Course Overview
Are you looking forward to the day you retire? Or, do you dread the thought? Being able to retire when you want and how you want is important to many people. Planning ahead can put you in a position to live comfortably during your retirement.
The objective of this course is to help you with your planning for retirement. Each of the ten modules provides information that can be valuable in answering the questions you need to consider as you make your plans. The modules include specific goals , activities to complete, and sources for more information.
Before you begin, you may go to the Guide and print out the entire document. Use this Guide with the modules.
Module 1: Ready to Retire
Begin your planning with a couple of exercises which will help you determine if you are able to retire.
1a: Retirement Readiness Rating
Identify personality traits related to the way in which you manage your money.
1b: Life expectancy calculators
Estimate how long you will live.
1c: Risk tolerance
Determine your level of risk tolerance for saving and investing.
1d: Your retirement lifestyle
Describe what you want in retirement.
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 1a: Retirement Readiness Rating
The Retirement Personality Profiler is a series of questions to help you identify your financial personality.
Retirement Personality Profiler
(Source: USA News & World Report)
Your retirement personality type will influence many of the factors that go into planning your retirement, such as how much money you’ll need and where you’ll live. Which one or ones describe you? (Hughes, 2017)
You should allow about 15 minutes to answer the questions.
Module 1 – Module 1a | Module 1b | Module 1c | Module 1d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 1b: Life Expectancy Calculators
When you start to plan for retirement, it is helpful to think about how long you will live.
There are several calculators that will help you think about all of the factors that are involved, such as your health and how long your parents lived.
Lifespan Calculator
(Source: Northwestern Mutual)
This calculator helps you to determine possible life expectancy by asking questions about your lifestyle.
Module 1 – Module 1a | Module 1b | Module 1c | Module 1d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 1c: Risk Tolerance
When you begin to plan for retirement, you will want to think about your level of risk tolerance when making investment decisions.
This calculator will help you to determine what your risk tolerance is at present.
Investment Risk Tolerance Quiz
(Source: New Jersey Agricultural Experiment Station Rutgers, The State University of New Jersey)
This questionnaire, Investment Risk Tolerance Quiz, was developed by Rutgers University. There are 13 questions to answer.
Follow-up: Ask your spouse or partner to evaluate his or her risk tolerance. Then discuss how you feel jointly about the level of risk you are comfortable with in saving for retirement.
Module 1 – Module 1a | Module 1b | Module 1c | Module 1d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 1d: Your Retirement Lifestyle
The amount of money you will need in your retirement years depends on the lifestyle you plan to lead. The following list of questions will help you decide what you really want in retirement.
- Will you stay in your current home, move to a different location, or purchase a smaller home or a vacation home?
- Will you want to work for additional income? Will you want to start a new career?
- What do you want to do with your time? Hobbies? Travel? Recreation? Volunteer?
- What will you do for transportation? Use your own car or public transportation?
- How often will you eat out or entertain friends or family?
- How will your clothing and personal needs change?
- What medical risks are you likely to face?
- What would you like to do if your health declines and you need help with daily living? Stay in your own home? Move in with your children?
More Information:
10 Exceptional Tips for the Average Joe or Jane as You Transition to Retirement (Source: newretirement.com)
Module 1 – Module 1a | Module 1b | Module 1c | Module 1d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 2: Expenses in Retirement
It is important to think about what your expenses will be after retirement. A rule of thumb is that 70% – 80% of your current income will be sufficient in retirement.
Retirees who plan to very active may need the same amount of income in retirement that they earn at present.
Retirement Calculators
(Source: Vanguard)
There are also other calculators on the site that might be helpful.
Before you use the calculators, you will need to gather information about your current expenses.
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 3: Collecting Social Security
Obtain estimates of Social Security retirement benefits and how it is affected by different retirement options.
3a: General Social Security
Obtain basic information about Social Security
3b: Retirement age
See what happens to Social Security benefits if you retire early or delay retirement.
3c: Social Security benefits calculators
Compute estimates of your Social Security benefits.
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 3a: General Social Security
Many people will be eligible for Social Security retirement benefits. If you want general information about Social Security, you should begin at the Social Security website.
When to Start Retirement Benefits
(Source: Social Security Administration)
This information can help you understand how Social Security can fit into your retirement decisions.
Module 3 – Module 3a | Module 3b | Module 3c
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 3b: Retirement Age
The age you choose to retire will determine the Social Security retirement benefits you receive.
Resources
Early Retirement
(Source: Social Security Administration)
You will find a chart to show year of birth, full retirement age (years and months reflecting the changes), and the percentage benefits are reduced for early retirement. You should allow about 15 minutes to examine the chart.
Delaying Retirement
(Source: Social Security Administration)
This link will provide information about delaying retirement.
Questions
David was born in 1955. He wants to know:
- When would he receive full retirement benefits based on his birthdate of 1955?
- How would his benefits be reduced if he retired early at age 62?
- What would his benefits be if he waited until age 70 to retire?
Module 3 – Module 3a | Module 3b | Module 3c
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 3c: Social Security Benefits Calculators
Social Security has a number of ways for you to estimate your Social Security benefits online.
You can use the Social Security Estimator to compute estimates of your future Social Security retirement benefits. The Social Security Estimator will give you estimates based on your actual Social Security earnings record. You can use the Estimator if you are not currently receiving benefits on your own Social Security record, not a Medicare beneficiary, you have enough Social Security credits at this time to qualify for Social Security, and you are NOT eligible for a pension based on work not covered by Social Security.
This estimator requires you to log in before it provides an estimate similar to the estimate that you receive in your Social Security Statement each year. You can also create “what if” scenarios using this estimator. Since this estimator links to your actual Social Security records, there are time limits for each page of the estimator to help keep your information secure.
If you qualify to use the Social Security Estimator, go to www.socialsecurity.gov/estimator. If you are not eligible to use it or don’t want to log in, you can use one of the other options for estimating your Social Security retirement benefits.
There are 3 other options that are not linked to your Social Security record and which are based on your input:
- The Quick Calculator gives rough estimates of benefits at age 62, at full retirement age, and at 70.
- The Online Calculator gives benefit estimates based on past, present, and projected future earnings.
- The Detailed Calculator produces the most precise estimates and allows you to customize your projections for retirement, survivors, and disability benefits for yourself and your family based on differing scenarios.
Once you have an estimate you may want to link to additional charts and calculators provided on the Social Security web site to earnings, pensions, and different retirement dates can affect your benefits.
You can try the Quick Calculator for David. He was born in 1955. His earnings this year are $30,000. Try the quick calculator to estimate David’s social security benefits. Next, try the Quick Calculator using your age and earnings for this year.
Module 3 – Module 3a | Module 3b | Module 3c
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 4: Income Needed in Retirement
Get an estimate for the amount of income needed in your retirement.
4a: Do you have other sources of retirement income?
Get a ballpark estimate for the amount of income needed in your retirement.
4b: What are the sources of income for current retirees?
Composition of income for people over 65 across income groups.
4c: What do current workers say about planning for retirement?
Results of the 2008 Retirement Confidence Survey
4d: What can you do to increase your retirement income?
Increasing your retirement income
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 4a: Do you have other sources of retirement income?
Goal: to understand what the sources of income are for current retirees and to consider possible sources of future retirement income.
Ballpark Estimate Worksheet
(Source: American Savings Education Council)
The Ballpark Estimate will help you estimate what your income will be in retirement.
Module 4 – Module 4a | Module 4b | Module 4c | Module 4d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 4b: What are the sources of income for current retirees?
According to the 2019 Retirement Confidence Survey:
(Source: Employee Benefit Research Institute)
-
Nearly 9 in 10 retirees reported they receive income from social security
-
4 in 10 reported income from a defined benefit plan or employer-sponsored retirement savings plan, such as a 401(k)
-
7 in 10 receive income from personal savings and investments
-
7 in 10 expect to receive income from an individual retirement account (IRA)
-
And 3 in 10 retirees reporting working for pay at some time during their retirement
Module 4 – Module 4a | Module 4b | Module 4c | Module 4d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 4c: What do current workers say about planning for retirement?
According to the 2019 Retirement Confidence Survey:
(Source: Employee Benefit Research Institute)
- Over 8 in 10 retirees reported that they will have enough money saved to live comfortably during retirement
- 1 in 4 retirees reported that their debt will be a problem with their savings for retirement
- 4 in 10 retirees reported retiring earlier than they had planned
- 4 in 10 workers have tried to calculate how much money they will need for a retirement
- 2 in 3 workers feel confident that they have selected the correct retirement plans and products for their personal situations
- 1 in 4 workers find information from work or an employer to help with their retirement decisions
Module 4 – Module 4a | Module 4b | Module 4c | Module 4d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 4d: What can you do to increase your retirement income?
-
Participate in employer pension plans when eligible to do so.
-
Contribute as much as possible to a retirement plan at work. Your employer may provide a matching contribution and it is important to contribute enough to receive the “matching amount.”
-
Establish an Individual Retirement Account and contribute to it annually, if you are eligible.
-
Work part-time after retirement.
-
Save regularly by having an amount d from your paycheck.
If you want more information about basic investing, see Investing for Your Future (Source: Rutgers Cooperative Extension).
Module 4 – Module 4a | Module 4b | Module 4c | Module 4d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 5: Medicare & Health Benefits
Explore Medicare or health benefits and how they will affect you in retirement.
5a: Determine Medicare eligibility
Begin by obtaining general information about Medicare benefits
5b: Compare Medicare options
Utilize a comparison chart for Medicare plans
5c: Compare p policies
Learn more about p supplemental insurance policies
5d: Where to get help
Secure a listing of assistance program telephone numbers
5e: Medicare case study
Walk through a case study to determine Medicare and health benefits
5f: Other health benefits
Health benefits provided by an employer or a union after retirement
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 5a: Determine Medicare eligibility
Many people will be eligible for Medicare benefits. If you want general information about Medicare benefits, begin with the official Medicare website. On this website, you can:
- Read many details about Medicare. You may want to begin with “Medicare Enrollment”.
- Get specific information about Medicare amounts and find answers to some common questions about Medicare.
- Look at the glossary, which explains the Medicare terms.
Module 5 – Module 5a | Module 5b | Module 5c | Module 5d | Module 5e | Module 5f
Module 5b: Compare Medicare eligibility
The official Medicare website contains a link to a Compare Medicare plans.This website brings you through a series of questions and allows you to create an account to find a Medicare plan that works for you.
Additional sources: Find and compare doctors, hospitals and other providers. This link allows you to compare different medical sources and providers near your residential area.
Module 5 – Module 5a | Module 5b | Module 5c | Module 5d | Module 5e | Module 5f
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 5c: Compare policies
P insurance policies are private supplemental insurance policies that cover many of the health care services that Medicare does not cover. You will be able to find insurance companies that sell p policies in your state, plans they offer, how plans are priced, and how to contact the insurance companies.
Module 5 – Module 5a | Module 5b | Module 5c | Module 5d | Module 5e | Module 5f
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 5d: Where to get help
On the Medicare Contacts page, you will find a listing of assistance program telephone numbers. These assistance programs can answer questions about Medicare and other health insurance.
Module 5 – Module 5a | Module 5b | Module 5c | Module 5d | Module 5e | Module 5f
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 5e: Medicare case study
Question:
An older adult says “I have learned about eligibility, Medicare Plan Choices, and plans, but I still have some other questions. How should I find answers to my questions about Medicare?”
Answer:
On the Medicare website, use Frequently Asked Questions to find your answers.
Module 5 – Module 5a | Module 5b | Module 5c | Module 5d | Module 5e | Module 5f
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 5f: Other health benefits
Can the Retiree Health Benefits Provided By Your Employer Be Cut?
(Source: U.S. Department of Labor)
Some people may be eligible for health benefits provided by an employer or a union after their retirement. Be sure you understand the documents concerning your health care plan and have reviewed your summary plan description.
Ask your plan administrator to help you compare the costs and benefits of their plan with Medicare. Talk to your health plan administrator before you sign up for Medicare because you may not be able to get the benefits back from the employer or union.
Module 5 – Module 5a | Module 5b | Module 5c | Module 5d | Module 5e | Module 5f
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 6: Employer Retirement Programs
Find out about the types of employer-sponsored retirement programs.
6a: Eligibility
Employer-sponsored retirement plans
6b: Defined Benefit
Employer-defined benefit pension plans
6c: Defined Contribution
Employer 401(k) plans and 403(b) plans
6d: Investment Decisions
Who makes the decision on how savings are invested?
6e: Profit-Sharing Plans
Employer profit-sharing plans
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 6a: Eligibility
Goal: to understand the types of retirement plans
Many, but not all, employers have an employer-sponsored retirement plan. Employer plans may be funded as follows:
- Completely funded by the employer
- Funded only by employee contributions
- Funded by contributions from both the employer and employee
Questions to keep in mind:
- Does your employer have a retirement plan?
- Is it funded completely by the employer, by employee contributions, or do employer and employee contribute?
- Are you eligible to participate in the plan?
- If you are a participant and must contribute, are you making the maximum contribution?
Resources
An excellent resource is located at the Department of Labor, Pension and Welfare Benefits website. It is entitled Women and Retirement Savings. While some of the publication is directed towards women, the information is generalized for everyone’s benefit. It will take about ten minutes to read.
For a general description of retirement plans go to What you should know about your retirement plan (Source: U.S. Department of Labor, Employee Benefits Security Administration)
Module 6 – Module 6a | Module 6b | Module 6c | Module 6d | Module 6e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 6b: Defined Benefit
John works for an employer who has a “defined-benefit” pension plan. John may be eligible for a benefit based on the number of years worked, average of his salary for the last 3-5 years, and a percentage that is stated in the plan.
In this type of plan, the number of years worked may need to be a certain number such as 10, 15 or 20. Or there may need to be a combination of years worked and employee’s age. (Note: it is important to learn what the requirements are for your employer’s plan.)
Question:
John plans to retire next year after working for the employer for 30 years. His average income for the last 5 years was $45,000. John knows that his annual “benefit” will be 1.5% or 0.015 * the number of years worked * his average annual income during the last 5 years of employment. What will John’s benefit be?
John’s annual benefit will be 0.015 * 30 * 45000 = $20,250.
Module 6 – Module 6a | Module 6b | Module 6c | Module 6d | Module 6e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 6c: Defined Contribution
Lisa works for an employoer who has a 401(k) plan. This type of plan is the most well-known of all “defined-contribution” plans. The amount that an employee contributes each year is not subject to income tax, and earnings on the contributions grow tax-deferred until the employee retires and begins withdrawing from the account. When employees retire, the amount they withdraw is subject to income tax. Plans have regulations on eligibility and withdrawls.
Many employers “match” the contribution of an employee up to some limit.
Questions:
- If Lisa earns $25,000, can contribute up to 10% of her salary, and the employer matches 50 cents for each dollar up to 6% of her salary, what amount will be contributed by the employer if Lisa contributes a corresponding amount?
- What amount must Lisa contribute to receive the employer’s “match”?
- What additional amount could Lisa set aside? (Note: It will not be matched by the employer, but earnings will grow tax-deferred until retirement.)
- 0.06 * $25,000 * 0.5 = $750
- 0.06 * $25,000 = $1,500
- 0.04 * $25,000 = $1,000
Module 6 – Module 6a | Module 6b | Module 6c | Module 6d | Module 6e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 6d: Investment Decisions
Lisa works for an employoer who has a 401(k) plan. This type of plan is the most well-known of all “defined-contribution” plans. The amount that an employee contributes each year is not subject to income tax, and earnings on the contributions grow tax-deferred until the employee retires and begins withdrawing from the account. When employees retire, the amount they withdraw is subject to income tax. Plans have regulations on eligibility and withdrawls.
Many employers “match” the contribution of an employee up to some limit.
Question:
Who makes the decision about how Lisa’s savings are invested?
Lisa. She will be able to choose from the investments selected by the employer. A typical plan has 7 or 8 choices. These usually consist of mutual funds ranging from low risk to more risk.
If Lisa worked for a not-for-profit employer, it is possible that the employer would sponsor a 403(b) salary-reduction plan that is similar to a 401(k) plan. State and local government employees may contribute to “457” plans that are similar to a 401(k) plan.
Follow-up:
- Ask your employer what type of plan is available.
- Find out if you are eligible to participate.
Module 6 – Module 6a | Module 6b | Module 6c | Module 6d | Module 6e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 6e: Profit-sharing Plans
There are three basic approaches to funding profit-sharing plans. They are:
- Current (cash): profits are paid directly to employees in cash, check, or stock as soon as profits are determined.
- Deferred: profits are credited to employee accounts to be paid at retirement or upon other stated circumstances such as disability, death, severance, etc.
- Combined: part of the profit is paid out currently in cash and part is deferred.
Employer contributions to profit sharing plans may be made on a discretionary basis (as determined annually by the board of directors) or in accordance with a definite predetermined formula.
Questions:
David’s employer has a profit-sharing plan.
- How will David know how much his plan will “grow” each year?
- Will David have enough money for retirement?
Module 6 – Module 6a | Module 6b | Module 6c | Module 6d | Module 6e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 7: Self-Employed
Determine what retirement plans are available for self-employed or small business owners.
7a: Simple retirement solutions
A good place to start
7b: Simplified Employee Pensions
Specific information and commonly asked questions
7c: SIMPLE Plans
Another resource that focuses only on SIMPLE plans
7d: Comparison Chart
Retirement plans for small business owners
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 7a: Simple Retirement Solutions
Goal: learn about all of the possible retirement plans for the self-employed or small business owner. Many people choose to have their own business. They have several options for retirement plans.
Explore Choosing a Retirement Solution for Your Small Business, developed by the U.S. Department of Labor Employee Benefits Security Administration and the Internal Revenue Service. This site explains a number of retirement plan options and includes tools for choosing a retirement plan.
Follow-up:
Make a list of retirement plans that would work for you if you are self-employed or a small business owner.
Module 7 – Module 7a | Module 7b | Module 7c | Module 7d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 7b: Simplified Employee Pensions
Another excellent resource that is focused only on Simplified Employee Pensions (SEPs) is also on the U.S. Department of Labor website. It includes specific information about who must be included and commonly asked questions. It is 16 pages long.
Follow-up:
- List 1 or 2 reasons why an SEP would work for you.
- List 1 or 2 reasons why an SEP would not work for you.
Module 7 – Module 7a | Module 7b | Module 7c | Module 7d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 7c: SIMPLE Plans
A resource that focuses only on Savings Incentive Match Plans for Employees of Small Employers (SIMPLE) plans is on the U.S. Department of Labor website.
Follow-up:
- List 1 or 2 reasons why a SIMPLE plan would work for you.
- List 1 or 2 reasons why a SIMPLE plan would not work for you.
Module 7 – Module 7a | Module 7b | Module 7c | Module 7d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 7d: Comparison Chart
Fidelity Investments indicates that retirement plans for small business owners fall into two categories:
- Lower cost, less administration
- Higher cost, more administration
Reading up on and comparing SEP-IRAs, Keogh plans, SIMPLE-IRAs, and 401(k)s can be beneficial in helping business owners decide which type of plan suits them best.
Follow-up:
- Would one of these plans be appropriate for your needs if you are self-employed?
- If none of these plans are appropriate for your needs, have you considered an Individual Retirement Account? If you want to learn more about an IRA, go to Module 8.
Module 7 – Module 7a | Module 7b | Module 7c | Module 7d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 8: Individual Retirement Accounts
Learn about IRAs and how to start one.
8a: The IRA Basics
Options of investing in tax-deferred financial products
8b: IRA Examples
Determine eligibility
8c: Traditional IRA or Roth IRA?
Your situation influences which type is appropriate for you
8d: Traditional & Roth Examples
Choose which type to use
8e: Funding an IRA
Several options for funding
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 8a: IRA Basics
Goals:
- to explain IRAs
- to determine eligibility for a tax deductible IRA
- to explore the type of IRA appropriate for an individual
- to explain how to start an IRA
Individuals have the option of investing in tax-deferred financial products as a way to save for retirement. These products include traditional IRAs and Roth IRAs.
The guides that are listed below provide the basics about IRAs as well as explaining how to establish an IRA. You should allow about 20 minutes to read.
Contributions to Individual Retirement Arrangements (IRAs) (Source: IRS)
Understanding IRAs (Source: 360 Degrees of Financial Literacy)
Module 8 – Module 8a | Module 8b | Module 8c | Module 8d | Module 8e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 8b: IRA Examples
Resources
Individual Retirement Account (IRA)
(Source: Investopedia)
Questions:
Abby, age 25, is single and has no retirement plan at work. She has an adjusted gross income of $39,000.
Question: Is Abby eligible for a tax-deductible IRA?
Mike, 27, and Sandy, 38, want to know if Mike is eligible for a tax-deductible traditional IRA. Mike is self-employed and has no retirement plan. Sandy works for a publishing company and has a defined-benefit plan. Mike and Sandy’s adjusted gross income is $62,000.
Question: Would Mike be eligible for a tax-deductible traditional IRA?
Abby is eligible for a tax-deductible traditional IRA.
Mike is eligible for a tax-deductible traditional IRA because their joint income is less than
$150,000.
Module 8 – Module 8a | Module 8b | Module 8c | Module 8d | Module 8e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 8c: Traditional IRA or Roth IRA
One decision individuals have to make is whether to use a traditional or a Roth individual retirement account. Your situation will influence which type is most appropriate for you.
Many investment firms offer IRA calculators to assist with this decision. These calculators provide general estimates that can be helpful in seeking further assistance with setting up a traditional IRA or Roth IRA.
The American Institute of CPAs on 360 Degrees of Financial Literacy also provides a calculator to help you decide whether a traditional IRA or a Roth IRA is best for you.
In order to complete the forms for the calculators you will need some specific information. Different calculators ask for different information. You will need to know:
- your tax return filing status
- if you currently participate in an employer-sponsored retirement plan
- if your spouse currently participates in an employer-sponsored retirement plan
- your federal income tax rate
- state tax rate
- adjusted gross income
- years to contribute to an IRA
- amount you expect to contribute to an IRA annually
Module 8 – Module 8a | Module 8b | Module 8c | Module 8d | Module 8e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 8d: Traditional & Roth Examples
Questions:
- Abby, age 25, is single and has no retirement plan at work. She has an adjusted gross income of $39,000. Abby wants to find out whether a Roth or a traditional IRAL will provide the most retirement income.
Abby wants to retire when she is 67 and begin using the funds in her IRA. She expects to make withdrawls until she is 87. She is in the 28% tax bracket and expects she will be in the 15% bracket during retirement. She would like an 8% rate of return on her investments. She plans to contribute $4,000 each year.
Question: By comparing IRAs, which IRA makes the most sense for her?
- Mike, age 27, is self-employed and has no retirement plan. Sandy, age 38, works for a publishing company and has a defined-benefit plan. Mike and Sandy’s adjusted gross income is $62,000.
They want to retire when they are 62 and begin withdrawing from their IRA. They expect to live to age 85. Mike and Sandy would like to earn 9% on their investments.
Question: Which IRA makes the most sense for Mike and Sandy?
Abby used several calculators on the Internet and learned that she would have more income
in retirement if she contributed to a Roth IRA instead of a traditional IRA.
Mike and Sandy used several calculators on the Internet. They decided that the Roth IRA
would be more beneficial.
Resources
If you want to make some comparisons for yourself, here are some calculators that you might like to try.
Traditional vs. Roth Calculator
(Source: 360 degrees of Financial Literacy)
Module 8 – Module 8a | Module 8b | Module 8c | Module 8d | Module 8e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 8e: Funding an IRA
Once you have determined that you want to fund an IRA, you have many options. For general information about funding an IRA, visit the Kiplinger site.
If you want more information about basic investing, see Investing for Your Future (Source: Rutgers Cooperative Extension)
Module 8 – Module 8a | Module 8b | Module 8c | Module 8d | Module 8e
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 9: Lump Sum Retirement Distribution
Examine lump sum distributions and what to do with one.
9a: Lump Sum Distribution
The definition of a lump sum distribution
9b: What Should You Do With It?
Options for lump sum distributions
What to do about a lump sum distribution when:
9c: When Starting a New Job
9d: Getting Ready to Retire
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 9a: Lump Sum Distribution
Goal: to understand lump sum distributions.
To be considered a “lump sum distribution” for tax purposes, money must come from an Internal Revenue Service (IRS) qualified retirement plan. Some examples would be a 401(k) plan, profit-sharing plan, or other approved pension plan.
A lump sum must be payable due to separation from service, death, disability, or after you have reached age 59 1/2. In simpler terms, you could be eligible to e a lump sum distribution at job change, layoff, or retirement. You must receive the entire amount within one tax year.
Module 9 – Module 9a | Module 9b | Module 9c | Module 9d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 9b: What to Do with a Lump Sum Distribution
What should you do with a lump sum distribution?
- Take the money and pay the taxes.
- Take the lump sum and use tax averaging.
- Deposit the money into an Individual Retirement Account (IRA), other qualified retirement plan, or a new employer’s plan. This is called a “rollover”.
- Leave the money in your current employer’s plan.
Early Termination
A participant who terminates employment before normal retirement age can have up to three options: receive a lump sum distribution, roll the assets over to an IRA or other qualified plan, or leave the funds in the pension plan.
If the participant’s vested account balance is less than $5,000, the law allows, but does not require the plan to disperse the balance to the participant if the participant does not make a timely election. This is called a forced payout.
If the amount is between $1,000 and $5,000, the payout can be directly rolled to an IRA if the participant has not made a timely election and the plan requires a forced payout. A forced payout for an amount less than $1,000 is not affected by this change.
Resources
Lump Sum Distributions
(Source: IRS)
How to Handle a Lump Sum Distribution
(Source: Smart Money)
Module 9 – Module 9a | Module 9b | Module 9c | Module 9d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 9c: Starting a New Job
Lynn, age 30, is leaving her current job and starting a new job. She has a lump sum distribution of $3,500. She would like to plan for retirement, but she would also like to pay some bills, take a vacation, and get a new wardrobe.
She is currently earning about 9% on the lump sum. She doesn’t know when she will retire, but thinks that age 67 is about right. Lynn’s options:
- Lynn could roll over the lump sum distribution into an IRA and the amount would continue to earn interest until she retires. Using a financial calculator, Lynn estimates that the $3,500 could grow to $60,359 after 37 years if it earned 8% interest compounded annually.
- If she takes the lump sum distribution in cash, there will be a 10% penalty (because she is younger than 59 ½) and she will owe regular income taxes on the amount withdrawn.
Lynn needs to decide between having a small amount now or waiting until she retires.
Compound Interest Calculator
(Source: MoneyChimp)
Module 9 – Module 9a | Module 9b | Module 9c | Module 9d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 9d: Getting Ready to Retire
Al, age 62, has the possibility of a large lump sum distribution from his employer. Because he is retiring and is older than 59 ½, there is no penalty tax associated with the withdrawal.
He plans to roll the money over into an IRA and establish “substantially equal periodic payments” over his life expectancy or over the joint life expectancy of himself and a beneficiary.
A caution:
Al must be careful to roll over the lump sum within 60 days to an IRA. The employer can do a direct rollover from the employer plan to the IRA (Al will not receive the lump sum in the interim.
If Al takes t of the lump sum, the employer must withold 20% from the total for taxes.
If Al takes the lump sum but makes the rollover into the IRA within the 60-day limit, he will eventually receive a refund of the 20% withholding tax.
There are additional regulations that might apply, but these two illustrations should help you decide what to do with a lump sum distribution. Be sure to discuss the proposed distribution with your plan sponsor before making a commitment.
Module 9 – Module 9a | Module 9b | Module 9c | Module 9d
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10: Other Concerns
Explore other retirement living concerns.
10a: Enjoying Retirement
Concerns related to retirement living
10b: Retirement housing
Factors to consider regarding housing
10c: Estate planning
Information about estate planning
10d: Long-Term Care
Information about long-term care
10e: Benefits Checkup
Information about federal and state assistance programs for older Americans
10f: Review
The tools for making a secure retirement in reality
Concrete steps you can take to maintain financial control
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10a: Enjoying Retirement
Goal: to identify other areas to consider when planning retirement.
In addition to thinking about your financial needs during retirement, you may have other concerns related to retirement living. Leisure time use is often different for retirees than for non-retirees. You may be thinking of moving to a different home or location for your retirement years. Below you will find information about enjoying retirement living.
Planning, Protecting and Enjoying Retirement
(Source: MetLife)
In addition, the federal government’s Administration on Aging site allows you to information about employment and volunteer activities, travel and leisure, education and training, as well as health and nutrition information.
Module 10 – Module 10a | Module 10b | Module 10c | Module 10d | Module 10e | Module 10f | Module 10g
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10b: Retirement Housing
For questions about housing during your retirement years, the U.S. Department of Housing and Urban Development maintains the following website:
Information for Senior Citizens
Information from National Association of Area Agencies on Aging includes many different housing options for older adults. This information can be found from Housing Options for Older Adults.
Another site that includes a variety of information related to retirement living is maintained by the American Association of Retired Persons (AARP). You may view information on volunteering, health and wellness, leisure and fun, and other related topics.
Module 10 – Module 10a | Module 10b | Module 10c | Module 10d | Module 10e | Module 10f | Module 10g
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10c: Estate Planning
Many people include estate planning as they think about retirement planning.
- What do you want done with your property after your death?
- Do you know the advantages and disadvantages of living trusts?
- Do you have a living will, health care representative, or durable power of attorney?
One site that gives good information is Getting Ready for Estate Planning (Source: Purdue University). This website introduces basic concepts, tools you can use, and helpful checklists that you can complete and use with an attorney.
You will need to check the state laws where you reside for specific estate planning information.
Module 10 – Module 10a | Module 10b | Module 10c | Module 10d | Module 10e | Module 10f | Module 10g
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10d: Long-term Care
Long-term care is another area many people consider when they think about retirement planning. Here is some general information on long-term care:
Long Term Care Information
(Source: U.S. Department of Health and Human Services)
Costs & How to Pay. Decisions regarding a range of issues- from how to pay the bills to caregiving roles- can challenge family relationships. Take time to understand potential sources of conflict in advance.
(Source: U.S. Department of Health and Human Services)
Module 10 – Module 10a | Module 10b | Module 10c | Module 10d | Module 10e | Module 10f | Module 10g
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10e: Benefits Checkup
p is a free service that identifies federal and state assistance programs for older Americans. The National Council on the Aging created it to help people quickly identify programs that they may qualify for and how to apply for them. Family and friends can use p to get facts about programs for loved ones.
You will need to enter information such as your age, income and zip code so p can identify programs. Your information is confidential.
There is another site for financial security in later life. This site’s goal is to help consumers gain skills, confidence, and motivation to build financial security for themselves and their families. It includes online tools for later life financial planning.
Financial Security: Retirement Planning
(Source: eXtension, Cooperative Extension, USDA)
Module 10 – Module 10a | Module 10b | Module 10c | Module 10d | Module 10e | Module 10f | Module 10g
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10f: Review
For a good review of planning for retirement, see:
Retirement Plans: Benefits & Savings (Source: U.S. Department of Labor)
For more information about planning for financial security throughout life, see:
Financial Security: Retirement Planning
(Source: n, Cooperative Extension Service/USDA)
Module 10 – Module 10a | Module 10b | Module 10c | Module 10d | Module 10e | Module 10f | Module 10g
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
Module 10g: When Your Income Drops
If economic misfortune strikes you or your family in the form of reduced income, is there anything you can do to minimize the hardship? Yes! This set of Purdue Extension fact sheets suggests a number of steps you can take to maintain financial control.
The titles of these fact sheets correspond to the steps you can take:
3) 
Take Stock of Family Resources
4) Take Stock of Community Resources
5) Set Priorities for Spending
9) Sharpen Your survival skills
Module 10 – Module 10a | Module 10b | Module 10c | Module 10d | Module 10e | Module 10f | Module 10g
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10
⟵ Back to Planning for a Secure Retirement Home
- 360 Degrees of Financial Literacy– Helps Americans understand their personal finances through every stage of life
- AARP– The nation’s largest nonprofit organization that is dedicated to empowering Americans to choose how they live as they age
- America Saves– A website that includes a campaign that works to encourage, motivate and support households that have to low- to moderate incomes to save money, reduce debt and build wealth
- Benefits Checkup– Site that helps older adults to meet the health and economic challenges that are associated with aging
- Employee Benefit Research Institute– Focuses on data and research to create employee benefit and public policy programs
- Consumer finance– Regulates the provision and offering of financial products and services and works to educate consumers to make informed financial decisions
- Insurance Information Institute – Source that provides unique, data-driven insights on various insurance to educate consumers
- IN.gov– This provides information about Indiana’s public retirement system and provides information about retirement based on various occupations
- Investing in Your Future– This is a 11-unit home study course that assists beginner investors in understanding the basics of investing and then continues to explain the process that occurs when investing
- IRS– Provides a lot of information and various links about taxes including tax records and taxpayer acts
- Kiplinger– This is a personal finance magazine that provides advice to readers in varying categories and is written very concisely
- Medicare.gov– Provides information about Medicare: what it covers, what the various costs are and other insurance programs under Medicare
- Fidelity Investments– Company that provides investment management and administration expertise to customers with various backgrounds and level of knowledge
- Morningstar– Provides information about various products and services that are offered to customers that assist with investing
- MSN Money Central– Provides information about the current markets and also articles about tips on investing and various topics associated with personal finance
- Principal Financial Group– Helps to find strategies that help customers with retirement plans, insurance, workplace culture and company ethics
- Purdue Extension– Provides information about agriculture, community, environment, family, food, garden and youth
- Smart Money– Includes articles about various personal finance topics including retirement which includes the retirement weekly program
- Social Security Administration– Provides information about social security programs and includes a retirement estimator on the website
- Social Security website in Spanish
- Senior Service America– They are building the pathway into employment for low-income, older citizens, especially underserved groups of women, Veterans, and formerly incarcerated workers
- TIAA-CREF– Helps customers to manage their money and achieve financial well-being throughout their lifetime including information on banking, borrowing, investing and retiring
- U.S. Department of Housing and Urban Development – Information for Senior Citizens– Works to create communities with affordable homes for all
- U.S. Department of Labor– Provides information about a variety of offices and agencies and provides answers to questions on various labor topics
Overview | Module 1 | Module 2 | Module 3 | Module 4 | Module 5 | Module 6 | Module 7 | Module 8 | Module 9 | Module 10