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Participant Handout

Retirement and Savings

Latest Update: 03-19-08

Presented by: Consumer Credit Counseling Service Education Team
Version 1.0

Course Outline
Purpose/Key Learning Points

The purpose of this course is to explain retirement and savings options. You will learn:

- What is the total amount of money you will need each month in retirement?
- What are the common ways to save for retirement?
- How fast will my money grow?

A. Retirement vehicles:

 Traditional IRA- A special retirement planning account for individuals. All or part of the
contribution in a tax-deferred savings account may be deductible from current taxes,
depending on the individual's income and coverage by an employer-sponsored qualified
retirement plan (such as a 401(k) plan). Penalties usually apply for withdrawals before
age 59-1/2. Withdrawals are taxed as income. See also Roth IRA.

 401K - An employer-sponsored savings plan that allows employees to contribute a

portion of their gross salary to a savings or profit-sharing plan. Employee contributions
and income earned on the plan are tax-deferred until withdrawn at age 59-1/2. Money
directed to the plan may be partially matched by the employer, and investment earnings
within the plan accumulate tax-free until they are withdrawn. The 401(k) is named for the
section of the federal tax code that authorizes it.

 403b - Similar to 401(k) plans, but set up for public employees and employees of
nonprofit organizations.

 Roth IRAs- An alternative to a traditional IRA. The most notable thing about a Roth is
withdrawals are tax-free if the account has been open for at least five years and you're at
least 59 1/2 when you start to withdraw money. Contributions to a Roth are not tax
deductible. The Roth is named for Sen. William Roth, Jr., former chairman of the Senate
Finance Committee. Roth IRAs let you invest after-tax dollars. When you retire, you take
out all the money plus whatever interest it has earned tax free. Traditional IRAs work the
opposite of a Roth. You get an initial tax deduction when you put the money in; but, you
pay taxes when you take the money out. A Simplified Employee Pension (SEP) is
recommended for people who own their own businesses or are independent contractors.
It works like a traditional IRA. The work provided retirement plans, 401k or 403b have the
same tax consequences as the traditional IRA, but here you have the employer match.

 Annuity- A regular periodic payment made by an insurance company to a policyholder

for a specified period of time. Also see Tax-Sheltered Annuity. Retirement plan for
employees of tax-exempt organizations and public schools, also known as a Section
403(b) plan. The plan is funded by pretax salary reductions and it earns tax-deferred
income until withdrawal. Also see Annuity.

 Reit- Real estate investment trusts. In order to qualify as a REIT, a company must derive
a certain percentage of income from real estate and pass on 90 percent of its earnings to
shareholders. REITs invest in any kind of commercial real estate, from shopping malls to
timberlands, even in mortgages. REITs sell on the major exchanges as stocks but can be
owned in a mutual fund or ETF.

 Stocks- the shares of a particular company or corporation which signifies ownership in a

particular company.



 Dividends - The portion of a company's earnings and profits that are paid to you as a
stockholder in the company. These payments may be ordinary dividends, capital gain
distributions or nontaxable distributions. You usually receive dividends in cash, but you
may receive them in the form of more stock, stock rights, property or services.
Companies or brokerage firms report dividend income to you on Form 1099-DIV.

 Mutual funds- An investment that pools together money from many different investors
and puts it into stocks, bonds and other securities or a combination of the three. Mutual
funds offer professional management and diversification.

 Employee Stock Options- A company gives an employee the right to buy shares of the
company stock at a set price

 Pension Plans- a fixed amount, other than wages, paid at regular intervals to a person
or to the person's surviving dependents in consideration of past services, age, merit,
poverty, injury or loss sustained

 Sep- Known as SEP. A retirement plan similar to an individual retirement arrangement for
self-employed individuals and their employees. But where an individual establishes the
IRA account, a SEP is set up by the employer.

B. Savings vehicles:

 Money Market account - A money market account is an FDIC-insured deposit account

that allows you access to the money you have deposited. Withdrawals are limited to six
monthly, three of which may be by check. It's sometimes called a money market deposit
account to distinguish it from a money market fund, which is a type of mutual fund.

 CDs- A 1-month CD (certificate of deposit) is a time deposit, FDIC-insured to $100,000

per person ($250,000 on retirement accounts), with a fixed maturity date of one month. It
usually pays higher interest than a savings account and a penalty is charged for
withdrawing funds before the maturity date.

 CD (certificate of deposit) Ladder - A CD ladder is constructed when an investor buys a

series of CDs at regular intervals. The practice evens out rate fluctuations and makes
cash available regularly.

 Bonds- A debt instrument, issued for a period of at least one year that pays a fixed rate
of interest for a specific period. A bond is an IOU from a corporation or government entity.
Corporations and governments borrow money from investors by issuing bonds. Bonds
represent debt, as opposed to stocks, which represent ownership in a company. Usually,
the principal is repaid at the maturity date.

 Interest bearing Checking accounts and Savings accounts- You will continue to need
these two accounts for your monthly and daily bill paying and spending.

Definitions provided by



C. Use this worksheet to calculate your current and future living expenses.

Current Monthly Living expenses Monthly Expenses In Retirement

Expenses Today Monthly Expenses In Retirement Monthly

Costs Costs
Mortgage Utilities
Car Food
Utilities Medical
Food Prescriptions
Medical Insurance
Prescriptions Phone
Insurance Taxes
Phone Entertainment
Taxes Maintenance Account
Maintenance Account



Course Follow-Up Activities

Activities to help you move from crisis to control to confidence in your personal finances:

If you are experiencing a crisis situation in regard to your personal finances and need to speak
with a counselor directly, call us at: 1-800-251-2227. We are available: 24 hours - 7 days/week -
365 days/year.

For additional information on financial topics, visit our website at:, and select the
Money Smarts category.

Don’t forget about our free, self-guided on-line education site that is available to you at To gain better control over your day-to-day spending and to put in place
those tools and processes to help you manage your money, we recommend you take all the
courses in the ‘Money Smarts’ lesson plan on CredAbilityU.

For additional learning to move you to confidence in your personal finance knowledge, we
recommend the following additional reading:

Zero Debt by Lynette Khalfani

Saving for Retirement without Living like a Pauper or Winning the Lottery by Gail
The Big Payoff by Sharon Epperson