Monthly Retirement Planning - Petrosky
CHAPTER 3 ACTIVITY
Objective The purpose of this activity is for students to see first-hand the benefits of saving for retirement instead of relying on Social Security benefits. Students will also analyze how delaying saving for ten years will greatly affect their investment. Notice This activity utilizes online tools from the U.S. Social Security Administration’s website. Websites change frequently, and the location of the tools used in this activity may change over time. Before you assign this activity, check and make sure the directions on the student activity sheet are still accurate.
Monthly Retirement Planning Teacher Directions Hand out the student activity sheet and monthly retirement planning worksheet. Students need to follow the instructions on the monthly retirement planning worksheet. The second time they do the computations, make sure they add ten years to their age (the effects of waiting ten years before saving). Direct students to www.socialsecurity.gov and click on the retirement benefits. Students have to make up a year of birth that will put them at least 21 years of age. Depending on the age students pick, estimate a retirement date that makes them at least 65 years old. Example: Date of Birth: January 2, 1980 with retirement on January 2, 2048. This would make them 68 at retirement. Students should draw the conclusion that Social Security benefits will not be enough to live on and that there is a maximum monthly benefit amount you can draw.
FOUNDATIONS in PERSONAL FINANCE
CHAPTER 3
Name____________________________
STUDENT ACTIVITY SHEET
Date_____________________________
MONTHLY RETIREMENT PLANNING WILL SOCIAL SECURITY BE ENOUGH for you? In order to retire with security, you must have a goal and a visual picture of how to accomplish it. Your assignment is to determine how much you should be saving per month, at 12% interest, in order to retire at 65 years old with the amount you need.
Part 1 Use the monthly retirement planning worksheet to help with the calculations. Do the activity twice: one time assuming you start investing today, and a second time assuming you start investing in 10 years. 1. What annual income do you want to retire on? ___________ 2. How much per month will you have to save? ___________ 3. How much per month will you have to save if you wait 10 years before you start saving? ___________
Part 2 Next, compare the figures above with what you can expect to retire on if you rely only on Social Security. Go to the U.S. Social Security Administration’s website at www.socialsecurity.gov. On the home page, choose “retirement” from the menu. On the following page, choose “calculate your benefits.” Next, choose “quick calculator.” On the “quick calculator” page, make up a year of birth (must be at least 21 years old for calculator to work) and estimate a retirement date (use at least 65 years old). Enter current earnings (experiment using different amounts). This will calculate your monthly benefit amount. Calculate at least two different amounts and record your results below.
Earnings ______________
Earnings _______________
Monthly Benefit _______
Monthly Benefit ________
Consider the results from both parts of this activity and answer the following: 1. What conclusions can you draw based on this activity? 2. What is the maximum monthly benefit you can receive from Social Security?
FOUNDATIONS in PERSONAL FINANCE
Monthly Retirement Planning Too many people use the READY-FIRE-AIM approach to retirement planning. That’s a bad plan. You need to aim first. Your assignment is to determine how much per month you should be saving at 12% interest in order to retire at 65 with the amount you need. If you save at 12% and inflation is at 4%, then you are moving ahead of inflation at a net of 8% per year. If you invest your nest egg at retirement at 12% and want to break even with 4% inflation, you will be living on 8% income.
Step 1: Annual income (today) you wish to retire on: ________________
Divide by .08 (Nest egg needed) equals: ________________
Step 2: To achieve that nest egg, you will save at 12%, netting 8% after inflation. So, we will target that nest egg using 8%.
Nest Egg Needed
$
_______________
Multiply by 8% Factor
X
_______________
Monthly Savings Needed
=
_______________
Note: Be sure to try one or two examples if you wait 5 or 10 years to start.
8% Factors (select the one that matches your age) Your Years Age to Save 15 50 20 45 25 40 30 35 35 30 40 25 45 20 50 15 55 10 60 5
Factor .000126 .000190 .000286 .000436 .000671 .001051 .001698 .002890 .005466 .013610
Objective The purpose of this activity is for students to see first-hand the benefits of saving for retirement instead of relying on Social Security benefits. Students will also analyze how delaying saving for ten years will greatly affect their investment. Notice This activity utilizes online tools from the U.S. Social Security Administration’s website. Websites change frequently, and the location of the tools used in this activity may change over time. Before you assign this activity, check and make sure the directions on the student activity sheet are still accurate.
Monthly Retirement Planning Teacher Directions Hand out the student activity sheet and monthly retirement planning worksheet. Students need to follow the instructions on the monthly retirement planning worksheet. The second time they do the computations, make sure they add ten years to their age (the effects of waiting ten years before saving). Direct students to www.socialsecurity.gov and click on the retirement benefits. Students have to make up a year of birth that will put them at least 21 years of age. Depending on the age students pick, estimate a retirement date that makes them at least 65 years old. Example: Date of Birth: January 2, 1980 with retirement on January 2, 2048. This would make them 68 at retirement. Students should draw the conclusion that Social Security benefits will not be enough to live on and that there is a maximum monthly benefit amount you can draw.
FOUNDATIONS in PERSONAL FINANCE
CHAPTER 3
Name____________________________
STUDENT ACTIVITY SHEET
Date_____________________________
MONTHLY RETIREMENT PLANNING WILL SOCIAL SECURITY BE ENOUGH for you? In order to retire with security, you must have a goal and a visual picture of how to accomplish it. Your assignment is to determine how much you should be saving per month, at 12% interest, in order to retire at 65 years old with the amount you need.
Part 1 Use the monthly retirement planning worksheet to help with the calculations. Do the activity twice: one time assuming you start investing today, and a second time assuming you start investing in 10 years. 1. What annual income do you want to retire on? ___________ 2. How much per month will you have to save? ___________ 3. How much per month will you have to save if you wait 10 years before you start saving? ___________
Part 2 Next, compare the figures above with what you can expect to retire on if you rely only on Social Security. Go to the U.S. Social Security Administration’s website at www.socialsecurity.gov. On the home page, choose “retirement” from the menu. On the following page, choose “calculate your benefits.” Next, choose “quick calculator.” On the “quick calculator” page, make up a year of birth (must be at least 21 years old for calculator to work) and estimate a retirement date (use at least 65 years old). Enter current earnings (experiment using different amounts). This will calculate your monthly benefit amount. Calculate at least two different amounts and record your results below.
Earnings ______________
Earnings _______________
Monthly Benefit _______
Monthly Benefit ________
Consider the results from both parts of this activity and answer the following: 1. What conclusions can you draw based on this activity? 2. What is the maximum monthly benefit you can receive from Social Security?
FOUNDATIONS in PERSONAL FINANCE
Monthly Retirement Planning Too many people use the READY-FIRE-AIM approach to retirement planning. That’s a bad plan. You need to aim first. Your assignment is to determine how much per month you should be saving at 12% interest in order to retire at 65 with the amount you need. If you save at 12% and inflation is at 4%, then you are moving ahead of inflation at a net of 8% per year. If you invest your nest egg at retirement at 12% and want to break even with 4% inflation, you will be living on 8% income.
Step 1: Annual income (today) you wish to retire on: ________________
Divide by .08 (Nest egg needed) equals: ________________
Step 2: To achieve that nest egg, you will save at 12%, netting 8% after inflation. So, we will target that nest egg using 8%.
Nest Egg Needed
$
_______________
Multiply by 8% Factor
X
_______________
Monthly Savings Needed
=
_______________
Note: Be sure to try one or two examples if you wait 5 or 10 years to start.
8% Factors (select the one that matches your age) Your Years Age to Save 15 50 20 45 25 40 30 35 35 30 40 25 45 20 50 15 55 10 60 5
Factor .000126 .000190 .000286 .000436 .000671 .001051 .001698 .002890 .005466 .013610
