SAVINGS FITNESS:

A GUIDE TO YOUR MONEY AND 

YOUR FINANCIAL FUTURE

SAVINGS FITNESS:

A GUIDE TO YOUR MONEY AND 

YOUR FINANCIAL FUTURE
This publication has been printed by the U.S. Department of Labor, 

Employee Benefits Security Administration (EBSA), and is available on the 

Web at www.dol.gov/ebsa.

For a complete list of EBSA publications visit the agency’s website at www.dol.gov/ebsa.

To order publications or to speak with a benefits advisor, contact EBSA 

electronically at www.askebsa.dol.gov or call toll free 1-866-444-3272. 

This material will be made available in alternative format to persons 

with disabilities upon request:

Voice phone: 202-693-8664 TTY: 202-501-3911

Certified Financial Planner Board of Standards Inc. (CFP Board) is a partner in the 

preparation of this publication. CFP Board owns the certification marks CFP®, CERTIFIED 

FINANCIAL PLANNERTM and in the U.S. , which it awards to individuals who 

successfully complete initial and ongoing certification requirements. Visit CFP Board’s website, 

www.LetsMakeAPlan.org, for information about financial planning and to find a financial 

planner who fits your needs and who will put your needs first.

This booklet constitutes a small entity compliance guide for purposes of the Small Business Regulatory 

Enforcement Act of 1996
Content Highlights

A FINANCIAL WARMUP 3

YOUR SAVINGS FITNESS DREAM 5

HOW’S YOUR FINANCIAL FITNESS? 7

AVOIDING FINANCIAL SETBACKS 9

BOOST YOUR FINANCIAL PERFORMANCE 11

STRENGTHENING YOUR FITNESS PLAN 13

PERSONAL FINANCIAL FITNESS 15

MAXIMIZING YOUR WORKOUT POTENTIAL 17

EMPLOYER FITNESS PROGRAM 19

FINANCIAL FITNESS FOR THE SELF-EMPLOYED 21

STAYING ON TRACK 23

A LIFETIME OF FINANCIAL GROWTH 25

A WORKOUT WORTH DOING 27

RESOURCES 29

WORKSHEETS 30

A FINANCIAL WARMUP

YOUR SAVINGS FITNESS DREAM

HOW’S YOUR FINANCIAL FITNESS?

AVOIDING FINANCIAL SETBACKS

BOOST YOUR FINANCIAL PERFORMANCE

STRENGTHENING YOUR FITNESS PLAN

PERSONAL FINANCIAL FITNESS

MAXIMIZING YOUR WORKOUT POTENTIAL

EMPLOYER FITNESS PROGRAM

FINANCIAL FITNESS FOR THE SELF-EMPLOYED

STAYING ON TRACK

A LIFETIME OF FINANCIAL GROWTH

A WORKOUT WORTH DOING

RESOURCES

WORKSHEETS
2

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

ost 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. 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 selfemployed. This puts the responsibility of choosing retirement investments squarely on 

your shoulders. 

Unfortunately, just about 54 percent of all workers 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, employer-based retirement plan 

benefits, 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 waited 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.

M
U.S. Department of Labor Employee Benefits Security Administration 3

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). 

The Department continues to educate Americans about retirement savings.

CFP Board also has a keen interest in helping Americans meet their personal

and financial goals. A nonprofit, certifying and standards-setting organization, CFP Board 

exists to benefit the public by granting the CFP® certification and upholding it as the 

recognized standard of excellence for personal financial planning. To this end, CFP 

Board authorizes individuals who meet its competency, ethics and professional standards 

to use its trademarks CFP®, CERTIFIED FINANCIAL PLANNERTM, CFP® (with plaque 

design) and in the U.S. CFP Board currently oversees more than 67,000 CFP® 

professionals in the U.S. who advise individuals and families on a broad range of personal 

finance topics, including retirement, budgeting, taxes, investments, estate planning, and 

insurance among many others.

 

A FINANCIAL WARMUP FINANCIAL WARMUP
4

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

This booklet 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.

The worksheets in the back of the 

booklet can help you begin your savings 

fitness plan. Interactive versions of the 

worksheets are also available online at 

www.dol.gov/ebsa.

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.

Getting Fit... 

Managing Your Financial Life

It starts with a dream, the dream of a secure 

retirement. Yet like many people you may wonder 

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 may be 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.

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 in 

Worksheet 1–Goals and Priorities in the back of this 

booklet. 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.”

Organize them into 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.

Next, organize your goals in order of priority.

Make retirement a priority! This needs to 

be among your goals regardless of your age. Some goals 

you may be able to borrow for, such as college, but you 

can’t borrow for retirement.

Write down on Worksheet 1 what you need 

to do to accomplish each 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 what you are willing to do to reach the 

goal.
U.S. Department of Labor Employee Benefits Security Administration 5

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 

goals that are unrealistic into your wish 

list. Maybe later you can turn them 

into reality too.

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 

also your ability to protect those goals 

from potential financial crises. These 

are also the resources you will draw 

on to meet various life events. Worksheet 2– Financial 

Documents Checklist in the back of this booklet can 

help you get organized.

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. Use 

Worksheet 3–Balance Sheet to Calculate Net Worth in 

the back of this booklet to write down your information 

and do the calculation. 

First, add up the approximate value of all

your assets. This includes your home (if you own one) 

and your checking and savings accounts. Include 

the current value of investments, such as stocks, real 

estate, certificates of deposit, retirement accounts, 

IRAs, and any other retirement benefits 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. 

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 survivor’s benefits, health care 

YOUR SAVINGS

FITNESS DREAM

YOUR SAVINGS

FITNESS DREAM
6

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

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.

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?

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 

Planning for Retirement While You Are Still Young

etirement probably seems vague and far off at this stage of your life. Besides, you have 

other things to buy right now. Yet there are some crucial reasons to start preparing now for 

retirement.

You’ll probably have to pay for more of your own retirement than earlier 

generations. The sooner you get started, the better.

You have one huge ally — time. Let’s say that you put $1,000 at the beginning 

of each year into an IRA from age 20 through age 30 (11 years) and then never put in 

another dime. The account earns 7 percent annually. When you retire at age 65 you’ll have 

$168,515 in the account. A friend doesn’t start until age 30, but saves the same amount 

annually for 35 years straight. Despite putting in three times as much money, your friend’s 

account grows to only $147,914. 

You can start small and grow. Even setting aside a small portion of your paycheck 

each month will pay off in big dollars later. Company retirement plans are the easiest way 

to save. If you’re not already in your employer’s plan, sign up.

You can afford to invest more aggressively. You have years to overcome the 

inevitable ups and downs of the stock market. 

Developing the habit of saving for retirement is easier when you are young.

RR
U.S. Department of Labor Employee Benefits Security Administration 7

HOW’S YOUR

FINANCIAL FITNESS?

HOW’S YOUR

FINANCIAL FITNESS?

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 

Retirement

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 advisers can help as well. 

At the end of this booklet, we provide Worksheet 4– 

Retirement Savings to get you started.

Here are some of the basic questions and 

assumptions to keep in mind. 

How much retirement income will I need?

An easy rule of thumb is that you’ll need to replace 

about 80 percent of your pre-retirement income. If 

you’re making $50,000 a year (before taxes), you 

might need about $40,000 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. 

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 other 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.
8

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

For younger people in the early stages of their working 

life, estimating income needs that may be 30 to 40 

years in the future is obviously difficult. Worksheet 4 

can help you come up with a rough estimate. Every 

year or two, review your retirement plan and adjust 

your retirement savings estimate as your annual 

earnings grow and your vision of retirement begins to 

come into focus.

How long will I live in retirement? 

Based on current estimates, a male retiring at age

65 today can expect to live approximately 18 years in

retirement. A female retiring today at age 65 can expect 

to live approximately 20 years.

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? 

You can get your Social Security statement and an 

estimate of your retirement benefits on the Social 

Security Administration’s Web site, www.socialsecurity.

gov/mystatement. For more information, visit their 

website or call 800-772-1213.

W

How To Prepare For Retirement When There’s Little Time Left

hat if retirement is just around the corner and you haven’t saved enough? Here are some 

tips. Some are painful, but they’ll help you toward your goal.

• It’s never too late to start. It’s only too late if you don’t start at all.

• Sock it away. Pump everything you can into your tax-sheltered retirement plans and 

personal savings. Try to put away at least 20 percent of your income. 

• Reduce expenses. Funnel the savings into your nest egg. 

• Take a second job or work extra hours.

• Make sure your investments are part of the solution, not part of the problem. To boost 

your returns, diversify your holdings and keep an eye on fees. But don’t take risks you can’t 

afford and don’t trade too much.

• Retire later. You may not need to work full time beyond your planned retirement age. 

Part time may be enough. 

• Refine your goal. You may have to live a less expensive lifestyle in retirement. 

• Delay taking Social Security. Benefits will be higher when you start taking them.

• Make use of your home. Rent out a room or move to a less expensive home and

save the prof­its.

• Sell assets that are not producing much income or growth, such as undeveloped land or a 

vacation home, and invest in income-producing assets.
U.S. Department of Labor Employee Benefits Security Administration 9

AVOIDING FINANCIAL

SETBACKS

AVOIDING FINANCIAL

SETBACKS

Will you have other sources of 

income? 

For instance, will you receive 

retirement benefits that provide a 

specific amount of retirement income 

each month? Is the benefit adjusted 

for inflation? 

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 retirement 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, $40,000 

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 2.1 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.

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.

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.
10

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

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 estimate how much you need to save. 

It’s a good idea to revisit this worksheet at 

least every year or two. 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.

“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 as you fill in the 

information in Worksheet 5–Cash Flow Spending Plan

in the back of this booklet.

Income. Add up your monthly income: wages, average 

tips or bonuses, alimony payments, investment 

income, 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 and debit 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 savings 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 in 

Worksheet 1. 

Subtract expenses from income. 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.

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.
U.S. Department of Labor Employee Benefits Security Administration 11

BOOST YOUR

FINANCIAL PERFORMANCE

BOOST YOUR

FINANCIAL PERFORMANCE

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 over time.

 

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. 

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 nonmortgage 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.
12

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Do you have debt problems? Here are some

warning signs: 

Borrowing to pay off other loans. 

Creditors calling for payment. 

Paying only the minimum on credit cards. 

Maxing out credit cards.

Borrowing to pay regular bills. 

Being turned down for credit.

Avoid high-interest rate loans. Loan solicitations that 

come in the mail, pawning items for cash, or “payday” 

loans in which people write postdated checks to checkcashing services are usually extremely expensive. For 

example, rolling over a payday loan every 2 weeks for 

a year can run up interest charges of over 600 percent! 

While the Truth-in-Lending Act requires lenders to 

disclose the cost of your loan expressed as an annual 

percentage rate (APR), it is up to you to read the fine 

W

Facts Women Should Know About Preparing For Retirement

omen face challenges that often make it more difficult for them than men to adequately 

save for retirement. In light of these challenges, women need to pay special attention to 

making the most of their money.

• Women tend to earn less than men and work fewer years.

• Women stay at jobs for a shorter period of time, work part time more often, and

interrupt their careers to raise children. Consequently, they are less likely to qualify for 

company-sponsored retirement plans or to receive the full benefits of those plans. 

• On average, women live 5 years longer than men, and thus need to build a larger

retirement nest egg for themselves.

• Some studies indicate women tend to invest less aggressively than men.

• Women tend to lose more income than men following a divorce.

• Women age 65 or older are more than 60 percent more likely than men the same age to 

receive income below the poverty level.

For more information, call the Employee Benefits Security Administration at

1-866-444-3272 and ask for the booklets Women and Retirement Savings, Taking the 

Mystery Out of Retirement Planning, and QDROs: The Division of Retirement Benefits 

through Qualified Domestic Relations Orders (for example, divorce orders). Also call the 

Social Security Administration at 800-772-1213 for their booklet What Every Woman Should 

Know, or visit the agency’s website at www.socialsecurity.gov.
U.S. Department of Labor Employee Benefits Security Administration 13

STRENGTHENING YOUR

FITNESS PLAN

STRENGTHENING YOUR

FITNESS PLAN

print telling you exactly what the 

details of your loan and its costs are.

The key to recognizing just 

how expensive these loans can be is to 

focus on the total cost of the loan — 

principal and interest. Don’t just look 

at the monthly payment, which may be 

small, but adds up over time. 

Handle credit cards wisely. Credit 

cards can serve many useful purposes, 

but people often misuse them. Take, 

for example, the habit of making only 

the 2 percent minimum payment 

each month. On a $2,000 balance with 

a credit card charging 18 percent 

interest, it would take 30 years to pay 

off the amount owed. Then imagine 

how fast you would run up your debts if 

you did this with several credit cards at 

the same time. (For more information 

on handling credit wisely, see the 

“Resources” section at the end of this booklet.)

Here are some additional tips for handling 

credit cards wisely.

Keep only one or two cards, not the usual eight or 

nine.

Don’t charge big-ticket items. Find less expensive 

loan alternatives.

Shop around for the best interest rates, annual fees, 

service fees, and grace periods. 

Pay off the card each month, or at least pay more 

than the minimum. 

Still have problems? Leave the cards at home or cut 

them up. 

How to climb out of debt. Despite your best efforts, you 

may find yourself in severe debt. Worksheet 6–Debt 

Reduction in the back of this booklet can help you come 

up with a plan to pay down your credit card and other 

bad debt. A credit counseling service can help you set 

up a plan to work with your creditors and reduce your 

debts. Or you can work with your creditors directly to try 

and work out payment arrangements.

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. 

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.
14

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

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.

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 — 

it’s 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. 

 

 

 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 

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 and IRAs.

• 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.

• If you change jobs, keep your retirement account money in your former employer’s 

plan or roll it over into your new employer’s plan or an IRA. 

• Don’t dip into retirement savings.
U.S. Department of Labor Employee Benefits Security Administration 15

PERSONAL

FINANCIAL FITNESS

PERSONAL

FINANCIAL FITNESS

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. 

The differences in the average 

annual returns of various types of 

investments over time is dramatic. Over the 

last 50 years, the compound annual rate 

of return of short-term U.S. Treasury bills, 

which roughly equals the return of other 

cash equivalents such as savings accounts, has been 

5.2 percent. The compound annual rate of return of 

long-term government bonds over the same period has 

been 7.1 percent. Large-company stocks, on the other 

hand, while riskier have averaged an annual return of 9.8 

percent.

Let’s put that into dollars. If you had invested 

$1 in Treasury bills 50 years ago, it would have grown to 

approximately $13 today. However, inflation, at an annual 

average of 4.1 percent, would have eaten about $11 of 

that gain leaving $1.75 as the return. If the $1 had been 

invested in government bonds, it would have grown to 

$31, with $4.16 left after inflation. If the $1 had been 

invested in large-company stocks, it would have grown to 

$105, with $14.22 left after inflation. 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 returning — assets. 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.
16

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

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.

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 often increase 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 diversify — 

that 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.

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 your 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 
U.S. Department of Labor Employee Benefits Security Administration 17

MAXIMIZING YOUR

WORKOUT POTENTIAL

MAXIMIZING YOUR

WORKOUT POTENTIAL

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. 

The Power Of Compounding

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 over time 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.

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.
18

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Using Employer-Based

Retirement Plans

Does your employer provide a retirement plan? If so, 

say retirement experts . . . grab it! Employer-based 

plans are the most effective way to save for your future. 

What’s more, you’ll gain certain tax benefits.

Employer-based plans come in one of two varieties 

(some employers provide both): defined benefit and 

defined contribution.

Defined Benefit Plans. These plans pay a lump sum 

upon retirement or a guaranteed monthly benefit. The 

amount of payout is typically based on a set formula, 

such as the number of years you have worked for the 

employer times a percentage of your highest earnings 

on the job. Usually the employer funds the plan — 

commonly called a traditional pension plan — though 

in some plans workers also contribute. Most defined 

benefit plans are insured by the federal government. 

Defined Contribution Plans. The popular 401(k) 

plan is one type of defined contribution plan. Unlike a 

defined benefit plan, this type of savings arrangement 

does not guarantee a specified amount for retirement. 

Instead, the amount you have available in the plan to 

help fund your retirement will depend on how long you 

How To Make The Most Of A Defined Contribution Plan

• Study your employee handbook and talk to your benefits administrator to see what plan is 

offered and what its rules are. Read the summary plan description for specifics. Plans must 

follow federal law, but they can still vary widely in contribution limitations, investment 

options, employer matches, and other features.

• Join as soon as you become eligible. 

• Put in the maximum amount allowed. 

• If you can’t afford the maximum, try to contribute enough to maximize any employer 

matching funds. This is free money! 

• Study carefully the menu of investment choices. Some plans offer only a few choices, 

others may offer hundreds. The more you know about the choices, investing, and your 

investment goals, the more likely you will choose wisely.

• Many companies match employee contributions with stock instead of cash. Financial 

experts often recommend that you don’t let your account get overloaded with company stock, 

particularly if the account makes up most of your retirement nest egg. Too much of a single 

stock increases risk.

• Plan fees and expenses reduce the amount of retirement benefits you ultimately receive 

from plans where you direct the investments. It’s in your interest to learn as much as you 

can about your plan’s administrative fees, investment fees, and service fees. Read the plan 

documents carefully. For more information on fees, call EBSA’s toll-free line at 1-866-444-

3272 and request the booklet A Look at 401(k) Plan Fees.
U.S. Department of Labor Employee Benefits Security Administration 19

EMPLOYER

FITNESS PROGRAM

EMPLOYER

FITNESS PROGRAM

participate in the plan, how much is 

invested, and how well the investments 

do over the years. The federal government does not guarantee how much 

you accumulate in your account, but it 

does protect the account assets from 

misuse by the employer.

In the past 20 years, defined 

contribution plans have become more 

common than traditional defined 

benefit retirement plans. Employers 

fund most types of defined contribution 

plans, though the amount of their contributions is not necessarily guaranteed. 

Workers with a retirement 

plan are more likely to be covered by 

a defined contribution plan, usually a 

401(k) plan, rather than the traditional 

defined benefit plan. In many defined 

contribution plans, you are offered 

a choice of investment options, and 

you must decide where to invest your contributions. 

This shifts much of the responsibility for retirement 

planning to workers. Thus, it is critical that you choose 

to contribute to the plan once you become eligible 

(usually after working full time for a minimum period) 

and, even if you are automatically enrolled in the plan, 

to contribute as much as possible. Invest wisely — 

review your plan investment options and revisit your 

choices at least once a year. 

Tax Breaks. Even though you may be responsible for

funding a defined contribution plan, you receive 

important tax breaks. The money you invest in the 

plan and the earnings on those contributions are 

deferred from income tax until you withdraw the 

money (hopefully not until retirement). Why is that 

important? Because postponing taxes on what you 

earn allows your nest egg to grow faster. Remember 

the power of compounding? The larger the amount you 

have to compound, the faster it grows. Even after the 

withdrawals are taxed, you typically come out ahead. 

The tax deduction also means that the decline 

in your take-home pay, because of your contribution, 

won’t be as large as you might think. For example, 

let’s assume you are thinking about putting $100 into 

a retirement plan each month and that the rate you 

pay on income taxes is 15 percent. If you don’t put 

that $100 into a retirement plan, you’ll pay $15 in 

taxes on it. If you put in $100, you postpone the taxes. 

Thus, your $100 retirement plan contribution would 

actually reduce your take-home pay by only $85. If 

you’re in the 25 percent tax bracket, the cost of the 

$100 contribution is only $75. This is like buying your 

retirement at a discount.

Vesting Rules. Any money you put into a retirement 

plan out of your pay, and earnings on those 

contributions, always belong to you. However, contrary 

to popular belief, employees don’t always have 

immediate access to the money their employer puts 

into their pension fund or their defined contribution 

plan. Under some plans, such as a traditional pension 

plan or a 401(k), you have to work for a certain number 
20

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

of years — say, 3 — before you become “vested” and 

can receive benefits. Some plans vest in stages. Other 

defined contribution plans, such as the SEP and 

the SIMPLE IRA, vest immediately. You have access 

to the employer’s contributions the day the money 

is deposited. No employer can require you to work 

longer than 7 years before you become vested in your 

retirement benefit.

Be aware of the vesting rules in your 

employer’s plan. 

Make sure you know when you’re vested. 

Changing jobs too quickly can mean losing part or all

of your retirement benefits or, at the very least, your 

employer’s matching contributions. 

Retirement Plan Rights. The federal government 

regulates and monitors company retirement plans.

The vast majority of employers does an excellent job

in complying with federal law. Unfortunately, a small 

fraction doesn’t. For warning signs that your 401(k) 

contributions are being misused and other information 

on protecting your retirement benefits, visit EBSA’s 

website at www.dol.gov/ebsa or call EBSA’s toll-free 

number at 1-866-444-3272 and request the booklet 

What You Should Know About Your Retirement Plan.

Retirement Planning For Employees In Small Companies 

f you don’t have a plan available at work, encourage your employer to start one. Many 

small employers believe their workers prefer higher salaries or other benefits, and they

believe the rules are too complex and the costs too high.

Mention the following benefits: 

• A retirement plan can attract and retain valued employees in a competitive labor market, 

as well as motivate workers. 

• Establishing a retirement plan and encouraging employee participation can help

employers fund their own retirement. Even after taking into account the cost of establishing 

an employee plan, employers may still be better off than funding retirement on their own. 

• Some plans cost less and have fewer administrative hassles than employers may realize. 

Alternatives to traditional defined benefit plans and the 401(k) include the SIMPLE IRA and 

the SEP. 

For more information, contact EBSA at 1-866-444-3272 and request Choosing a Retirement 

Solution for Your Small Business, SIMPLE IRA Plans for Small Businesses, SEP Retirement 

Plans for Small Businesses, 401(k) Plans for Small Businesses, Automatic Enrollment 

401(k) Plans for Small Businesses, Profit Sharing Plans for Small Businesses, or Payroll 

Deduction IRAs for Small Businesses.

I
U.S. Department of Labor Employee Benefits Security Administration 21

FINANCIAL FITNESS FOR

THE SELF-EMPLOYED

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, visit the 

website www.dol.gov/ebsa and go to 

“Retirement Savings,” then follow the 

prompt to the Small Business Advisor 

under “For Employers.”

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.

403(b) Plan. Think of this as a 401(k) 

plan for employees of school systems 

and certain nonprofit organizations. 

Investments are made in taxsheltered annuities or mutual funds. 

SIMPLE IRA. The Savings Incentive Match Plan for 

Employees of Small Employers is a simpler type of 

employer-based retirement plan. 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 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 

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 may be 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.
22

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Open an IRA. You can put up to $5,500 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. Persons who are 50 or older can contribute 

an additional $1,000. 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. 

Consider an annuity. An annuity is an agreement 

with an insurance company in which you pay money 

in return for its paying 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.

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 account’s 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, 46 percent of workers changing jobs rolled over into an IRA or a new employer’s 

retirement plan at least some of the money they received from their former employer’s

retirement plan. 

• 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 

35 percent) and a 10 percent penalty may be tacked on if you’re younger than age 

591⁄2. 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.
U.S. Department of Labor Employee Benefits Security Administration 23

STAYING ON TRACK TAYING ON TRACK

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. 

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.LetsMakeAPlan.org for tips on choosing a 

financial planner who puts your interests first. 

What To Do If You Are Self-Employed

Many people today work for themselves, either full 

time 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. 

Annuities. See annuities under the section on “What 

to Do if You Can’t Join an Employer-Based Plan.”
24

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Managing For A Lifetime Of

Financial Growth

As mentioned earlier, you probably will experience 

several major events in your life that can make it more 

difficult to start or keep saving toward retirement and 

other goals. The key is to have a clear plan, to stay 

focused on your goals, and to manage your money so 

that life events don’t prevent you from keeping on 

target. 

Here are a few suggestions for saving for 

retirement while financially managing some common 

life events. 

Marriage. Getting married creates new financial 

demands that compete for retirement dollars, such 

as changing life insurance needs and saving to buy a 

home. But it’s usually less expensive for two people 

to live together, thus freeing up dollars. Also, you 

probably still have time on your side. A spending plan is 

essential. Remember, every little bit helps. 

Raising children. The U.S. Department of Agriculture 

estimates that it costs the average American middleincome family approximately $295,560 to raise a child 

to age 17. Furthermore, in some cases a spouse may 

stay out of the workforce to raise children, thus cutting 

into income and the opportunity to fund retirement. 

Having a child may alter your major financial goals, but 

should never eliminate them. Make the best effort you 

can. Also, many financial planners stress that saving for 

retirement should have priority over saving for a child’s 

college education. There are financial aid programs for 

college-bound students but not for retirement.

Changing jobs. It’s estimated that the average

worker changes jobs more than 10 times in a working 

lifetime. Changing jobs often puts you at risk of not 

vesting in your current job, or a new job may not offer a 

retirement plan. Consider keeping your money in your 

former employer’s retirement plan or rolling it into a 

new company plan or an individual retirement account 

(IRA). Don’t cash out and spend the money, however 

small the amount. 

Divorce. It’s important that you know the laws 

regarding your spousal rights to Social Security and 

retirement benefits. Under current law, spouses 

and dependents have specific rights. Remember, 

retirement assets may well be the biggest financial 

asset in the marriage. Be sure to divide those assets 

carefully. It’s also critical to review your overall 

financial situation before and after your divorce. 

Income typically drops for partners in the wake of a 

divorce, particularly for women.

Disability. A severe or long-lasting disability can 

undermine efforts to save for retirement. Although 

Social Security Disability benefits can help sustain 

a family if severe disability strikes, you may wish to 

explore the availability and cost of other forms of 

disability insurance.

Death. The premature death of a spouse can 

undermine efforts for the partner to save for 

retirement, particularly if there are dependent 

children. That’s why it is important to check your 

Social Security statement to find out how much 

children will receive if a parent dies. Maintaining 

adequate life insurance is also important. Be sure that 

you have properly named the beneficiaries for any 

insurance policies, retirement plans, IRAs, and other 

retirement vehicles.
U.S. Department of Labor Employee Benefits Security Administration 25

A LIFETIME OF

FINANCIAL GROWTH

A LIFETIME OF

FINANCIAL GROWTH

Coping With Financial Crises 

Life has a way of throwing unexpected 

financial roadblocks, detours and 

potholes in our path. These might 

be large medical bills, car or home 

repairs, a death in the family, loss of a 

job, or expensive legal problems. Such 

financial emergencies can derail your 

efforts to save for retirement or other 

goals. Here are some strategies for 

managing financial crises. 

Establish an emergency fund. This can 

lessen the need to dip into retirement 

savings for a financial emergency. 

Building an emergency fund is tough 

if income is tight, but every few dollars 

help. Fund it with pay from extra 

working hours or a temporary job, a tax 

refund, or a raise. Put the money into a 

low-risk, accessible account such as a 

savings account or money market fund. 

Insure yourself. Insurance protects your financial 

assets, such as your retirement funds, by helping to 

take care of the really big financial disasters. Here’s a 

list of insurance coverage you should consider buying: 

HEALTH. If you and your family aren’t covered under 

an employer’s policy, at least try to buy catastrophic 

medical coverage on your own. 

DISABILITY. Did you know you are more likely before 

age 65 to miss at least 3 months of work because of a 

disability than you are to die? Social Security Disability 

Insurance can pay you and your family benefits if you 

are severely disabled and are expected to be so for at 

least 12 months. (Worker’s compensation only helps 

if the disability is work-related.) In addition, your 

employer may offer some disability coverage, but you 

may need to supplement it with private coverage.

RENTERS. Homeowners usually are insured against 

hazards such as fire, theft, and liability, but the majority 

of renters aren’t. Renter’s insurance is inexpensive.

AUTOMOBILE. Don’t drive “bare.” It’s usually against 

the law to drive without auto coverage, to say nothing 

of being costly if you are in an accident. 

UMBRELLA. This provides additional liability 

coverage, usually through your home or auto insurance 

policies, in the event you face a lawsuit. 

LIFE. Having life insurance can help you or your 

spouse continue to save if either one of you dies 

before retirement. Social Security may be able to pay 

benefits to your spouse and/or minor children. On the 

other hand, you may not need life insurance if no one 

depends financially on you. There are many types of 

life insurance, with a variety of fees and commissions 

attached. 
26

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Y

LONG-TERM CARE. This insurance can help pay for 

costly long-term health care either at home or in a 

health-care facility or nursing home. It protects you 

from draining savings and assets you otherwise could 

use for retirement.

Borrow. If you must borrow because of a financial 

emergency, carefully compare the costs of all options 

available to you. 

Sell investments. It’s usually advisable to sell taxable 

investments first. Try not to touch your faster growing 

retirement accounts. Taking money out of your 

retirement accounts could trigger income taxes and 

penalties.

If You Choose To Work With A Financial Planner 

ou are the one ultimately responsible for the management of your own financial

affairs. However, you may want additional help along the way from a professional financial 

planner. A professional planner can:

• Provide expertise you don’t have.

• Help improve your current financial management.

• Save you time.

• Provide an objective perspective.

• Help you through a financial crisis.

• Motivate you to take action.

For more information, visit CFP Board’s website www.LetsMakeAPlan.org or call 

1-800-487-1497 to request free copies of the Consumer Guide to Financial Planning and 

the Consumer Guide to Financial Self-Defense. The website also contains a wealth of 

information about financial planning and an advanced search function that enables you to 

find a financial planner who fits your needs and who will put your interests first. 
U.S. Department of Labor Employee Benefits Security Administration 27

A WORKOUT

WORTH DOING

A WORKOUT

WORTH DOING

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. 

Go back to Worksheet 5–Cash Flow 

Spending Plan and complete the last 

two columns to help you track your 

progress. 

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 at your goals outlined in Worksheet 

1. 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. 

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!
28

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

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:

1-866-444-3272

Certified Financial Planner Board of Standards, Inc.

1425 K Street, NW, Suite 500

Washington, DC 20005

Website: www.LetsMakeAPlan.org

Toll-free number: 1-800-487-1497

Sample Financial Calculator websites: 

Calculator for Workers Nearing Retirement

www.dol.gov/ebsa/publications/nearretirement.html 

EBSA’s publication “Taking the Mystery Out of 

Retirement Planning” provides online interactive 

worksheets for workers who are 10 to 15 years from 

retirement to help them get an idea of whether their 

retirement savings are on track.

Other Calculators

www.kiplinger.com – Select “Retirement Savings 

Calculator.”

www.choosetosave.org/asec/ – Select “Ballpark 

Estimate.”

www.finra.org – Select “Investors,” then “Tools & 

Calculators” and “Retirement Calculator.”

http://money.cnn.com – Select “Calculators.”

(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 websites.)

Getting Out of Debt:

www.ftc.gov/credit

The Federal Trade Commission has information on a 

number of debt and credit topics, including getting out 

of debt, credit counseling and repair, and understanding 

your credit report.

http://www.federalreserve.gov/consumerinfo/fivetips_

creditscore.htm

The Federal Reserve Board website has information 

about credit reports and how to improve your credit 

score, and a credit card repayment calculator that 

estimates how long it will take to pay off a credit card 

balance.

www.consumerfinance.gov

The Consumer Financial Protection Bureau has 

information to educate consumers about credit card 

debt, student loans and mortgage.

Other web sources that highlight savings and

retirement planning:

http://investor.gov

View the U.S. Securities and Exchange Commission’s

investor information website for online help with

investing and consumer protection questions. 

Toll-free consumer information number: 

1-800-732-0330

www.mymoney.gov

This website is sponsored by the Financial Literacy and 

Education Commission, and has among its offerings the 

My Money Tool kit. 

www.ftc.gov

Check out the Federal Trade Commission’s

section “Consumer Protection,” including alerts on

investment schemes. 
U.S. Department of Labor Employee Benefits Security Administration 29

RESOURCES ESOURCES

www.publications.usa.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 

website for pages on retirement. Wage 

earners can estimate their retirement 

benefits online. 

www.irs.gov

The IRS website 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 website 

features pages on savings bonds, a savings bond 

calculator, and instructions for buying bonds online.

www.fdic.gov

The Federal Deposit Insurance Corporation’s website 

offers a financial education program, “Money Smart,”

a comprehensive financial education curriculum

designed to help individuals outside the financial 

mainstream enhance their financial skills and create 

positive banking relationships. 

www.investoreducation.org

Investors of all ages can learn about the basics of

investing at the Investor’s Clearinghouse, sponsored by 

the Alliance for Investor Education (AIE). 

www.aarp.org

The AARP site provides advice on a host of retirement 

planning issues. Link to “Money” for information on

financial planning.

www.nefe.org

Browse the website of the National Endowment for 

Financial Education for a wealth of preretirement 

information. 

www.jumpstartcoalition.org

Jump$tart Coalition 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 Your Credit Score and 

66 Ways to Save Money, and runs the America Saves 

campaign to encourage savings among low-to-moderate 

income households. 
30

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Worksheets

Use these worksheets to help you manage your financial life and begin your savings fitness plan. Take your 

time. You may want to fill out one or two worksheets and then spend some time gathering the information 

you need for the rest. Don’t get stuck on the details. Guessing is okay and you can always come back later 

with more accurate or up-to-date numbers and information. If you are married, remember to include your 

spouse’s information when filling out the worksheets. 

You may want to make a copy of the worksheets before you get started, or print out an extra copy 

online. That way you can come back at a later date – in six months or a year – to update the worksheets 

and track your progress. This will help you start saving for a secure retirement, and other goals you may 

have. Interactive versions of the worksheets are also available online at www.dol.gov/ebsa/publications/

savingsfitness.html to help with the calculations.

WORKSHEET TITLE DATE COMPLETED

1. Goals and Priorities 

 

2. Financial Documents Checklist 

3. Balance Sheet to Calculate Net Worth

4. Retirement Savings

5. Cash Flow Spending Plan – first two columns 

– last two columns 

6. Debt Reduction 
U.S. Department of Labor Employee Benefits Security Administration 31

1. Goals and Priorities

Write down your goals, listing both short-term and long-term goals. Then number them in order of 

priority. Think about what you need to do to accomplish each goal, including cost, how much you have set 

aside already, and what you are willing to do to reach the goal. Remember to make saving for retirement a 

priority!

Priority What is your goal? By when? How much will 

it cost?

What money do 

you have saved 

for this goal?

What are you 

willing to do?

SHORT-TERM GOALS (5 years or less)

1

Example: 

emergency savings fund 1 year 6 months of 

expenses

3 months of 

expenses

Fill out these worksheets 

to find more savings, 

bring lunch to work 

every day

LONG-TERM GOALS (longer than 5 years)

1 Example: 

a secure retirement

retirement 

age

% of pre-tax pay 

(see worksheet 4)

some savings in 

an IRA

sign up for workplace 

plan

Date
32

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

2. Financial Documents Checklist Date

To help you fill out the worksheets that follow, gather together recent copies of the documents and 

statements listed below. You can get many of these documents from your employer, financial institutions, 

and insurance companies. You can get your Social Security Statement with an estimate of your retirement 

benefits at www.socialsecurity.gov/mystatement. To get a free credit report every twelve months, visit 

www.annualcreditreport.com or call 877-322-8228. The Resources section has additional websites, 

publications, and information to help you find and understand these documents.

Retirement Planning Documents and Statements

	 p Workplace retirement plan(s), including the Summary Plan Description(s) and benefit statement(s)

	 p Individual IRA account(s)

	 p Retirement benefits information from current or former spouse

	 p Annuity policies 

	 p Social Security retirement benefits estimate

Tax Planning Documents

	 p Income tax returns for last year (federal, state and local)

	 p Recent pay stub with cumulative year-to-date information

Financial Documents and Statements

Investment-Related Documents and Statements

	 p Bank accounts (savings accounts, CDs)

	 p Mutual funds

	 p Brokerage accounts

	 p Stocks held outside of mutual funds or brokerage accounts 

	 p Bonds held outside of mutual funds or brokerage accounts 

	 p Partnership or other business agreements

	 p Other

Loan Documents, Statements, and Credit Reports

	 p Student Loans

p Mortgage(s)

	 p Car(s)

	 p Credit cards

	 p Other

	 p Copy of recent credit report

Insurance Documents and Statements

	 p Health, disability, and long term care insurance policies

	 p Homeowners, renters, auto, and umbrella insurance policies 

	 p Life insurance policies 

	 p Other
U.S. Department of Labor Employee Benefits Security Administration 33

3. Balance Sheet to Calculate Net Worth Date

Use this balance sheet to calculate your net worth, which is the total value of what you own (assets) minus 

what you owe (liabilities). Your goal is to have a positive net worth that grows each year.

First, add up the approximate value of your assets, including your checking and savings accounts, investments, 

and property, such as your home (if you own it). Then add up your liabilities (debts), including any amounts 

you currently owe on a home mortgage, auto or student loans, credit card debt, and other outstanding amounts 

owed. Finally, subtract your liabilities from your assets to get your net worth. 

ASSETS VALUE LIABILITIES VALUE

Cash Reserves Home mortgage

Cash Second mortgage

Checking Home equity loan

Savings

Savings bonds Student loans

Money market account Auto loan

Certificates of deposit (CDs)

Other

SUBTOTAL

Home or Condo (if owned) Credit cards

SUBTOTAL

Retirement Accounts

401(k), 403(b)

IRAs

Annuities

Other retirement plans

SUBTOTAL Other debt

Personal Investments 

Mutual funds

Stocks

Bonds

Brokerage accounts

Real estate

Other

SUBTOTAL

Other Assets

SUBTOTAL

TOTAL Assets TOTAL Liabilities

Net Worth

(Total Assets minus Total Liabilities)
34

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

4 . Retirement Savings Date

Worksheet 4 can help you figure out how much you need to save each year towards your goal of a secure 

retirement. It estimates how much you should save as a percentage of your current annual salary to give 

you a savings goal. You can save through a retirement savings plan at work, on your own, or both. While 

the worksheet does not take into account your unique circumstances, it will give you an idea of how much 

to save each year and a clearer picture of your retirement goals. The sooner you start saving, the longer 

your savings have to grow. 

As you fill out the worksheet, think about your plans including when you might retire, what savings you 

have, and how many years you hope to enjoy in retirement. Of course, your plans and circumstances may 

change, so update this worksheet periodically to reflect any changes. 

The worksheet breaks the calculations into four steps. A 7 percent rate of return is used to keep it simple: 

remember investing involves risk, so investment returns, even assuming a diversified mix of stocks and 

bonds, go up and down and cannot be guaranteed. The worksheet, which uses a 3 percent inflation rate, 

increases your salary 3 percent each year but does not include any other increases. 

Step 1 estimates what your annual salary will be at retirement as a result of inflation and how much 

savings you will need in addition to Social Security for the first year of retirement. (The next three steps will 

help you determine how much to save to have enough savings to last through your retirement.)

To start, enter the number of years until you expect to retire on line 1. Next, enter your current annual 

salary – this is your total pay before taxes or other deductions. You can probably get this from your pay 

statement. Multiply your current annual salary by a projected salary growth factor from the box below the 

worksheet and enter the result on line 4. Select the factor that corresponds most closely to the number of 

years until you plan to retire. Multiply the amount on line 4 by 40 percent to estimate the annual income 

you will need for your first year of retirement.

Where does this 40 percent come from? On average, people need to replace about 80 percent of 

pre-retirement income for living in retirement. According to the Social Security Administration, Social 

Security retirement benefits replace about 40 percent of an average wage earner’s income after retiring. 

This leaves approximately 40 percent to be replaced by retirement savings. However, keep in mind that 

this is an estimate and you may need more or less depending on your individual circumstances.
U.S. Department of Labor Employee Benefits Security Administration 35

Step 1. 

1. Number of years until retirement (retirement age minus current age)

2. Current annual salary 

3. Projected salary growth factor 

4. Value of salary at retirement (multiply line 2 X line 3)

5. Replacement rate 

6. Income goal for the first year of retirement (multiply line 4 X line 5)

PROJECTED SALARY GROWTH FACTORS

(by number of years until retirement)

20 25 30 35 40 45

1.8061 2.0938 2.4273 2.8139 3.2620 3.7816

For example, if you are now 30 years old, plan to retire in 35 years at age 65, and earn $50,000 a year, the 

calculation for Step 1 would look like this:

Example for Step 1

Number of years until retirement 35

Current annual salary $50,000

Projected salary growth factor x 2.8139

Value of annual salary at retirement $140,695 

Replacement rate x .40

Income goal for the first year of retirement $56,278

x .40
36

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Step 2 takes the result from Step 1, the income you need for the first year of retirement, and estimates 

how much you will need to last through retirement. In retirement, while your investments will continue 

to grow, the cost of retirement likely will go up every year due to inflation – that is, today’s dollars will buy 

less each year because the cost of living usually rises. Step 2 estimates how much savings you will need, 

taking into account the growth of your investments and inflation through your retirement. People are living 

longer on average which means you could need retirement income for 30 years or more. Planning to live 

well into your 90s can help you have a secure retirement and avoid outliving your income. 

Enter the result from Step 1 on the first line. Then enter the number of years you think you will spend in 

retirement. Select a projected income factor from the box under the Step 2 worksheet that corresponds 

most closely to the number of years you expect to live in retirement and enter it on line 3. Multiply line 1 

by line 3 and enter the result on line 4. This is the estimated value of savings you need at retirement to last 

through retirement.

Step 2. 

1. Income goal for the first year of retirement (from Step 1 line 6)

2. Number of years in retirement

3. Projected income factor 

4. Savings needed at retirement (multiply line 1 X line 3)

PROJECTED INCOME FACTORS

(by number of years spent in retirement)

20 25 30 35 40

14.2649 16.4305 18.2204 19.6999 20.9228

If, for example, you are planning for 30 years in retirement, multiply the result from Step 1 by the 

projected income factor for 30 years in retirement. 

Example for Step 2

Income goal for the first year of retirement $56,278

Number of years in retirement 30

Projected income factor x 18.2204

Savings needed at retirement $1,025,408
U.S. Department of Labor Employee Benefits Security Administration 37

If you have already started saving for retirement, congratulations! Step 3 estimates how much your 

current retirement savings will grow by the time you plan to retire. 

On line 1, enter your current retirement savings. Make sure you include all of the savings and assets you 

have for retirement. Next, enter the number of years until you plan to retire – use the same number you 

used in Step 1. Multiply your current savings by the projected value factor (from the box below the Step 3 

worksheet) that you choose based on the number of years until retirement. The result is what your current 

savings will be worth at retirement.

Step 3. 

1. Current savings 

2. Number of years until retirement (from Step 1 line 1)

3. Projected value factor 

4. Value of current savings at retirement (multiply line 1 X line 3)

PROJECTED VALUE FACTORS

(by number of years until retirement)

20 25 30 35 40 45

3.8697 5.4274 7.6123 10.6766 14.9745 21.0025

If, for example, you have $2,000 in retirement savings and plan to retire in 35 years you would make this 

calculation:

Example for Step 3

Current savings $2,000

Number of years until retirement 35

Projected value factor x 10.6766

Value of current savings at retirement $21,353
38

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

Step 4 pulls the prior calculations together so you can see where you are today and how much to save 

each year as a percentage of your current salary. This percentage is also called your “target saving rate.” 

Saving this amount each year will help you reach your retirement goals. 

Start by entering the number of years until you plan to retire from Step 1 on line 1. Next, enter the 

estimated savings needed at retirement from Step 2. From Step 3, write down the value of your current 

savings at retirement on line 3. Subtract line 3 from line 2 and enter it on line 4 – this is the additional 

retirement savings you need.

Enter your current annual salary on line 5. Multiply it by the projected saving rate factor (in the box below 

the Step 4 worksheet) that corresponds to the number of years until you plan to retire and enter it on 

line 7. This is the maximum amount you would have if you saved your entire salary between now and 

retirement including inflation and investment earnings, or the maximum possible savings based on salary 

until retirement. Saving this much is not something you would normally do. This number is only used to 

help figure out how much of your salary to save. Divide line 4 by line 7. This is your target saving rate, or 

the percentage of your salary to save. 

The target rate includes any contributions your employer makes to a retirement savings plan for you, such 

as an employer matching contribution. If, for example, you are in a 401(k) plan in which you contribute 4 

percent of your salary and your employer also contributes 4 percent, your saving rate would be 8 percent 

of your salary. 

Remember that the worksheet only gives you a rough idea, a savings goal. Some may face higher 

expenses in retirement because of personal circumstances and choose to save more. Some may have 

other sources of income in retirement such as a traditional defined benefit pension or money from selling a 

home that would lower the target rate.

You can compare your results with what you are currently saving after you complete Worksheet 5. If 

you are currently saving less, don’t be discouraged. The important thing is to start saving, even a small 

amount, and increase that amount when you can. Come back and update this worksheet from time to time 

to reflect changes and track your progress. 
U.S. Department of Labor Employee Benefits Security Administration 39

Step 4. 

1. Number of years until retirement (from Step 1 line 1)

2. Savings needed at retirement (from Step 2 line 4)

3. Value of current savings at retirement (from Step 3 line 4) 

4. Additional retirement savings needed (subtract line 3 from line 2)

5. Current annual salary (from Step 1 line 2)

6. Projected saving rate factor 

7. Maximum possible savings based on salary until retirement 

(multiply line 5 X line 6) 

8. Target saving rate (divide line 4 by line 7) 

PROJECTED SAVING RATE FACTORS

(by number of years until retirement)

20 25 30 35 40 45

55.2006 89.1753 138.6986 210.3277 313.3072 460.6579

This step pulls together results from the previous steps and gives you a target saving rate. 

Example for Step 4

Number of years until retirement 35

Savings needed at retirement $1,025,408

Value of current savings at retirement $21,353

Additional retirement savings needed $1,004,055

Current annual salary $50,000

Projected saving rate factor x 210.3277

Maximum possible savings based on salary until retirement $10,516,385

Target saving rate 9.5%
40

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

5 . Cash Flow Spending Plan 

Use the first two columns of Worksheet 5 to create a budget, sometimes called a cash flow spending plan 

or a guide for how you expect to spend your money. Don’t worry if you don’t have all of the information. 

You can make a guess now and fill in more specific information later. 

Start with your monthly income. If you know your annual gross income, divide it by 12 to get the monthly 

amount. Most pay statements or pay stubs list your total (or gross) income and your deductions, along 

with your net take-home pay. You can find your net take-home pay by subtracting your deductions from 

your gross income. List all taxes, including federal, state, and local income taxes, plus Social Security and 

Medicare taxes. 

Next, enter all of your monthly expenses. You can find an average for expenses that are different or don’t 

occur each month, such as heating or car insurance, by adding up the bills for the year and dividing by 

12. Once you know your monthly income and expenses, multiply it times 12 to get an annual cash flow 

spending plan or budget. If you are spending more than you earn, page 10 of the booklet has ideas on how 

to cut expenses, increase income, or both. 

Return to this worksheet at the end of the year to see how you did in following your budget. Use the last 

two columns to track your actual spending and see how it is different from what you planned to spend. If 

what you spent is more than you planned, enter it with a plus sign and if it was less, enter it with a minus 

sign. This will make it easier for you to add up the differences for the year and find ways to spend less, if 

you need to. Each year you can review your cash flow plan and make changes for the next year’s budget to 

help you reach your financial goals.

Add up your total retirement savings, both at work and on your own. If your employer also contributes 

money to your retirement savings plan, in a 401(k) plan for example, enter that amount in the row labeled 

employer match and add it to your retirement savings to get the total retirement savings. Divide the total 

retirement savings by gross income (the first line in the worksheet) to get your current retirement savings 

rate. You can compare it to the results from worksheet 4, which is your target saving rate. 

Date
U.S. Department of Labor Employee Benefits Security Administration 41

1 – Your current 

monthly and 

annual budget

2 – Track how your spending 

varies from what you planned

Monthly Annual Actual 

spending

Was it more (+) 

or less (-) than 

planned?

INCOME:

Gross income (total pay before 

deductions)

Deductions:

 Retirement contributions

 Health, dental, vision insurance

 Disability, long-term care insurance

 Life insurance

 Taxes

 Other deductions

Net take-home pay (gross income minus 

deductions)

Other income

TOTAL NET INCOME

EXPENSES:

Savings and investing

 Retirement (outside of workplace plan)

 Cash reserves

 Down payment for a home

 Education

 Other

Housing

 Mortgage (including condo fees)

 Rent

 Maintenance

Food (at home)
42

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

1 – Your current 

monthly and 

annual budget

2 – Track how your spending 

varies from what you planned

Monthly Annual Actual 

spending

Was it more (+) 

or less (-) than 

planned?

Utilities

 Electricity

 Heat

 Internet/cable

 Phones

 Water/sewer

Clothing

Taxes

 Real estate

 Other property taxes

 Other taxes

Insurance

 Homeowner or renter

 Car

 Life (if purchasing outside of work)

 Disability, long-term care (if purchasing 

 outside of work)

Loans payments

 Car

 Credit card 

 Education 

 Other

Caregiving

 Child care

 Elder care

Personal care

 Haircut

 Dry cleaning

 Gym

 Other

Transportation

 Car repairs and maintenance

 Gas

 Parking

 Public transportation
U.S. Department of Labor Employee Benefits Security Administration 43

1 – Your current 

monthly and 

annual budget

2 – Track how your spending 

varies from what you planned

Monthly Annual Actual 

spending

Was it more (+) 

or less (-) than 

planned?

Health care – out-of-pocket spending

 Health, dental, vision insurance 

 (if purchasing outside of work)

 Doctor visits

 Hospital 

 Medicine

 Over-the-counter medicine

 Noncovered items 

Travel/vacations

Entertainment

 Eating out

 Hobbies

 Movies/theatre

Charitable contributions

Other

 Gifts 

 Membership dues

 Pet-related costs

TOTAL EXPENSES

TOTAL NET INCOME – TOTAL EXPENSES

Subtotal retirement savings 

 (Workplace plan contributions + saving 

 on your own)

Employer match

Total Retirement Savings

Current retirement savings rate as a 

percentage of gross income (total 

retirement savings ÷ gross income)

Target saving rate (from Worksheet 4)
44

SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

This worksheet will help you organize your debt so that you can plan how you will pay down each debt and 

track your progress. Money that goes to pay interest, late fees, and old bills could be saved and invested to 

earn more for retirement and other goals. 

In Worksheet 6, list your home mortgage first, if you have one. Then list your auto loans, student loans, 

any credit card debts, or other money that you owe. In the final column, write down which debts you will 

pay off first, second, and so on. Generally, you may want to pay off the debts with the highest interest rates 

first. However, if you have a debt with a small balance, you may want to pay it off to get it off your list. The 

Resources section provides websites and publications on how to get a copy of your credit report, repair your 

credit, calculate how long it will take to pay off credit card debt, and other information.

Creditor Interest 

Rate Balance Required minimum monthly 

payment

Planned 

payment Priority

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

% $ $ $

TOTAL $ $ $

6 . Debt Reduction Date
U.S. Department of Labor

RETIREMENT SAVINGS EDUCATION CAMPAIGN

created by

in partnership with

Employee Benefits Security Administration