HOW TO SAVE

FOR YOUR FUTURE

a guide for financial security
 Save for your future.
Choose to Save is designed to encourage
Americans to take four basic steps to secure
their nancial future:
1 Calculate how much money you may need for
retirement or other goals.
2 Plan how to accumulate money and other assets
to help meet your needs.
3 Act to implement your plan and save the money
you (and your family) may need.
4 Reassess your nancial needs and the progress of
your plan every year during the three month period
between the time you receive your annual Social
Security Statement and your birthday. If your needs
have changed or your plan isnt working, readjust one
or both of them.

What are your nancial goals? How can you

save enough money for the future? Where
should you begin? These questions are enough to
make anyone anxious. Well, take a deep breath
and relax. Preparing for your future nancial
security can be challenging, but you can do it.
This little booklet will help you get started.

PAGE 1
Your Social Security Statement A small notebook you can carry with you everywhere
a great place to start. is great for this exercise. As a backup, request a receipt
Each year, about three months before your birthday, for every purchase you make. Youll probably be
Social Security mails you your own personalized surprised at how much you spend and where your
benet statement. Among other things, it gives you an money goes.
estimate of how much your Social Security benet may
be when you retire, based on your earnings and date of When three months have passed, look at each of your
birth. purchases. Are you spending money on things you
can just as easily live without? Try eliminating some
Look at the numbers. of the things you do not need. Start small maybe
In 2009, the average monthly Social Security one less cup of coffee, or try bringing your lunch once
retirement benet was a week. Just think
$1153.00. Could you how much savings you
$ 251,578
live on that? Many could accumulate if
nancial professionals you stopped spending
estimate youll need at or spent less money
least 78%-94% of your on some of your more
$ 152,288
pre-retirement income $ 107,209 unneeded purchases.
to live comfortably $ 161,578
in retirement. Social $ 82,288 $ 85,688 Feed it often
$ 85,209
Security only provides $ 90,000 $ 35,688 $ 41,015 and watch it grow.
about 40% of $ 70,000
$ 50,000 $ 11,015 You may not need a lot
$ 22,000 $ 30,000
preretirement income of money to accumulate
This illustration assumes a 4% rate return compounded monthly and is for hypothetical purposes only. It is not intended
for the average worker. to represent the performance of any particular product and it does not include the effects of any fees, charges, or taxes. meaningful savings.
Youll need to make up Thanks to compound
the difference. $ 107,209 Saved $2,000 per year from age 20 to 30. interest, small regular
Kept money in account until age 65. savings can add up over time.
Use the three months $ 251,578 Saved $2,000 per year from age 20 to 65. Because with compound
between the time you get $ 152,288 Saved $2,000 per year from age 30 to 65. interest, its not just your
your statement and your $ 85,688 Saved $2,000 per year from age 40 to 65. money that earns interest
birthday to begin planning $ 41,015 Saved $2,000 per year from age 50 to 65. your interest earns interest
for a secure nancial future. as well creating a snowball
If youre already saving, use effect. The longer you save,
your statement as an annual reminder to re-evaluate the more compound interest works for you. So the
your progress. sooner you start saving, the better off youll be.

Hey, where did all my money go? Is it in the cards?

You started the day with $10 in your wallet. Credit cards. On the positive side, they are extremely
You may not recall spending much, but by the time convenient, useful and can have many good features.
you get home, your wallet is empty. How does On the negative side, its easy to get yourself in over
that happen? your head in a hurry. Because when it comes to credit
cards, compound interest can work against you. If you
Heres one way to nd out. For three months, record carry a balance from month to month, youll be paying
every dime you spend and every single item you buy. interest on your interest.

PAGE 2
Watch the mail for your Social Security
benet statement. It should arrive
three months before your birthday.
For example, lets say you buy a TV for $325 using amount you absolutely must have each month. Once
a credit card that charges 13% interest, compounded you know that, youll know what you need for your
monthly. If you made just the monthly minimum emergency fund.
payment of $10, it would take you 41 months to pay
off your purchase and youd end up paying a total Set your goals:
of $410 instead of $325. And thats at a 13% interest inspired, but realistic.
rate. Credit cards can charge interest rates as high as Once youve tracked your expenses and eliminated
23% or more. unnecessary items, made a plan to pay off your credit
card debt and started your emergency fund, then what?
The only sure way to avoid credit card debt is not to
have credit cards. Of course, thats not very realistic You need to think about what you want for yourself
for most of us. So, use your credit cards carefully. and your family. Do you want to buy a house? Send
Keep close track of your purchases and pay off the your kids to college? Retire comfortably? Write down
balance every month. Also, shop around for the your nancial goals with as much detail as possible,
lowest interest rate you can nd it can make a huge such as I want to retire in my current house. I want
difference. to visit my children and grandchildren four times each
year and go on weekend trips.
If youre trying to get out of debt, pay off your highest
interest credit card rst. Then begin paying off your Prioritize your goals and include the number of years
second highest interest credit card and so on. And youll have to save for that goal. The more detail you
talk to your credit card companies. In some cases, include on each of your goals, the easier it will be to
they may help you by lowering your interest rate or develop a specic plan to reach them.
eliminating fees.
Reaching your goals.
Remember, help is available. There are reputable, The variety of saving and investment vehicles can
nonprot organizations that can help you put together be overwhelming. So here are some tips. When you
a repayment plan and help you work with your credit outlined your dreams, you also wrote down how long
card companies. Be prepared it can take a while to you have to reach them. That information can help
get out of debt. But once you do, youll feel great! you choose the appropriate savings vehicles.

Ready for an emergency? Short-Term Goals These are items that you intend
The time to think about how youll pay for an to purchase within the next year or two, such as a
emergency is BEFORE the emergency happens. Thats new computer or a vacation. For short-term savings,
why many nancial professionals recommend you think safety. Some of the vehicles that are appropriate
keep savings equal to at least three to six months of for short-term savings include a savings account,
basic living expenses in an easily accessible, low-risk a certicate of deposit (CD), or a money market
account like a savings account. How much money do account. These accounts offer a lower rate of return,
you need every month just to get by? Lets gure it out. but are also low risk.

Use your expense tracking to get started. First, add Intermediate-Term Goals These are goals that you
up your xed monthly expenses like rent or mortgage will need to meet within a ve to ten year time frame.
payments and utilities. Then add the amount you They can include things like a down payment on a
spent for food and other necessities. By averaging these home or college tuition. When you have a little more
expenses over a three-month period, youll know what time to save, you have the option to use vehicles with

PAGE 4
Retirement? College? A new home?
What are your nancial goals?
a higher potential rate of return, such as a mutual fund means the longer you wait to save, the longer you may
or a CD. Of course, ve to ten years is still not a long have to wait to retire.
time when it comes to investing, so you may still want
to choose vehicles with a moderate level of risk. Most people who retire at age 65 can expect to live
20 or more years in retirement. So how much will
Long-Term Goals These are goals that you need to you need? As we mentioned earlier, many nancial
reach in more than ten years such as college tuition professionals suggest youll need at least 78%-94% of
and retirement. As your time horizon increases, you your pre-retirement income to maintain your current
have the opportunity to use more growth-oriented standard of living. If you want to stay close to home,
vehicles with potential higher rates of return and risks, this may be right on target for you. But if youre
such as stocks and mutual funds. planning to take a cruise every month, youll need to
consider saving a lot more.
Never keep all of your eggs in one basket. Diversify
your investments by spreading your savings over a Another important consideration is healthcare. Longer
variety of investment options, such as stocks, CDs life can mean greater chances of medical problems
and bonds. And remember, ALL investments have in retirement. If you have a family history of medical
the potential to increase and decrease in value. But problems, you may want to save more. Medicare and
when you own a variety of investments, you increase Medicaid are government programs that can provide
the likelihood that some will do well when others do
some help, but they may not cover everything.
poorly.
Of course, you may already have more saved for
Saving for college.
retirement than you think. You now have your
College isnt cheap. And the cost increases each year.
estimated Social Security benet amount from your
Fortunately, there are a variety of tools available to
statement. You may also have a 401(k) or similar
help you save for your own or your childrens higher
education. Currently, two of the more popular savings plan at work, a traditional dened benet
education savings vehicles are Coverdell Education plan, individual retirement accounts (IRAs) and other
Savings Accounts and 529 College Savings Plans. savings. It all adds up.

But you should do a little research. The Internet and Be sure to take advantage of any retirement benets
public library are great places to start. There is a lot your employer offers. Some have traditional dened
of information available on different schools and their benet plans that pay a set dollar amount each year
costs not to mention information on scholarships youre in retirement. Others offer dened contribution
and grants. And try talking to the nancial aid ofce plans, such as 401(k) plans, that allow you to make
at your local college. They may have some ideas that contributions to your account with before-tax dollars.
can help you. Your contributions come right out of your paycheck,
making it easy to save on a consistent basis. And your
The bottom line is, if you set goals, start early, and employer may match a portion of your contributions.
take advantage of the tools available, you can pass the Dont miss out on that.
tuition test.
If you change jobs, consider rolling over your
Saving for retirement. retirement account assets into an IRA or into your new
These are the simple facts: The longer you wait, the employers plan. In some cases you may even be able to
less time youll have to save for retirement. Which leave the money in your current employers plan.

PAGE 6
Start saving now. The sooner you begin,
the sooner you can retire.
The Ballpark Estimate pre-retirement planning Employee Benet Research Institute
worksheet was developed by the American Savings www.ebri.org
Education Council (www.asec.org). This one-page
worksheet will give you a rough estimate of what you Choose to Save
need to save each year to fund your retirement. You www.choosetosave.org
can nd an interactive Ballpark Estimate online at the
American Savings Education Council
Choose to Save web site: www.choosetosave.org
www.asec.org
Help is always available. Financial Literacy Education Commission
If this is all a bit much for you, please remember, youre www.mymoney.gov
not alone. Financial professionals are available to help
you plan your future. If you decide to see a nancial U.S. Department of Labor
professional, take your time and talk with several www.dol.gov/ebsa/
before choosing one.
U.S. Department of the Treasury
Review your goals each year. www.savingsbonds.gov
Your situation and your goals may change. Thats
why you should take time each year to evaluate your U.S. Social Security Administration
progress. Did you meet your goals? Do you have new www.ssa.gov
goals for the coming year? www.socialsecurity.gov

U.S. Department of Health and Human Services:

You might also consider making one new goal each
Centers for Medicare and Medicaid Services
year. For example, if you spent your tax refund check
www.medicare.gov
last year, maybe you could make it a goal to put this
http://cms.hhs.gov
years refund toward your retirement savings.
U.S. Department of Defense:
As weve shown you, every little bit helps. Start now Navy and Marine Corps
and get ready for what the future might bring. www.lifelines2000.org/home.htm

Save for your future. And your familys future. It will Army
be here before you know it. www.armycommunityservice.org/vacs_nance/home.asp

Additional tools and resources. Air Force Crossroads

Find additional tools and more information at: www. www.afcrossroads.com/
choosetosave.org

The national Choose to Save education campaign is

committed to informing Americans about the need to
save and plan for retirement and other life stages.

PAGE 8
 Save for your future.
It will be here before you know it.
 Monthly Expense Worksheet

S AV ING S * $

R E NT / MOR TGA GE $
U T ILITIE S :
heat, water, electricity $
F OOD :
groceries, dining out, snacks $
T R A NS POR TATIO N: gas, oil,
car payment, repairs, insurance $
T R A NS POR TATIO N:
bus or subway fare $

C R E D IT C A R D PAYMENT S $
INS U R A NC E :
health, renters, homeowners $

LOA N R E PA Y ME N T S $

T U ITION $

C LOTH ING $
C H ILD C A R E /
A FT E R-S C H OOL PRO GRAMS $
U NIF OR MS , B OOKS, SCHO O L
S U PPLIE S $
E NTE R TA INME NT:
movies, videos, cds, books, travel $

H OLIDA Y G IFTS $

OTH E R E X PE NS ES $

T OTA L E X PE NS ES $

* If you think of saving money as

a regular monthly expense, you
will be more likely to stick with
a savings plan.
**The Ballpark Estimate Pre-Retirement Worksheet on reverse side is designed to provide a rough estimate of what you will need to save annually to fund a comfortable
retirement. It provides an approximation of projected Social Security benefits and utilizes only one of many possible rates of return on your savings. Ballpark reflects
todays dollars and does not account for inflation; therefore, you should recalculate your savings needs on a regular basis and as your salary and circumstances change.
You wont want to stop with the Ballpark Estimate; it is only a first step in the retirement planning process. You will need to do further analysis, either yourself using a more
detailed worksheet or computer software, or with the assistance of a financial professional. Copyright, EBRI Education and Research Fund. All rights reserved.

WWW.CHOOSETOSAVE.ORG
 Ballpark EstimatePre-Retirement Planning Worksheet**
If you are married, you and your spouse should each ll out your own Ballpark Estimate
worksheet taking your marital status into account when entering your Social Security
How much money do you
benet in number 2 below. need each year?
1 How much annual income will you want in retirement? How
Tips to much
help you money
select a goal:do you
$
(Figure at least 70% of your current annual gross income just to 70% toneed each
80% You will needyear?
to pay for the basics in
retirement, but you wont have to pay many medical
maintain your current standard of living.)
expenses as your employer pays the Medicare
$ Part B and D premium and provides employer-paid
2 Subtract the income you expect to receive annually from: retiree health insurance. Youre planning for a
For married couples the lower earning spouse should enter either their own benet based on their
comfortable retirement without much travel.
income or 50% of the higher earning spouses benet, whichever is higher. For a more personalized
estimate, enter the appropriate benet gure from your Social Security Statement from the Social You are older and/or in your prime earning years.
Security Administration (1-800-772-1213, www.ssa.gov). 80% to 90% You will need to pay your Medicare
SOCIAL SECURITY: $ Part B and D premiums and pay for insurance to
If you make cover medical costs above Medicare, which on
$25,000 or less Enter $8,000 average covers about 55%. You plan to take some
$25,000 - $40,000 Enter $12,000 small trips, and you know that you will need to
$40,000 or more Enter $14,500 continue saving some money.
$ 100% to 120% You will need to cover all Medicare
TRADITIONAL EMPLOYER PENSION: and other health care costs. You are very young
A plan that pays a set dollar amount for life, where the dollar and/or your prime earning years are ahead of you.
amount depends on salary and years of service (in todays dollars). You would like a retirement lifestyle that is more than
PART-TIME INCOME: $ comfortable. You need to save for the possibility of
long-term care.
OTHER: $
This is how
This is howmuch
muchmoney
money
This is how much you need to
make up for each retirement year: TOTAL: $ you will
you need to contribute
will need to
fromfrom
contribute savings.
savings.
Now you want a ballpark estimate of how much money youll need in the bank the
day you retire. So the accountants went to work and devised this simple formula.
For the record, they gure youll realize a constant real rate of return of 3% after
ination, youll live to age 87, and youll begin to receive income from Social Security
at age 65. If you anticipate living longer than age 87 or earning less than a 3% real
rate of return on your savings, youll want to consider using a higher percentage of
your current annual gross income as a goal on line 1.

3 Determine the amount youll need to save. $

Multiply the amount you need to make up by the factor below:
Your factor is:
55 21.0
Age you expect to retire:
60 18.9
65 16.4
70 13.6

4 Expect to retire before age 65? +$

Multiply your Social Security benet by the factor below:
Your factor is:

Age you expect to retire: 55 8.8

60 4.7

5 Multiply your savings to date by the factor below. $

(Include money accumulated in a 401(k), IRA, or similar retirement plan.)
Your factor is:

If you want to retire in: 10 years 1.3

15 years 1.6
Dont panic. Those same 20 years 1.8
accountants devised another 25 years 2.1
formula to show you how much to 30 years 2.4
save each year in order to reach
your goal amount. They factor in 35 years 2.8
compounding. Thats where your 40 years 3.3
This is how much
money not only makes interest, your Total additional savings money you will need
interest starts making interest as
needed at retirement: TOTAL: $ to have saved
well, creating a snowball effect.
when you retire.

6 Determine the ANNUAL amount youll need to save.

Multiply the TOTAL amount by the factor below.
Your factor is:

If you want to retire in: 10 years .085

15 years .052
20 years .036
25 years .027
30 years .020
35 years .016 $ / yr This is how much you
40 years .013 need to save each year
to get there.