information on "Teenage Consumers: Teaching Your Children How to Save and Spend." www.moneyopolis.org This educational Web site for lads in grades 6 through 8 focuses on basic financial concepts. Also, it features interactive segments that demonstrate how much children can accumulate just by saving a little. Includes pages for teachers and parents.

The Consumer Federation of America offers several financial publications, including 66 Ways to Save Money. You can also download information on "Teenage Consumers: Teaching Your Children How to Save and Spend." www.moneyopolis.org This educational Web site for lads in grades 6 through 8 focuses on basic financial concepts. Also, it features interactive segments that demonstrate how much children can accumulate just by saving a little. Includes pages for teachers and parents. To Top Of Page

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