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 

their website.

For a complete list of EBSA publications visit the agency’s website.

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

electronically 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, LetsMakeAPlan.org, for information about financial 

planning and to find a financial planner who fits your needs and who is required to 

act in your best interest when providing financial planning advice.

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

Business Regulatory Enforcement Fairness Act of 1996.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE

CONTENT HIGHLIGHTS

A Financial Warmup 1

Your Savings Fitness Dream 3

How’s Your Financial Fitness? 6

Boost Your Financial Performance 9

Avoiding Financial Setbacks 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 23

A Lifetime of Financial Growth 27

Staying on Track 30

A Workout Worth Doing 32

Resources 33

Worksheets 35
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 1

A FINANCIAL WARMUP

Most of us know it is smart to save money for those 

big-ticket items we really want to buy – a new television 

or car or home. Yet you may not realize that probably 

the most expensive thing you will ever buy in your 

lifetime is your ... retirement.

Perhaps you’ve never thought of “buying” your 

retirement. Yet that is exactly what you do when 

you put money into a retirement nest egg. You 

are paying today for the cost of your retirement 

tomorrow.

The cost of those future years is getting more 

expensive for most Americans, for two reasons. 

First, we live longer after we retire – with many 

of us spending 15, 25, even 30 years in retirement 

– and we are more active.

Second, you may have to shoulder a greater 

chunk of the cost of your retirement because 

fewer companies are providing traditional 

pension plans. Many retirement plans today, 

such as the popular 401(k), are paid for primarily 

by the employee, not the employer. You may 

not have a retirement plan available at work 

or you may be self-employed. This puts the 

responsibility of choosing retirement investments 

squarely on your shoulders.

Unfortunately, just about 51 percent of all 

private-sector 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.
2 U.S. DEPARTMENT OF LABOR

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 standardssetting organization, CFP Board’s mission is to 

benefit the public by granting the CFP®

certification and upholding it as the recognized 

standard of excellence for competent and ethical 

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, , and in the 

U.S. CFP Board currently oversees more than 

85,000 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.

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.

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.

“A comfortable 

retirement usually 

requires Social 

Security, employerbased retirement 

plan benefits, 

personal savings, 

and investments.”
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 3

YOUR SAVINGS 

FITNESS DREAM

Getting Fit ... Managing Your Financial Life

It starts with a dream, the dream of a secure retirement. 

Yet like many people you may wonder how you can 

achieve that dream when so many other financial issues 

have priority.

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.

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 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 

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.
4 U.S. DEPARTMENT OF LABOR

(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 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 

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.

“You are not so much 

retiring from work 

as you are moving 

into another stage 

of your life.”
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 5

PLANNING FOR RETIREMENT 

WHILE YOU ARE STILL 

YOUNG

Retirement 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 67 you’ll have $192,933 

in the account. A friend doesn’t start 

until age 30, but saves the same amount 

annually for 37 years straight. Despite 

putting in three times as much money, 

your friend’s account grows to only 

$171,561.

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.
6 U.S. DEPARTMENT OF LABOR

HOW’S YOUR 

FINANCIAL FITNESS?

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 

advisors 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.

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 19 

years in retirement. A female retiring today at age 

65 can expect to live approximately 21 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.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 7

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 website. 

For more information, visit their website or call 

1-800-772-1213.

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 average annual 

inflation rate over the last century is about 3 

percent, varying 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.

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.
8 U.S. DEPARTMENT OF LABOR

HOW TO PREPARE FOR 

RETIREMENT WHEN THERE’S 

LITTLE TIME LEFT

What 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.

n It’s never too late to start. It’s only 

too late if you don’t start at all.

n 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.

n Reduce expenses. Funnel the savings 

into your nest egg.

n Take a second job or work extra 

hours.

n 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.

n Retire later. You may not need to 

work full time beyond your planned 

retirement age. Part time may be 

enough.

n Refine your goal. You may have 

to live a less expensive lifestyle in 

retirement.

n Delay taking Social Security. Benefits 

will be higher when you start taking 

them.

n Make use of your home. Rent out a 

room or move to a less expensive 

home and save the profits.

n Sell assets that are not producing 

much income or growth, such as 

undeveloped land or a vacation 

home, and invest in incomeproducing assets.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 9

BOOST YOUR FINANCIAL 

PERFORMANCE

“Spend” for Retirement

Now comes the tough part. You have a rough idea of 

how much you need to save each month to reach your 

retirement goal. But how do you find that money? 

Where does it come from?

There’s one simple trick for saving for any goal: 

spend less than you earn. That’s not easy if you 

have trouble making ends meet or if you find 

it difficult to resist spending whatever money 

you have in hand. Even people who make high 

incomes often have difficulty saving. But we’ve 

got some ideas that may help you.

Let’s start with a “spending plan” – a guide for 

how we want to spend our money. Some people 

call this a budget, but since we’re thinking of 

retirement as something to buy, a spending plan 

seems more appropriate.

A spending plan is simple to set up. Consider 

the following steps as a guide 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 will probably 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 

“Make saving a habit. 

It’s not difficult once 

you start.”
10 U.S. DEPARTMENT OF LABOR

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.

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.

n 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.

n Put bonuses and raises toward 

savings.

n Make saving a habit. It’s not difficult 

once you start.

n Revisit your spending plan every 

few months to be sure you are on 

track. Income and expenses change 

over time.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 11

AVOIDING FINANCIAL 

SETBACKS

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 payments 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.

Do you have debt problems? 

Here are some warning signs:

n Borrowing to pay off other loans.

n Creditors calling for payment.

n Paying only the minimum on credit cards.

n Maxing out credit cards.

n Borrowing to pay regular bills.

n 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 check-cashing 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 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.
12 U.S. DEPARTMENT OF LABOR

HERE ARE SOME 

ADDITIONAL TIPS FOR 

HANDLING CREDIT 

CARDS WISELY

n Keep only one or two cards, not 

the usual eight or nine.

n Don’t charge big-ticket items. Find 

less expensive loan alternatives.

n Shop around for the best interest 

rates, annual fees, service fees, and 

grace periods.

n Pay off the card each month, or at 

least pay more than the minimum.

n

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.)

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.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 13

STRENGTHENING 

YOUR FITNESS PLAN

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.

n 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.

n 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.

n Domestic stocks. You own part of a U.S. 

company.

n 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 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.
14 U.S. DEPARTMENT OF LABOR

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 are 

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 4.5 percent. The compound annual rate of 

return of long-term government bonds over the 

same period has been 6.9 percent. Large-company 

stocks, on the other hand, while riskier, have 

averaged an annual return of 10.8 percent. 

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

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

grown to approximately $9 today. However, 

inflation, at an annual average of 3.9 percent, 

would have eaten about $8 of that gain, leaving 

$1 as the return. If the $1 had been invested in 

government bonds, it would have grown to about 

$28, with $4 left after inflation. If the $1 had 

been invested in large-company stocks, it would 

have grown to nearly $169, with about $25 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.

“

Even setting aside 

a small portion of 

your paycheck each 

month will pay off in 

big dollars later. 

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.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 15

PERSONAL FINANCIAL 

FITNESS

Reducing investment risk

Diversification lets you manage your risk in a particular 

investment or category of investments and decreases your 

chances of losing money.

There are two main ways to reduce risk.

n 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.

n 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 show 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 
16 U.S. DEPARTMENT OF LABOR

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 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.

n 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.

n 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 familiar 

adage “Don’t 

put all your eggs 

in one basket”

definitely applies 

to investing.”
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 17

MAXIMIZING YOUR 

WORKOUT POTENTIAL

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.

The chart below 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.

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
18 U.S. DEPARTMENT OF LABOR

TIPS ON HOW TO SAVE 

SMART FOR RETIREMENT

n Start now. Don’t wait. Time is 

critical.

n 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 taxfavored vehicles such as company 

retirement plans and IRAs.

n Use automatic deductions from 

your payroll or your checking 

account for deposit in mutual funds, 

IRAs, or other investment vehicles.

n Save regularly. Make saving for 

retirement a habit.

n 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.

n 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.

n Don’t dip into retirement savings.

“

The real power 

of compounding 

comes with time. 

The earlier you start 

saving, the more 

your money can 

work for you.”
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 19

EMPLOYER FITNESS 

PROGRAM

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 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.
20 U.S. DEPARTMENT OF LABOR

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 

401(k) or a traditional pension plan, you have 

to work for a certain number 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 or request the 

booklet What You Should Know About Your 

Retirement Plan electronically or by calling 

EBSA’s toll-free number at 1-866-444-3272.

“

It is critical that 

you choose to 

contribute as 

much as possible 

and revisit your 

investment 

choices at least 

once a year.”
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 21

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, see What You Should Know About 

Your Retirement Plan.

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.
22 U.S. DEPARTMENT OF LABOR

HOW TO MAKE THE MOST OF A 

DEFINED CONTRIBUTION PLAN

n 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.

n Join as soon as you become eligible.

n Put in the maximum amount allowed.

n If you can’t afford the maximum, try 

to contribute enough to maximize any 

employer matching funds. This is free 

money!

n 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.

n 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.

n 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 number at 1-866-

444-3272 or visit EBSA’s website and 

request the booklet A Look at 401(k) 

Plan Fees.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 23

FINANCIAL FITNESS FOR 

THE SELF-EMPLOYED

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 as 

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.

Open an IRA

You can put up to $6,000 a year into an individual 

retirement account on a tax-deductible basis if 

your spouse isn’t covered by a retirement plan 

at work, or as long as your combined incomes 

aren’t too high. 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.

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. 
24 U.S. DEPARTMENT OF LABOR

You also may want to seek the help of 

a professional financial planner. Go to 

LetsMakeAPlan.org for tips on choosing a 

financial planner who is required to act in your 

best interest when providing financial planning 

advice. 

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.

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.

IRA

Usually you are better off funding a SEP 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.”

“No one will work 

harder or care 

more about your 

retirement and your 

other financial goals 

than you.”
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 25

RETIREMENT PLANNING 

FOR EMPLOYEES IN SMALL 

COMPANIES

If 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:

n A retirement plan can attract 

and retain valued employees in a 

competitive labor market, as well as 

motivate workers.

n 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.

n 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 

electronically or call 1-866-444-3272

and request:

n Choosing a Retirement Solution for 

Your Small Business,

n SIMPLE IRA Plans for Small 

Businesses,

n SEP Retirement Plans for Small 

Businesses,

n 401(k) Plans for Small Businesses,

n Automatic Enrollment 401(k) Plans for 

Small Businesses,

n Profit Sharing Plans for Small 

Businesses, or

n Payroll Deduction IRAs for Small 

Businesses.
26 U.S. DEPARTMENT OF LABOR

CAUTION

n Don’t borrow from your retirement 

plan or permanently withdraw 

funds before retirement unless 

absolutely necessary.

n 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.

n Also avoid permanently 

withdrawing funds before 

retirement. This often happens 

when people change jobs. It’s 

estimated that between 19 and 29 

percent of workers leaving their 

jobs rolled over at least some of 

the money they received from 

their former employer’s retirement 

plan to an IRA or another 

employer-sponsored plan.

n 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 37 percent) and a 10 

percent penalty may be tacked on 

if you’re younger than age 59 1/2. 

In addition, you may have to pay 

state taxes. If you’re in a SIMPLE 

IRA plan, that early withdrawal 

penalty climbs to 25 percent if you 

take out money during the first 2 

years you’re in the plan.

n Finally, reduce the cybersecurity 

risk of fraud or loss to your 

retirement account by taking 

basic steps including routinely 

monitoring your online account, 

using strong and unique 

passwords, keeping personal 

contact information updated, 

being wary of public Wi-Fi, 

and knowing how to report 

cybersecurity incidents.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 27

A LIFETIME OF FINANCIAL 

GROWTH

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, married family approximately $284,570 

to raise a child through age 17 (though these 

costs may be reduced somewhat by the Child 

Tax Credit). 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.

“

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.”
28 U.S. DEPARTMENT OF LABOR

Changing jobs

It’s estimated that the average worker changes 

jobs more than 12 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’s 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.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 29

FACTS WOMEN SHOULD 

KNOW ABOUT PREPARING 

FOR RETIREMENT

Women 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.

n Women tend to earn less than men 

and work fewer hours.

n 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 companysponsored retirement plans or to 

receive the full benefits of those plans.

n On average, women live 4 years 

longer than men, and thus need to 

build a larger retirement nest egg for 

themselves.

n Some studies indicate women tend to 

invest more conservatively than men.

n Women tend to lose more income than 

men following a divorce.

n Women age 65 or older are 43 percent 

more likely than men age 65 or older 

to live on an 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 visit the Social Security 

Administration’s website to order their 

booklet What Every Woman Should 

Know.
30 U.S. DEPARTMENT OF LABOR

STAYING ON TRACK

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 a 

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:

n Health. If you and your family aren’t 

covered under an employer’s policy, consider 

a health plan through the Health Insurance 

Marketplace. At least try to buy catastrophic 

medical coverage on your own.

n Disability. Did you know you are more 

likely before age 67 to miss work because 

of a disability than 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.

n 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.

n 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.

n Umbrella. This provides additional liability 

coverage, usually through your home or auto 

insurance policies, in the event you face a 

lawsuit.

n 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.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 31

n 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

You 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:

n Provide expertise you don’t have.

n Help improve your current financial 

management.

n Save you time.

n Provide an objective perspective.

n Help you through a financial crisis.

n Motivate you to take action.

For more information, visit CFP 

Board’s website 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 is required to act in your 

best interest when providing financial 

planning advice.
32 U.S. DEPARTMENT OF LABOR

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.

n Periodically review your spending plan.

n Monitor the performance of investments. 

Make adjustments if necessary.

n Make sure you contribute more toward your 

retirement as you earn more.

n Update your various insurance safety nets 

to reflect changes in income or personal 

circumstances.

n 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!
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 33

RESOURCES

This publication is presented by the: 

Employee Benefits Security Administration

U.S. Department of Labor 

200 Constitution Ave., NW 

Washington, DC 20210 

Toll-free publication request line: 

1-866-444-3272

Certified Financial Planner Board of 

Standards, Inc. 

1425 K Street, NW, Suite 800 

Washington, DC 20005 

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

Sample Financial 

Calculator Websites

Calculator for Workers Nearing Retirement

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

Kiplinger Retirement Savings Calculator

American Savings Education Council

Financial Industry Regulatory Authority

360 Degrees of Financial Literacy Retirement 

Pension Planner

(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 those 

websites.)

Getting Out of Debt

Federal Trade Commission

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.

Federal Reserve Board

The Federal Reserve Board website has 

information about credit reports and how to 

improve your credit score.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau has 

information to educate consumers about credit 

card debt, student loans, and mortgages.
34 U.S. DEPARTMENT OF LABOR

Other web sources that 

highlight savings and 

retirement planning

Investor.gov – View the U.S. Securities and 

Exchange Commission’s investor information 

website for online help with investing and 

consumer protection questions. 

MyMoney.gov – This website is sponsored by the 

Financial Literacy and Education Commission, 

and has among its offerings the MyMoney Five.

Federal Trade Commission – Check out the 

Federal Trade Commission’s “Tips & Advice” 

section, which includes alerts on investment 

schemes.

USA.gov – The USA.gov website is your portal 

to government information from car insurance to 

retirement savings.

Social Security Administration – Visit the 

Social Security Administration’s website for 

pages on retirement. Wage earners can estimate 

their retirement benefits online.

Internal Revenue Service – The IRS website 

provides tax information on IRAs, 401(k) plans, 

SEP and SIMPLE plans, and much more.

TreasuryDirect.gov – The U.S. Department of 

the Treasury’s website includes information on 

savings bonds, a savings bond calculator, and 

instructions for buying bonds online.

Federal Deposit Insurance Corporation – 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.

HealthCare.gov – The U.S. Department of 

Health and Human Services website where 

you can find out more about Health Insurance 

Marketplace plans, what they cover, and how to 

apply.

AARP – The AARP site provides advice on a host 

of retirement planning issues. Find “Money” 

under “Menu” for information on financial 

planning.

National Endowment for Financial Education – 

Browse the website of the National Endowment 

for Financial Education for a wealth of personal 

finance information.

Consumer Federation of America – The 

Consumer Federation of America offers several 

financial publications, including Your Credit 

Scores and 66 Ways to Save Money, and runs the 

America Saves campaign to encourage savings 

among low-to-moderate income households.
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 35

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 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

WORKSHEETS
36 U.S. DEPARTMENT OF LABOR

1 Goals and 

Priorities

Date: 

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 pretax pay (see 

worksheet 4)

some savings in 

an IRA

sign up for 

workplace plan
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 37

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. 

To get a free credit report every 12 months, 

visit AnnualCreditReport.com. The Resources 

section has additional websites, publications, and 

information to help you find and understand these 

documents.

Retirement Planning Documents and Statements

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

❏ Individual IRA account(s) 

❏ Retirement benefits information from current or former spouse

❏ Annuity policies 

❏ Social Security retirement benefits estimate

Tax Planning Documents

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

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

Financial Documents and Statements

Investment-Related Documents and Statements

❏ Bank accounts (savings accounts, CDs)

❏ Mutual funds

❏ Brokerage accounts

❏ Stocks held outside of mutual funds or brokerage accounts 

❏ Bonds held outside of mutual funds or brokerage accounts 

❏ Partnership or other business agreements

❏ Other

Loan Documents, Statements, and Credit Reports

❏ Student Loans

❏ Mortgage(s)

❏ Car(s)

❏ Credit cards

❏ Other

❏ Copy of recent credit report

Insurance Documents and Statements

❏ Health, disability, and long term care insurance policies

❏ Homeowners, renters, auto, and umbrella insurance policies 

❏ Life insurance policies 

❏ Other
38 U.S. DEPARTMENT OF LABOR

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)
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 39

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.

If you are filling this out and are married, 

consider whether only one spouse is working 

(either now and/or in the future) and what 

happens to your Social Security and retirement 

benefits if your spouse dies or you divorce? Use a 

longer estimate for years in retirement since one 

spouse is likely to outlive the other. If you and 

your spouse are both working, but are not close 

in age, consider filling out separate worksheets 

with the period of time each spouse has to save.

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

Security retirement benefits replace about 40 percent of a median 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. You may need more or less depending on your individual circumstances, 

such as whether you are married, will have dependents while in retirement, or have other sources of 

retirement income.
40 U.S. DEPARTMENT OF LABOR

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 x .40

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)

Years 20 25 30 35 40 45

Growth Factors 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
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 41

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)

Years 20 25 30 35 40

Income Factors 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
42 U.S. DEPARTMENT OF LABOR

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)

Years 20 25 30 35 40 45

Value Factors 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
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 43

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.
44 U.S. DEPARTMENT OF LABOR

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)

Years 20 25 30 35 40 45

Value Factors 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%
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 45

5 Cash Flow 

Spending 

Plan Date: 

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.
46 U.S. DEPARTMENT OF LABOR

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)
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 47

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)

Loan 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
48 U.S. DEPARTMENT OF LABOR

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/theater

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)
SAVINGS FITNESS: A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE 49

6 Debt 

Reduction

Date: 

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 $ $ $
SAVING

MATTERS

RETIREMENT SAVINGS EDUCATION CAMPAIGN

EMPLOYEE BENEFITS SECURITY ADMINISTRATION

UNITED STATES DEPARTMENT OF LABOR

September 2021