Money Basics: Planning for Retirement

Lesson 10: Planning for Retirement


Planning for retirement

illustration of a man with his retirement savings

By the end of this lesson, you should be able to:

  • Discuss retirement planning
  • Discuss Social Security and how to obtain a Social Security card
  • Set retirement goals

Planning for retirement

Most of us don't want to work forever. Therefore, preparing for retirement is an important part of financial planning.

Today's retirees fund their retirement using Social Security benefits, pension benefits, and personal savings and investments. How you decide to invest your money depends on your needs, philosophy, age, goals, and other factors. Take time to assess your retirement goals.

  • When do you want to retire? What do you want to do after you retire? Where do you want to live? How much money do you want to have available to you?
  • Take time to think about your retirement and how you want to prepare for it. Read about different investments to familiarize yourself with the terms used.
  • If you don't have a lot of money to make significant investments, consider starting with a savings account or company savings plan. Eventually, you might diversify your investment portfolio based on your retirement goals and attitude toward risk.
  • Any type of investment comes with a certain amount of risk. The higher the risk, the more you stand to gain financially; the lower the risk, the less you stand to gain. However, high risk does not guarantee high return on your money—it can mean significant losses if the economy is on a downturn.
  • If you are young and single, you can probably afford to take more risk than someone who is married with children. If you are in your 60s, you might look for safer investments.

With careful planning and smart investing, you can achieve financial security, independence, and enjoyment in your later years. Read about the seven tips for retirement planning on the next page, then use our Retirement Planning Worksheet to help you think about expenses and income now vs. what you might need in the future.

Seven retirement planning tips

Securing enough money to cover your retirement years takes planning and discipline. As you work on your retirement plan, take the following steps.

  1. Estimate your future expenses. Think about any expenses that may be reduced or added. For example, you may pay off your mortgage but gain more medical expenses or add expenses for travel.
  2. Decide where your retirement income will come from: savings, investments, Social Security, a company pension plan, or rental income.
  3. Estimate your yearly retirement income. Your lifestyle will determine how much you will need. As a rule, you will need 60 percent to 80 percent of your gross household income today to maintain the same lifestyle after you retire.
  4. Don't forget about inflation. Inflation is the steady increase in the prices of goods and services. It can diminish your buying power, savings, and investment earnings. For example, if the interest on your investments is 4 percent and the inflation rate is 2 percent, you are essentially earning 2 percent on your investment.
  5. Become a knowledgeable investor. Don't invest in anything you don't understand. There are many resources that can help, including books, the Internet, and a financial advisor.
  6. Create an investment plan. If you are young and not afraid of risk, you might consider riskier investment strategies. As you get closer to retirement age, you might consider less risky investment options.
  7. Regularly review your investment portfolio to make sure you can meet your goals.

What is Social Security?

Social Security benefits are based on the earnings recorded under your nine-digit Social Security number. When you work, your employer withholds Social Security and Medicare taxes from your paycheck. Your employer matches that amount, sends the taxes to the Internal Revenue Service (IRS), and reports your earnings to Social Security. If you're self-employed, you pay your own Social Security taxes when you file your tax return, and the IRS reports your earnings to the Social Security Administration.

As you work and pay taxes, you earn credits that help make you eligible for future Social Security benefits. How many credits you earn per year depends on how much money you make; in 2014, you receive a credit for each $1,200 of income, up to a maximum of 4 credits per year. This does not apply to money earned as a domestic or farm worker, which has a separate set of rules. To quality for benefits, most people need to have accumulated 40 credits.

Social Security benefits can provide financial support for you and your family when you retire or if you become disabled. Such benefits can also be provided to your family if you die.

When it comes to planning for retirement, remember that Social Security should be only part of your retirement plan. The amount of money that retirees get from Social Security does not always rise with inflation, so it can be hard to live comfortably on Social Security. It is therefore important to try to save other money for your retirement as well.

To help you plan for retirement, each year the Social Security Administration sends you a personal Social Security Statement. You can also view your statement at any time by creating an account on the Social Security Administration's website. Your Social Security statement contains an estimate of the monthly benefit amounts you and your family may qualify for now and in the future.

If you currently work, use the Social Security Administration's Quick Calculator to calculate an estimate of your benefits.

Please note that calculations are only an estimate. Contact the SSA to obtain a personal Social Security Statement. You can request a statement online or download and print an order form to obtain a statement by mail.

How to obtain a Social Security card

illustration of a Social Security card

Remember, the number on your Social Security card is used to determine your benefits. The Social Security Administration issues this number on a Social Security card.

The SSA issues three types of cards:

  • The card many people have shows their name and Social Security Number and lets them work without restriction. It is issued to:
    • U.S. citizens
    • People lawfully admitted to the U.S. with permanent Immigration and Naturalization Service (INS) work authorization
  • The second card is "NOT VALID FOR EMPLOYMENT" and is issued to people:
    • From other countries lawfully admitted to the U.S. without work authorization from INS
    • Who need a number because of a federal law requiring a Social Security Number to receive a benefit or service
  • The third card is "VALID FOR WORK ONLY WITH INS AUTHORIZATION." It is issued to people who:
    • Are lawfully admitted to the U.S. on a temporary basis
    • Have INS authorization to work

To obtain an original number and card, complete an application for a Social Security card (Form SS-5), and show documents that prove your age, identity, U.S. citizenship, or lawful alien status.

To obtain an application you can:

Before you make a trip to the local office, make sure you have all necessary documents. There is no charge to get a Social Security card.

How to replace a Social Security card

To get a duplicate card if yours is lost or stolen or a corrected card if you have changed your name, call or visit your local Social Security office. Your card will be replaced free of charge. You will need to:

  • Complete an application for a Social Security card (Form SS-5).
  • Show proof of your identity. If you need a corrected card, you will need to show one or more documents, which identify you by the old name on our records and your new name. The document showing your current identity must have been issued recently.
  • Show proof that you are a U.S. citizen or lawful alien status if you were born outside the United States.

To retire comfortably, save regularly

It is estimated that a person needs 60 to 80 percent of his or her pre-retirement income to live comfortably in retirement. However, for the average worker, Social Security replaces only about 40 percent of pre-retirement income. The balance must come from pensions and personal savings.

If you haven't already started, it's important to start saving now. Your total savings are determined by the interest you earn on your savings and the time period over which you save. The sooner you start saving, the more money you will be able to amass over time.

Setting retirement goals

Planning for retirement

As you prepare for retirement, keep these tips in mind.

  • Develop financial goals, and create a plan to achieve them.
  • Be prudent, and watch out for people who are out to get your money. Be skeptical about financial offers that promise anything free or with little effort.
  • Recognize that, as an investor, you will face risk. Diversify your assets to best protect yourself against risk.
  • Before paying bills and other obligations, try to set aside money each month in accounts for your long-range goals and emergencies. In other words, budget for savings.
  • Try to pay off credit card debt. The interest you pay on a credit card reduces the amount you can save for retirement.
  • Try to get a job with a strong retirement plan that is either a traditional monthly retirement benefit or a 401(K) plan. You'll learn more about 401(K) plans later in this course.



  • Retirement Bible - Lynn O'Shaughnessy
  • The Retirement Sourcebook - Mary Helen Smith and Shuford Smith