Byf Student Book 4

Building Your Future:
Succeeding
A Student and Teacher Resource
for Financial Literacy Education
Copyright 2013, 2014

The Actuarial Foundation
About This Book

Personal finance is part knowledge and part skill and the Building Your Future book series gives
students a foundation in both. It addresses knowledge by covering the essential principles of banking
in Book One, financing in Book Two, investing in Book Three, and succeeding in Book Four. The series
also addresses the mathematical skills that students need to live a financially healthy life. Students will
be able to see the real-world consequences of mastering their finances, which helps them understand
the relevance of good mathematical skills. We hope you enjoy this Building Your Future book series.
The catalyst for this book series was based on an original book authored and donated to The Actuarial
Foundation by an actuary, James A. Tilley, FSA, who was interested in financial literacy education in
schools. We thank Mr. Tilley for his original works that inspired this Building Your Future series.
About The Actuarial Foundation

The Actuarial Foundation is a 501(c)(3) nonprofit organization. The mission of The Actuarial Foundation
is to enhance math education and financial literacy through the talents and resources of actuaries.
Through Advancing Student Achievement, a program that seeks to improve and enhance student math
education in classrooms across the country, we are proud to add Building Your Future, a financial
literacy education curriculum for teachers and students, to our library of math resources. Please visit
the Foundations Web site at: www.actuarialfoundation.org for additional educational materials.
What is an Actuary? Actuaries are the leading professionals in finding ways to manage risk. It takes
a combination of strong math and analytical skills, business knowledge and understanding of
human behavior to design and manage programs that control risk. Actuary was included as one
of the Best Careers of 2007 in US News and World Report. To learn more about the profession, go to:
www.BeAnActuary.org.
Building Your Future

Table of Contents
Chapter 1: Path to Employment

Career Planning Basics...................................................................................................................................2

Investing in Career Education.....................................................................................................................4
Understanding Earning Potential..............................................................................................................5
Chapter 2: Paying for Post-secondary Education

Saving for College........................................................................................................................................ 10
Scholarships................................................................................................................................................... 10

Financial Aid Basics...................................................................................................................................... 12

Grants and Work-Study.............................................................................................................................. 13
Loans................................................................................................................................................................. 14
Chapter 3: Making a Living

Compensation Basics.................................................................................................................................. 20
Understanding Your Paycheck................................................................................................................. 23
Costs of Changing Careers........................................................................................................................ 25
Chapter 4: Making a Life

Wants vs. Needs............................................................................................................................................ 29

Budget Basics................................................................................................................................................. 30
Keeping It Balanced..................................................................................................................................... 34
Maintaining Good Credit........................................................................................................................... 35
Building Your Credit History..................................................................................................................... 36
Identity Theft.................................................................................................................................................. 37
Chapter 5: Retirement

Retirement Basics......................................................................................................................................... 39
Compounding Interest............................................................................................................................... 40
Challenges of Saving for Retirement..................................................................................................... 41
Government Programs............................................................................................................................... 42
Investing for Retirement............................................................................................................................ 44
Some of the activities in this book reference specific Web pages. While active at the time of publication,
it is possible that some of these Online Resource links may be renamed or removed by their hosts at
some point in the future. Note that these links were provided simply as a convenience; a quick search
should reveal some of the many other online resources that can be used to complete these activities.
Facts and opinions contained are the sole responsibility of the organizations expressing them and
should not be attributed to The Actuarial Foundation and/or its sponsor(s).

Did You Know.

Unemployment and earnings are directly linked to educational attainment. In 2011 the
average high school graduate earned $638 per week and had an unemployment rate of 9.4%,
workers with associate degrees earned $768 per week and were unemployed at a rate of 6.8%
and people with a 4-year degree earned $1053 weekly with an unemployment rate of only
4.9% according to the Bureau of Labor Statistics.
Key Terms:
Career path
Bachelors degree
Earning potential
Masters degree
Lifetime earnings
Doctorate
Career aptitude
Diploma
Skills
Tuition
Employability
Wages
Career clusters
Hourly wage
Job shadowing
Salary
Return on investment
Tips
On-the-job training
Commission
Apprenticeship
Bonus
Internship
Benefits
Associate degree
What Youll Learn

Knowing your interests, strengths, skills and aptitudes can help you identify a
number of different career options that you can consider as you move toward
adulthood. In choosing a career, you should also be aware of the various types
of education needed for different occupations and the cost of completing an
educational program. Finally, when selecting the right profession and the path
for achieving it, you should consider your return on investment how much
you will gain from a certain career path if you invest in the required training.
Career Link
There is a bright employment outlook for those who want to work as Educational,
Guidance, School and Vocational Counselors. The main focus of these occupations is to
assist others with selecting a career through analyzing skills, interests and abilities and then
finding the educational resources needed to prepare for the selected career. This line of
work typically requires a Masters degree and has a median salary of over $54,000 annually.
Building Your Future, Book 4: Path to Employment
career path
from a group of careers that

share common features one
can select a path toward a
specific job, knowing that
with more education and
experience comes the ability
to move up within the path
earning potential
the amount of money a

person should be able to earn
in his/her profession
lifetime earnings
the total amount of money

one can expect to be paid for
work done in a specific career
field over the course of their
working years
career aptitude
an individuals innate ability,

suitability, readiness,
disposition, capacity or
potential for being competent
in a specific type of work
skills
the ability to do something

with competence
employability
a set of achievements, skills,

knowledge and personal
attributes that make a person
likely to gain employment
and be successful in their
chosen occupations
career clusters
groupings of occupations in
the same field of work that
require similar skills
job shadowing
accompanying an
experienced worker on the job
to learn the specific skills and
responsibilities associated
with the successful
performance of a specific
career
2
Career Planning Basics
Choosing a career path is one of the most important decisions people make.
The occupation one chooses to pursue often determines earning potential
and lifetime earnings, which affect everything from the type of housing and
transportation a person can afford to the kinds of hobbies and interests they
can pursue throughout their lives. Because ones career choice influences so
many lifestyle factors, the path to employment is one that requires careful
consideration and planning. Ultimately, you want to select an occupation that
you will enjoy and that will provide you with the income necessary to support
you throughout adulthood.
One of the first things to consider is career aptitude and skills. Identifying
subject areas you enjoy in school, and in which you do well, is a good place to
begin your career exploration. For example, if you are good at math and
problem solving, then perhaps a career focused on numbers, such as actuarial
science or accounting, would be worth considering. In addition, you must
consider employability. Suppose you enjoy activities such as sports or acting.
Building your career aspirations around these fields can be risky because jobs
in these areas can be difficult to obtain and short-lived, and they require a high
degree of skill in certain areas in order to succeed. Through studying career
clusters, you can identify a number of potential occupations that utilize your
career aptitudes and require varying levels of additional training and
education.
First-hand experience is also a critical part of choosing your vocation. Arrange
for job shadowing experiences that allow you to see in person what someone
in a specific career field does on a daily basis. Use this activity as a means for
interviewing people already working in the career field to tell you specifically
about the pros and cons of the job and share their suggestions for the best
path to follow if you are truly interested in working in that occupation.
Examples and Practice
Try It!
Visit O*Net Online at http://www.onetonline.org/find/career. There you

will find a list of 16 different Career Clusters.
Browse a cluster that sounds interesting to you. Select the cluster and
click on Go.
View the list of occupations. Pay special attention to those marked
with a Bright Outlook symbol as they represent jobs where there
will be rapid growth, large numbers of openings or new and emerging
fields.
Select one of the occupations from the list. Scroll through the entire
entry and note the vast amount of information available about the
occupation in terms of knowledge, skills, abilities and aptitudes.
In the Wages and Employment Trends section, select your state under
State and National and click on Go. Observe the median salary,
percentage of change and number of job openings in the nation
compared with your state.
Create a spreadsheet that contains the columns shown at the bottom
of this page, then populate with data.
As you construct the spreadsheet, think about the following:

Median Wage Difference = Median Wage U.S. Median Wage in
My State
Percentage of Job Growth (Decline) Difference = Percentage of Job
Growth (Decline) U.S. Percentage of Job Growth (Decline) My
State
How would you express each of the statements above as a formula for the
spreadsheet?
Using the formulas, construct the spreadsheet and fill in the data for
three different occupations that are of interest to you. They can be from
any of the 16 career clusters.
Based on what you learned about wages in your state, would you still be
interested in any or all of these careers? Why?
Why do you think there is a difference between the national medians and
those of your state?
Based on what you learned about the percentage of job growth/decline
for these careers both in your state and nationally, would you still be
interested in any of them? Why?
A
1
Occupation
Education
Required
Median
Wage, US
Median
Wage,
My State
Median
Wage
Difference
% Job
Growth/
Decline, US
% Job
Growth/
Decline,
My State
% Job Growth/
Decline,
Difference
return on investment
measures what is gained from

an investment after
subtracting the cost(s), usually
in money and/or time, of the
investment
on-the-job training
hands-on training by an
experienced employee or
trainer in the workplace to
teach an employee the specific
skills needed for the position
apprenticeship
a combination of on-the-job
training and related
instruction where workers
learn the practical and
theoretical aspects of a highly
skilled occupation
internship
working, usually for free or a

small wage, in your expected
career field with supervision
from more experienced
professionals as a means of
gaining the experience needed
for an entry-level position
vocational education
training for a specific industry

or trade
associate degree
a two-year academic degree

awarded by community
colleges, junior colleges,
technical colleges and four
year colleges and universities
after the completion of a
course of study that typically
includes at least 60 credit
hours
bachelors degree
a four-year academic degree

awarded by a college or
university after the completion
of a course of study that
typically includes at least 120
credit hours
masters degree
an advanced university degree

offered in a range of studies,
beyond a bachelors but not to
the doctorate level
4
Investing in Career Education
As you saw in the Did You Know fact, there is a direct connection between
lifetime earnings and the amount of education you receive. However, since
additional education after high school can be expensive, examining the return
on investment for obtaining higher education or additional schooling is an
important step to take in the career planning process. Seeing the possible
earning potential you can gain from investing in education is an important
step in navigating the path to employment.
Different jobs require different types of training. Sometimes this is on-the-job
training or an apprenticeship or internship, where you work side-by-side
with an industry expert to learn and practice what you need to know to master
the required job skills and complete the work successfully. Some jobs that offer
this type of training are found in fields like construction, auto service and
manufacturing. The classroom and hands-on instruction that leads to these
types of careers is often referred to as vocational education.
Other jobs require more specialized training, where one earns an associate,
bachelors, masters or doctorate degree through completing a specific
program of study at a college or university. When thinking about this type of
training, keep in mind that completing high school and earning a diploma will
be a requirement prior to starting one of these programs of study. Associate
degree programs usually take two years and can be earned in a wide range of
fields; they are typically awarded by community, junior or technical colleges.
The completion of a certain number of credit hours in course work, passing
necessary licensing exams and obtaining required licenses and permits will
allow you to work once you have earned your degree. Remember, this training
is paid for by the student in the form of tuition; it is an investment on your
part.
The educational process is similar for bachelors, masters and doctorate
degrees, although the number of credit hours and years of commitment vary.
Bachelors degrees are designed to take four to five yearsor an additional
two to three years after attaining an associates degree--to complete. Masters
degrees usually take two to four years to complete and generally require a
bachelors degree. A doctorate requires seven or more years of training beyond
a bachelors degree, depending on the career that has been selected. The
tuition for these types of programs is usually more because these degrees are
awarded from colleges or universities, and these are often expensive.
When considering career training options, it is important to view education as
an investment in your future. Consider that every type of employment has
certain expenses associated with it. Sometimes it is the cost of a uniform or
required equipment. Other times it is licensing or exam fees. Many times it is
the cost of acquiring specific skills through getting education beyond what
you receive in high school.
A
Field
Try It!
Required
Cost of
Education
Education
(Investment) Investment
Annual
Salary
Tips/Bonus/
Commission
Total
Salary
Cashier
None
$0
$18,820
$0
Construction/
Carpenter
1 year as
apprentice
$0
$40,010
$0
Licensed
Practical Nurse
Associates
degree
$6,000
$41,150
$0
Actuary
MBA
$60,000
$91,060
$3,300
Lawyer
Doctorate
$195,000
$112,760
$4,500
Lifetime
Total
Earnings
Return on
(over 40 years) Investment
doctorate

Create a spreadsheet like the one above that will help you evaluate the
return on investment for five different career choices. Note that not
all career choices will have data that applies in all categories. Include
the following information on your spreadsheet.

Total Salary = Annual Salary + Annual Tips, Bonuses or
Commission
Lifetime Earnings = Total Salary x 40 years
Total Raw Return on Investment = Lifetime Earnings Cost of
Education
spreadsheet?
Using the formulas, construct the spreadsheet to calculate the data for
the five career fields provided.
Looking at the careers, which do you think has the greatest potential
return on investment? Explain why.
The spreadsheet does not account for the time investment necessary to
complete the training needed for some of the jobs. Taking into
consideration the amount of education, potential lifetime earnings and
the time investment needed for each job, which career would you select
if you were making a decision today? Explain why.
Understanding Earning Potential
the highest level of a

university degree offered in a
range of studies
diploma
a document issued by an
educational institution
testifying that the recipient
has successfully completed a
particular course of study
tuition
the amount one must pay for

instruction
fair market price
the price that a reasonable

investor would expect to
pay for the bond
wages
money paid or received for

work or services completed,
usually by the hour, day, or
week
hourly wage
the amount and employee is

paid by an employer for
completing an hour of work
salary
As you look at occupational training options, there are several factors that come
into play. First, you must consider your earnings. Many people focus only on the
wages they receive. Depending on the type of job you have, you may earn an
hourly wage or you may earn a salary. In addition, you could also have a job
where some of your earnings come from tips, commissions or bonuses.
wages an employee receives

from the employer on a
regular basis, usually weekly,
bi-weekly or monthly.
tips
a sum of money one receives

from a customer in
recognition of quality service
commission
money, in addition to regular

wages, that is paid for work
done or products sold
In addition to actual money paid to employees, there are many other benefits
that employers often offer. These benefits can be everything from insurance
and medical coverage to retirement plans, profit sharing and gym
memberships; some may see job stability as a benefit as well. For many
employees, these benefits are sometimes just as important as the salary being
offered. Since medical and dental care is so expensive, employers who offer
these options are often quite desirable.

Create a spreadsheet that will help you evaluate the earning potential
of various types of hourly wage careers. Include the columns shown at
the bottom of this page. For the spreadsheet, assume that you have a
40 hour work week. Use the career data below to construct your
spreadsheet.
Try It!
bonus
a sum of money given to an

employee in addition to the
employees usual wages
benefits
compensation beyond a
salary or hourly wage such as
insurance, paid vacation time,
retirement plan (such as
401K) or free parkingyield to
maturity
the market rate of interest
on the bond
Career 1: Cashier earning $7.25 per hour. You do not earn tips, a bonus
or a commission.
Career 2: Retail salesperson earning $10.10 per hour. You earn a
commission of 5% of your hourly weekly wages if you meet your sales
quota, which you do on a regular basis.
Career 3: Barista earning $8.90 per hour. You earn an average of an
additional $2.00 per hour in tips each week.
Career 4: Telemarketer earning $10.83 per hour. You earn a $25 bonus
for each week that you sell 10 or more of your product. In an average
week, you make 12 sales.

Total Earnings = Hourly Wage x Hours Worked + Weekly Tips,
Bonus or Commission
How would you express the statement above as a formula for the
spreadsheet?
Using the formulas, construct the spreadsheet to calculate the data for
the five career fields provided.
Looking at the careers, which do you think has the greatest earning
potential?
How do you think variables such as tips, bonuses and commissions are
affected by a weak economy? A strong economy?
Career Field
Hourly
Wage
Hours
Worked
Weekly
Tips
Weekly
Bonus
Weekly
Commission
Total
Earnings
Independent Practice
You are preparing to graduate from high school and need to determine your
pathway to a successful career. Use what you have learned about career planning,
earning potential, investing in continuing education and return on investment to
explore three possible career paths. Use the Pathway to Success Worksheet to
complete your analysis of career path options.

Chapter 2: Paying for Postsecondary Education
Did You Know.

In 201011 the cost of undergraduate tuition, room, and board were estimated to be $13,600
at public institutions, $36,300 at private not-for-profit institutions, and $23,500 at private
for-profit institutions? Between 200001 and 201011, prices for undergraduate tuition, room,
and board at public institutions rose 42 percent, and prices at private not-for-profit institutions
rose 31 percent.
Key Terms:
Total cost of attendance
Supplemental Educational Opportunity Grant
Education IRA
Work-study
529 account (ESA)
Student loan
Tuition pre-payment
Subsidized loan
Scholarship
Unsubsidized loan
ACT
Interest rate
SAT
Grace period
Reserve Officers Training Corps Deferred payment

Financial aid
Perkins loan
FAFSA
Stafford loan
Estimated Family Contribution Parent Loan for Undergraduate Students

Grant
Default
Pell Grant
What Youll Learn

Many careers require additional instruction or training after high school. Some
training takes weeks or months, other preparation takes years. Regardless of
the duration of the training, it must be paid for. Knowing how to determine
approximate post-secondary expenses, how to save for these expenses, and
how to combine savings with financial aid, student loans, scholarships and
work to finance your ongoing education can make post-secondary education
more attainable.
Career Link
Information on the role actuaries play in the financial aid process as student loan and aid
applications are analyzed for approval and for the awarding of funds.
Building Your Future, Book 4: Paying for Postsecondary Education
Post-secondary education can be a major expense and, like any major expense,
there are different options for covering the cost. Some families may begin
saving years in advance, building up a sizable account to meet their
anticipated expenses. Some may look for additional sources of funding, such
as scholarships, grants and work-study programs to reduce their out-of pocket
costs. Some may borrow the money, assuming they will be able to pay the loan
back out of their increased earnings. Most will ultimately pursue a mix of these
options.
total cost of
attendance
the price youd pay to attend

college for a year including
tuition, room and board,
books and fees
education IRA
an education savings plan

that offers tax advantages
529 account (ESA)
a higher education savings

plan where the funds can be
withdrawn tax-free when they
are needed for educational
purposes
tuition pre-payment
state loan in which families

can purchase tuition credits at
their present price and use the
credits in the future, when
tuition costs will have most
likely increased
scholarship
an award of financial aid for a

student to further their
education, often based on
merit such as academic
achievement or athletic skill
ACT
a standardized achievement
examination for college
admissions
SAT
a standardized test for college

admissions in the United
States
10
This chapter will offer information on each option available to you so you can
begin planning now to cover the post-secondary expenses you expect to incur
after high school. Remember to also look at other ways of increasing income
such as working while attending college or reducing your expenses by living at
home or buying used textbooks instead of new ones. Anything you can do to
reduce your total cost and increase the funds you have available to pay those
costs will help make college a more affordable proposition.
Saving for College

As you learned in Chapter 1, the cost of obtaining education after high school
can be quite high. When considering the total cost of attendance and the
continued rising price of tuition and fees, covering the entire cost in advance
through savings for education can seem impossible. There are, however, many
ways that students and their families can finance future education. Preparing
now to cover those future expenses is a smart move, and there are programs
available that can help you leverage your education savings.
One option to consider is an education IRA or a 529 account. These types of
savings plans can be started when a child is born, with the funds available for
withdrawal when the child is ready for college. These accounts build wealth
over time, much like retirement savings accounts, and rely on compounded
interest to grow the principle investment. There are also significant tax benefits
associated with these plans. While contributions are not deductible,
distributions used to pay for college can be withdrawn without any federal
taxes. There may be tax benefits at the state level as well, depending on your
location.
Another avenue to consider is tuition pre-payment programs. By purchasing
tuition credits, parents can pay for college tuition while a child is still in preschool. The advantage to this type of purchase is that one can avoid the annual
6-7% increase in tuition costs.
Scholarships
Students should also consider applying for scholarships. There are a wide
range of scholarships awarded each year from all types of public and private
groups. Some are based on academic performance in school along with scores
on tests such as the ACT or SAT. Other scholarships are awarded based on
involvement in certain activities, majoring in specific types of studies, financial
need and a range of other criteria. Many require that recipients maintain a
certain level of academic performance while in college.
There are a number of websites dedicated to helping students locate and
secure scholarships as well as assisting with completing scholarship
applications including http://www.finaid.org/scholarships/ and http://studentaid.
ed.gov/types/grants-scholarships/finding-scholarships. Since scholarships are
awards that generally do not have to be repaid, applying for this free money is
usually time well spent.
Students who may be interested in the military and also in obtaining a college
education may consider exploring the Reserve Officers Training Corps
(ROTC) program. This program provides a career path into the military while
paying a students college tuition. The training provided by this program does
obligate students to serve as reservists for up to 8 years and can include
deployment to active duty. To learn more about ROTC, visit http://www.
todaysmilitary.com/before-serving-in-the-military/rotc-programs?campaign_
id=SEM2012:on:google:ROTC-r_o_t_c:exact.
Reserve Officers
Training Corps (ROTC)
a college-based program for
training commissioned
officers of the U.S. armed
forces by providing
competitive, merit-based
scholarships for tuition in
return for an obligation of
active military service after
graduation
Another route to consider is enlistment in the armed forces. Completing

successful military service offers the opportunity to obtain job training in many
different areas while serving ones country. In addition, individuals who have
served in the armed forces and completed their enlistment can access,
additional educational program and opportunities through the Department of
Veterans Affairs. These programs assist veterans with paying for many types of
post-secondary education in return for their active military. To learn more
about specific programs, visit http://www.gibill.va.gov/.
11
Monthly Rent
and Utilities
Monthly Food and

Other Living Expenses
Tuition
Books
Fees
Total Cost of
Attendance
Try It!

financial aid
grant or scholarship, loan or

paid employment offered to
help a student meet his/her
college expenses
FAFSA
Free Application for Federal

Student Aid, a form that must
be completed in order to
qualify for any type of
governmental financial aid
for higher education
Estimated Family
Contribution (EFC)
The amount of money that a

students family is expected to
contribute to college costs for
one year
12
Create a spreadsheet that contains the columns shown above so you

can calculate the total cost of attendance.
The school year is two semesters, or approximately 9 months long
Tuition is generally calculated as a rate per credit hour. As a full-time
student, you will be expected to take 15 hours of weekly classes per
semester (which is usually 5 courses per semester)
You need books for every class
Student fees are assessed each semester

Base your calculations on the data below.
Monthly rent and utilities = $300
Monthly food and other living expenses = $150
Tuition is $275 per credit hour
Books average $125 per course
Student fees are $375 per semester
spreadsheet?
How does your total cost for attendance compare to the national averages
in the Did You Know factoid?
Do these expenses seem reasonable to you? Why or why not?
How could you lower the cost of attending college without sacrificing the
number of classes you take or the quality of the education?
Financial Aid Basics

Even with savings and scholarships, most students will still need additional
resources to complete their post-secondary education. This is typically referred
to as financial aid. Understanding how to navigate the world of college
financial aid can give students additional resources for financing their
education. Once you are on the road to saving and are exploring scholarship
opportunities, the next step will be to complete the FAFSA. FAFSA is the Free
Application for Federal Student Aid, and completing this application is the only
way to apply for federal student aid. This aid is awarded based on financial
need, and financial information related to both the student and parents is
considered when determining the level of need. This level of need is reported
in a letter called a Student Aid Report. The report provides your Estimated
Family Contribution (EFC), and this data is used by schools to determine

what aid the student qualifies to receive. Submitting the FAFSA by the required
guidelines is critical to receiving financial aid, and all required data and due
dates must be followed in order to receive aid.
Try It!
Visit the FAFSA website and review the student and parent information
required on the form (http://www.fafsa.ed.gov/fotw1213/pdf/
PdfFafsa12-13.pdf).
As you reviewed the FAFSA application, what questions did you have
about the information you were asked to provide?
Grants and Work-Study

After completing all of the required financial aid applications, you will receive
an award letter. In it, you will learn what kinds of financial support can be
offered to you by each school. If you are considering more than one institution,
it is important to compare the offers before deciding which school to attend.
Aid is awarded in three main categories: grants, loans and work-study.
Understanding the financial responsibilities of each of these is important when
selecting which awards are most appropriate.

Some students will receive a grant as part of the aid package. Since this
money does not have to be repaid, it is an excellent way to pay for college
expenses. A Pell Grant can be awarded for up to $5,550* (*2012-2013 limit),
but awards vary depending on need, the cost of the school attended and
whether or not a student attends full or part-time. A student can receive a Pell
Grant for up to 12 semesters (6 years) worth of undergraduate study. This
money is typically applied first to the cost of tuition and fees and then to room
and board for students who live on campus. In the event that a student does
not live on campus, any remaining funds can be issued to the student.
Completing the FAFSA and submitting it early can be especially beneficial for
students with a high need for financial assistance. Each year, schools receive a
set amount of funds to distribute as Supplemental Educational Opportunity
Grants. These grants of $100 to $4,000 per year are awarded on a first-come,
first-serve basis to the students with demonstrated need.
Work-study is another part of many students financial aid packages. Part-time
jobs are provided for students at the school, at a public agency, or at a not-forprofit organization. Students are paid the federal minimum wage for the hours
worked, and this money is paid directly to the student. These funds can be
used to pay for college tuition or living expenses.
grant
monetary award given by the

federal, state or local
government to an eligible
student for educational
expenses and without the
expectation of repayment
Pell Grant
money for post-secondary

education that does not have
to be repaid and is awarded
to eligible students based on
financial need
Supplemental
Educational
Opportunity Grant
(SEOG)
need-based grants awarded

to low-income undergraduate
students to finance the costs
of postsecondary education
work-study
program that provides

students with part-time jobs
while in school in order to
subsidize the cost of
education
13
Try It!
default
failure to meet a financial

obligation such as repaying a
loan

student loan
loan offered to students which

is used to pay educationrelated expenses including
college tuition, room and
board or textbooks
interest rate
the percentage you pay on the

money you have borrowed
grace period
time in which a debt may be

paid without accruing further
interest or penalty
deferred payment
loan arrangement in which

the borrower is allowed to
start making payments at
some specified time in the
future
Perkins loan
A need-based, low-interest
loan available to students
with exceptional financial
need
Stafford loan
loan that is provided by a

lending institution but backed
by the federal government to
assure repayment
Parent Loan for

Undergraduate
Students (PLUS)
federal loans for parents of

undergraduate students to
use to help pay for college or
career school
14
On the opposite page, there is an example of a standardized award

letter that students may receive regarding the types of financial aid
that is available. This can also be found online at http://collegecost.
ed.gov/shopping_sheet.pdf.
Review the following sections of the letter to see the types of data that
will be presented to you when the award offer arrives.
Section 1: The total cost of attendance at the particular institution
Section 2: Grants and scholarships that are being offered to you
Section 3: The cost you will have to pay out of pocket to attend the
institution
Section 4: Work options available to you (i.e. work-study)
Section 5: Loan options you can consider including the type of loan
and recommended amount based on the total cost of attendance
Section 6: Other Options include the Family Contribution as calculated
by the FAFSA along with various institutional payment plans, military
and service benefits offered by the institution, private education loan
options and Parent PLUS loan options
The far right column contains a graphic that notes data related to the
institution including graduation and loan default rates, median
borrowing and loan repayment information
Loans
Even with grants and work study, there is often additional funding needed to
cover college expenses. This is where student loans become part of the
equation. Within an award letter, there are a number of different loan options
that can be provided. Most student loans offer low interest rates, a grace
period and deferred payment options for repaying the amount borrowed.
This allows students to borrow money for education without worrying about
paying it back while they are still in school. The most popular loans for
students are the Perkins Loan and the Stafford Loan. Perkins loans are
awarded based on need with a limit of $5,500* (in 2012-2013) annually. The
interest rate on these loans is 5%, and borrowers have 10 years to pay back is
the amount borrowed. Stafford loans have a higher interest rate of 6.8% and
require you to begin repayment 6 months after graduating or dropping below
a half-time student. Borrowers generally have 10 years to repay this loan.
If financial need still remains after grants, work-study and loans have been
awarded, a Parent Loan for Undergraduate Students (PLUS) can be
considered. At a rate of 7.9% interest, this is a more expensive college loan and
it is taken by the students parents, making them liable for repayment of the
funds. The maximum amount of this loan is equal to the total estimated cost of
attendance minus all other financial aid that has been offered. Repayment of
the loan is expected to begin when the funds are disbursed, but loan
recipients can make deferred payments if requested and approved.
ES
UN
IT
MM / DD / YYYY
S I T Y OF
TH
UNIV
ER
E D S TA
University of the United States (UUS)

Student Name, Identifier
Costs in the 2013-14 year
Graduation Rate
Estimated Cost of Attendance
$ X,XXX / yr
Tuition and fees ............................................................................................... $
X,XXX
Housing and meals .........................................................................................
X,XXX
Books and supplies .........................................................................................
X,XXX
Transportation ..................................................................................................
X,XXX
Other educational costs .................................................................................
X,XXX
Percentage of full-time
students who graduate
within 6 years
71%
LOW
MEDIUM
Grants and scholarships to pay for college
HIGH
Loan Default Rate
Total Grants and Scholarships (Gift Aid; no repayment needed)
Percentage of borrowers
entering repayment and
defaulting on their loan
$ X,XXX / yr
Grants from your school ................................................................................. $
X,XXX
Federal Pell Grant ...........................................................................................
X,XXX
Grants from your state ...................................................................................
X,XXX
Other scholarships you can use ....................................................................
X,XXX
8%
This institution
9.8%
National
What will you pay for college
Net Costs
$ X,XXX / yr
(Cost of attendance minus total grants and scholarships)
Students at UUS typically

borrow $X,XXX in Federal
loans for their undergraduate
study. The Federal loan
payment over 10 years for this
amount is approximately $X.XXX per
month. Your borrowing may be different.
Options to pay net costs

Work options
Work-Study (Federal, state, or institutional) .................................................... $
Median Borrowing
X,XXX
Loan options*
Repaying your loans
Federal Perkins Loans ........................................................................................ $
X,XXX
Federal Direct Subsidized Loan .........................................................................
X,XXX
Federal Direct Unsubsidized Loan ...................................................................
X,XXX
To learn about loan repayment choices

and work out your Federal Loan monthly
payment, go to: http://studentaid.ed.gov/
repay-loans/understand/plans
*Recommended amounts shown here. You may be eligible for a different amount. Contact your financial aid office.
For more information and next steps:
Other options
University of the United States (UUS)
Family Contribution
(As calculated by the institution using information reported on the FAFSA or to your institution.)
$ X,XXX / yr
Payment plan offered by the institution
Military and/or National Service benefits
Parent PLUS Loan
Non-Federal private education loan
Financial Aid Office
123 Main Street

Anytown, ST 12345
Telephone: (123) 456-7890
E-mail: financialaid@uus.edu
Customized information from UUS
15

Using the data below, evaluate various student loan scenarios.
Try It!
subsidized loan
a loan on which the

government pays the interest
while the student is enrolled is
a qualified college/university,
essentially erasing the interest
that would have been added
to the loan during the time of
study.
1 School
16
Item
Loan A
Loan B
Loan C
Loan balance
$5,500.00
$5,500.00
$5,500.00
Adjusted loan balance
$5,500.00
$5,500.00
$5,729.17
Loan interest rate
5.00%
6.80%
7.90%
Loan fees
0.00%
0.00%
4.00%
Loan term
10 years
10 years
10 years
Minimum payment
$40.00
$50.00
$50.00
Total years in college
4 years
4 years
4 years
Average debt per year
$1,375.00
$1,375.00
$1,375.00
11
Monthly loan payment
$58.34
$63.29
$69.21
12
Number of payments
120
120
120
14
Cumulative payments
$7,000.18
$7,595.52
$8,034.88
15
Total interest paid
$1,500.18
$2,095.52
$2,804.88
13
10
unsubsidized loan
a college loan usually taken

by students who do not meet
financial need standards and
still need to fund their
postsecondary education.
These loans accrue interest
while the student is in school
and can result in significantly
higher debt because of the
interest added to the loan
over time.
Loan A: $5500 at 5% interest for 10 years. How much interest did you
pay?
Loan B: $5500 at 6.8% interest for 10 years. How much interest did you
pay?
Loan C: $5500 at 7.9% interest for 10 years. How much interest did you
pay?
How does the interest rate effect the minimum monthly payment? The
total amount paid for the loan?
Total Cost of
Attendance
Pell
Grant
Work
Study
Scholarships
Perkins
Loan
Amount
EFC
Money from
529 Account
Remaining
Expenses
to be Paid
$15,000
$2,200
$4,800
$12,500
$2,800
$3,200
$17,750
$2,500
$5,000
Using some of the data from this lesson, you will analyze three different financial aid
options for attending three different schools. Each school offers a comparable program
of study. Based on your calculations and what you have learned about financial aid, you
will need to select the option you believe would be best in terms of financing your
education.
Non-variable data:
You plan to attend college for 4 years.
You have $10,000 saved for you in a 529 account
Your familys total EFC is $2700, and your parents do not intend to take a PLUS.
Award Offer Data: (in addition to the data provided earlier)
School A: in your home town, a $500 scholarship
School B: 200 miles away, and offers no additional aid
School C: across the country, a $1000 academic scholarship, and a $2200 Perkins loan
As you construct the spreadsheet (use the format shown at the bottom of the previous
page), think about the following:
What can you do to reduce expenses?
What can you do to increase your income?
Would you consider taking a loan for the remaining expenses? If so, what kind?
Why? If not, why not? How do you plan to cover those expenses?
After calculating the total debt for the year, answer each of these questions.
1. Considering only the total debt and the type of debt you would incur, which school
provided you with the best financial aid package? Explain why.
2. When you consider the amount of time you will need to spend working and your own
academic skills and study habits, which financial aid package would provide you with
the proper amount of study time. Explain why.
3. Does any school offer you an option that would require no additional out of pocket
expenses if you consider price, location and work-study options? If so, explain.
4. If your family was unable to provide the EFC, would that change the financial aid
package you would select? Explain why.
17
18

Did You Know.

Employees do not take home every dollar they earn. A percentage of what you earn is taxed to
pay for programs such as Social Security and Medicare. It amounts to approximately 7.65% of
what you earn. In addition, income taxes are also automatically deducted from your wages as
well, and can range from an additional 10-35% deduction.
Key Terms:
Compensation package
Profit sharing
Exempt
Income taxes
Non-exempt
Gross pay
Base pay
Withholding
Bonus
Net pay
Commission
FICA
Variable pay
Dependent
Benefits
W-4
Insurance
W-2
Paid time off (PTO)
Career change
Sick leave
What Youll Learn

When searching for the right job, it is important to consider the entire
compensation package offered by potential employers. By learning to
understand various types of compensation and how to calculate the total
value of that compensation, you can ensure you are getting the most from the
job you choose.
Career Link
Pension actuaries use mathematical and critical thinking skill to analyze financial and
mortality risks to help pension providers set rates and develop retirement policies that will
ensure that the employer can continue to offer retired employees benefits and paychecks
as long as they live. The average pension actuary earns $87,650 per year and must have a
Bachelors degree and pass some exams to be credentialed in this profession.
Building Your Future, Book 4: Making a Living
19
compensation
package
all of the wages (salary,

bonus, commission) and
benefits provided by an
employer
exempt
classification of an employee
who is paid a salary rather
than hourly wages and is not
eligible for overtime pay
non-exempt
classification of an employee
who is paid on an hourly basis
and is entitled to overtime
pay generally at a rate of 1
times the hourly wage
Compensation Basics
Once you have completed your post-secondary education or job training
program, you will begin seeking employment. As you look at which jobs to
apply for and consider various employment offers from employers,
understanding the entire compensation package being offered and
analyzing its value is an important part of the decision making process.
One of the first things to determine is whether or not the position is exempt or
non-exempt in terms of the way wages are paid. If you are hired as an exempt
employee, you will be expected to perform full-time job-related work for a set
amount of money, regardless of whether or not you work overtime hours.
Full-time employment is typically considered 40 hours per week, but many
salaried workers provide employers with more hours than this sometimes
many more. Non-exempt employees are paid on an hourly basis, and federal
law requires that they be paid an overtime rate of 1 times the hourly rate for
all time they work in excess of 40 hours each week. In these types of positions,
the hourly wage can vary greatly depending on the duties and responsibilities
of the job.
While hourly pay may seem to be the better option if one expects to work
overtime, there are drawbacks as well. Exempt employees are often paid for
days they are sick or on vacation, whereas non-exempt employees are usually
only paid for the hours they actually work.
base pay
the basic rate of pay for a

particular job not including
overtime, bonuses or
commissions
20
When looking at a job offer, it is important that you clearly understand exactly
what your base pay rate will be. For salaried positions, this figure is typically
provided as a monthly or annual salary amount. For hourly positions, this
amount is provided as an hourly wage. The federal government sets standards
for the minimum hourly wage that employers can pay employees, but many
hourly positions pay above this minimum.
Try It!

Read the two scenarios below and construct a spreadsheet that helps you
answer the questions that follow.
Job 1: exempt position, base pay = $2,500/month, average work week
= 47 hours
Job 2: non-exempt position, base pay = $10.25/hour, average work
week = 47 hours
Create a spreadsheet that will calculate:
What is the weekly pay for Job 1? (What formula will you enter for this
calculation?)
What is the hourly wage for Job 1 including overtime hours? (What
formula will you enter for this calculation?)
What is the weekly pay for Job 2? (What formula will you enter for this
calculation?)
Which of the two jobs would you rather have? Why?
Besides base pay, another important part of the compensation package is

whether or not additional earning opportunities are available. These are often
presented to employees as a bonus or a commission. In both cases, this is
money that is offered to the employee in addition to the base pay. Sometimes
known as variable pay, the employee usually has to earn a bonus or
commission based on achieving a pre-determined objective set by the
employer. Typical objectives would be achieving a certain amount of sales,
reducing expenses by a certain amount, boosting departmental productivity,
and so on. Bonuses are typically paid as a flat sum whereas commissions are
usually a percentage amount. Below are two examples of how a bonus or
commission might be presented to an employee.

Job 1: Your boss offers you monthly bonus of $200 if you obtain five new
customers each month
Job 2: Your boss offers you a 3% commission for every dollars worth of
product you sell.
bonus
a sum of money given to an

employee (usually one that is
paid a salary) in addition to
the employees usual wages;
usually based on business or
employee performance, not
guaranteed
commission
a fee paid to an employee or

agent for providing a service,
such as a sale
variable pay
compensation that must be

earned (such as commission)
each time in order to be paid
to the employee
Try It!

Compare the two jobs by calculating:

Assume you meet the goal of obtaining five new customers per month for
10 of the 12 months of the year. How much would you earn in bonus
money for the year?
Assume you sell an average of $700 worth of product each week. How
much would you earn in commission for the month? How much would
that equate to throughout the year?
Based on your calculations, and assuming identical base pay, which of
these is a better job? Why?
21
benefits
compensation beyond a
salary or hourly wage, such as
insurance, vacation time,
contribution to a retirement
plan (such as 401(k)) or free
parking
insurance
the promise to compensate a

person for a specific potential
future loss in exchange for a
periodic payment ( e.g., life,
health)
In addition to actual money paid to employees, there are many other benefits
that employers may offer. These benefits can be everything from insurance
and medical coverage to pensions, profit sharing and gym memberships. For
many employees, these benefits are sometimes just as important as the salary
being offered. Since medical and dental care is so expensive, employers who
offer these options as part of the compensation package are often quite
desirable.
Insurance is the primary means that most employers use to assist employees
with the cost of medical, dental, and vision care. Employers often pay part or
all of an employees insurance premium as a benefit of employment. The
employer will sometimes even cover part of the cost of insurance for
employees family members. This means that through the employer, the
employee can gain medical, dental, life, vision and/or disability insurance at a
reduced cost or even at no cost. When considering a job, the amount of money
an employer will pay for insurance premiums and the types of insurance
offered should be carefully considered.

Read the two scenarios below and answer the questions that follow.
Try It!
Job 1: The employer will pay half of the monthly insurance premiums for
your medical, dental and vision insurance. The total cost for these each
month is $470. You get disability insurance at no cost and an amount of
life insurance equal to one years salary at no cost.
Job 2: The employer will pay 75% of the $500 monthly insurance
premiums for your medical and dental insurance. You can purchase vision
insurance for $5 per month. Your disability insurance costs $35 per month
and the employer provides an amount of life insurance equal to the value
of 1 times your salary at no cost.

paid time off (PTO)
time not worked by an

employee for which the
regular rate, a fixed or a
prorated amount of pay, is
accrued and paid to the
employee
sick leave
paid or unpaid time off from

work for an employee
temporarily unable to perform
duties due to illness or
disability
22

For job 1, how much would you have to pay for your half of the medical,
dental and vision insurance and all the other benefits listed?
For job 2, how much would you have to pay for your portion of the
medical, dental and vision insurance and all the other benefits listed?
All other things being equal, which job would you rather have? Why?
Another important factor to consider when reviewing a job offer is paid time
off (PTO). Paid time off can be used for many things: vacation, attending to
personal business, etc. Employers may offer paid time off as set holidays such
as Thanksgiving or as vacation where employees are paid their usual pay for
work even though they are not performing any work for the employer. Sick
leave is also offered by many employers, so that if an employee is ill or
temporarily disabled, days may be taken off from work. Some employers offer
full or partial payment for a certain number of sick days, while others allow
employees to take sick days without pay.
Profit sharing is another popular benefit that some employers offer. By issuing
stocks, bonds or cash, the employer shares some of the companys profits with
employees. Most of the time, this is not a guaranteed benefit. The company
must reach a certain profit level before profits are shared with employees.
profit sharing
a program in which the

employer shares some of its
profits with employees
through stocks, bonds or
cash
Try It!
Lets look at how benefits like paid time off and sick leave can add to the
value of a compensation package. Read the two scenarios below and
answer the questions that follow.
Job 1: The employer offers you five paid holidays, 40 hours worth of paid
time off and two days of paid sick leave each year. All other days missed
from work are unpaid. Your hourly wage is $12.00
Job 2: The employer offers you three paid holidays and 80 hours worth of
paid time off to use as vacation or sick leave if needed. All other days
missed from work are unpaid. Your hourly wage is $12.00
income taxes
percentage of your income,

including wages, salaries,
commissions and bonuses
paid to the government each
year
gross pay
regular pay, overtime pay, and

other taxable earnings paid to
an employee during a pay
period before any obligations,
such as taxes, are deducted
withholding

What is the total value of your paid time off for the year for each job?
Which of these is the better financial offer? Explain why.
part of an employees wages

or salary that is withheld by
the employer as partial
payment of the employees
income taxes
Understanding Your Paycheck

When an employer agrees to pay an employee a certain amount of money,
that does not mean the employee will see that amount of money when the
paycheck is issued. All U.S. workers pay income taxes on their earnings. These
are federal, state and sometimes local taxes that are deducted from the
employees gross pay. The deduction of these taxes is usually referred to as
withholding. After all deductions and taxes have been removed from the
gross pay, the employee is left with net pay, which is the amount of money
the employee actually receives to spend.
net pay
remaining amount of pay

after taxes, retirement
contributions and other
deductions are made
23
FICA
stands for Federal Insurance

Contributions Act, a federal
payroll tax paid by employers
and employees to fund
government programs that
provide benefits to retirees
dependent
someone (such as a child

under 18) who relies on an
adult for support
W-4
a form that the employee fills

out to let the employer know
his or her tax situation and
figure out the correct amount
of tax to withhold from the
employees paycheck
When it comes to withholding taxes, the amount of money withheld for

income taxes varies from person to person, depending on earnings. FICA, an
abbreviation representing the Federal Insurance Contributions Act, is paid by
every employee to fund programs such as Social Security and Medicare. This
amounts to 5.65% of the amount of money earned each pay period. In
addition, the employer also pays FICA taxes for each employee. Employers also
pay FUTA (Federal Unemployment Tax Act) taxes, which is used to fund state
workforce agencies.
The number of dependents that the employee chooses when completing the
W-4 form can determine the amount of taxes deducted from each paycheck.
The W-4 form helps the employer figure out the amount of taxes to withhold.
For example, if you are a single person with no dependents, then you will
generally claim one allowance selected on the W-4 form. This means you will
have a higher amount in taxes withheld from your paycheck than another
person with the exact same job and salary who has a spouse and 3 children as
dependents. That person can select 5 withholding allowances, thus reducing
the amount of taxes withheld from each paycheck. View a sample of a W-4 form
at http://www.irs.gov/pub/irs-pdf/fw4.pdf to see how the form is completed.
Try It!
Look at the sample pay stub on the next page.

On the left you can see this is an hourly employee. She is paid 1
times her hourly rate for overtime. She also gets holiday pay and
reimbursement for tuition as benefits.
On the right you can see the federal withholdings along with state and
local taxes.
Look at the various benefits the employee gets. You can see these
listed under the Other category on the right side.
Study the four numbers at the bottom of the pay stub: Totals, Taxable
Gross, Deduction Totals and Net Pay. You can see how the various
withholdings and deductions impact the amount of pay the employee
takes home for the week.
Note that Y-T-D refers to the Year to Date summary of each item.
How many hours did she work last week, including overtime?
What benefits does this employer give the employee?
Does she pay taxes on the tuition reimbursement? How can you tell?
What other deductions are not taxable and made before taxes are
calculated?
What percentage of the money earned was actually paid to the employee?
How much did the employee put into the 401(k)? How much did she pay
for dental, medical (HMO) and life insurance?
Using the data from the current pay period column, approximately how
much will be withheld for this employees annual federal taxes? How
much has been withheld as a percentage of wages?
24
Whats Included on a Paycheck Stub

ABC Corp.
450 Chamber Street
Somewhere, USA 00010
Employee Name: Mary Smith

Social Security #: 999-99-9999
Period End Date: 01/07/13
Wages Deductions

Current
Y-T-D

Description Hours
Rate
Amount Amount
Description
Current
Y-T-D
Amount Amount
Regular
40.00
10.00
400.00
400.00
Federal Withholdings
Overtime 1.00
15.00
15.00 15.00
Social Security Tax
Holiday
0.00
Medicare
Tuition *
37.43
37.43
Tax

NY State

Income Tax

NYC Income Tax

NY SUI/SDI Tax
Other

401(k) *

Life Insurance

Loan

Dental *

HMO *

Dep Care FSA *
37.29
37.29
24.83 24.83
5.81
5.81
8.26
8.26
5.11
5.11
0.61
0.61
27.15
2.00
30.00
2.00
20.00
30.00
Totals 452.43
452.43
Deduction Totals
Taxable Gross 335.85
335.85

NET PAY
27.15
2.00
30.00
2.00
20.00
30.00
193.06 193.06
259.38 259.38
At the end of the calendar year, when income taxes are due, employees get
credit for all of the money they have had withheld from their paychecks. This is
reported to the employee and the IRS on a form called a W-2. If too much tax
has been withheld, then the employee will get a tax refund from the
government. If not enough tax has been withheld, the employee will have to
pay additional taxes to the government. By selecting the proper number of
dependents and withholdings, employees increase their chances of paying the
correct amount in taxes so that neither a refund nor a payment is due.
W-2
a form that the employer

sends to the employee and
the IRS that reports the
employees annual wages and
the amount of taxes withheld
during the year
A sample W-2 form with an explanation of the information that will be

included on the form can be found on page 26.
Costs of Career Change
During the course of a lifetime, many people make a career change. While this
can be very fulfilling emotionally, it can be financially costly. When an
employee moves from one profession to another, there are sometimes
expenses incurred for additional education and training. Since the employee is
new to the occupation, they may have to start at an entry level job as they
begin climbing their new career ladder. This could be a cut in base pay,
benefits, and paid time off.
career change
moving from one profession

to another
25
On the other hand, sometimes making a career change can have just the
opposite effect. If the former occupation is one that required little postsecondary education and little room for advancement in terms of the income
that could be earned, then the potential to increase earnings and benefits
should certainly be considered. All of these factors need to be weighed and
considered when making the decision whether to make a career change.
Whats Included on a W-2 Form

a Employees social security number
OMB No. 1545-0008
This information is being furnished to the Internal Revenue Service. If you

are required to file a tax return, a negligence penalty or other sanction
may be imposed on you if this income is taxable and you fail to report it.
b Employer identification number (EIN)
1 Wages, tips, other compensation
2 Federal income tax withheld
c Employers name, address, and ZIP code
3 Social security wages
4 Social security tax withheld
5 Medicare wages and tips
6 Medicare tax withheld
7 Social security tips
8 Allocated tips
d Control number
e Employees first name and initial
10 Dependent care benefits
Suff. 11 Nonqualified plans
Last name
13
12a See instructions for box 12
Statutory
employee
Retirement
plan
C
o
d
e
Third-party
sick pay
14 Other
12b
C
o
d
e
12c
C
o
d
e
12d
C
o
d
e
f Employees address and ZIP code

15 State
Employers state ID number
16 State wages, tips, etc.
K
Form
W-2
Wage and Tax

Statement
Copy CFor EMPLOYEES RECORDS (See Notice to

Employee on the back of Copy B.)
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
26
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
17 State income tax
2012
18 Local wages, tips, etc.
19 Local income tax
20 Locality name
Department of the TreasuryInternal Revenue Service

Safe, accurate
FAST! Use
Total pay for the year, less certain deferrals like 401(k) plans
Federal income tax withheld from your wages
Amount of your wages that are taxed for Social Security
Social Security tax withheld from your wages
Amount of your wages that are taxed for Medicare
Medicare tax withheld from your wages
Total amount of tips you reported
Amount deducted from your wages for dependent care like day care
Any distributions you received from a nonqualified deferred compensation plan
Additional taxes or deductions not otherwise covered on the form
Wages that are eligible for state income tax withholding
State income tax withheld from your wages
Wages that are eligible for local income tax withholding
Local income tax withheld from your wages
Name or code of your local jurisdiction
You currently have a job you enjoy, but have been hoping to find opportunities to
increase your income. After interviewing and doing some additional online training
classes, you think youve found the right position. Use what you have learned about
making a living to construct a spreadsheet(s) that will help you calculate the value of
your current job and the value of the new position. Then you will explain which job
will best meet your needs over time.
Current Job
Non-exempt employee, $14.25 per hour
Average 44 hour work week
Paid up to 5% of weekly salary in commission for meeting sales goals
Currently paid $80 per week for health and dental insurance benefits
You have no vision, life or disability insurance offered through your employer
Your paid time off is equal to 100 hours annually at your hourly wage
Withholding taxes average $85 per week
Job Offer
Exempt employee, $30,000 annual salary
Average 48 hour work week
Opportunity for a bonus of up to $150 monthly for meeting sales goals
Would pay $300 per month for health, dental and vision insurance benefits
Disability insurance and life insurance of 1 times your salary is provided by the
employer
You have 5 paid holidays and two weeks (10 days) of paid time off for vacation,
illness, etc.
Withholding taxes would average $320 per month
Based on your calculations, address these questions.

What is the annual net pay for your current job?

What would the annual net pay be for the job being offered?
Which job would require you to work more hours? How many more?
At which job could you earn more variable pay? How much more?
Which job offers a better compensation package? Explain why.
Based on your calculations, which job makes better financial sense, your current job
or the job offer? Explain why.
Building Your Future, Book 4: Making a Life
27
28

Did You Know.

The average American family spends 34% of the household budget on housing. Cars are the
second most costly item at 17.6% of the budget, while food holds the third place position at
12.4%.
Key Terms:
Need
Credit report
Expense
Credit rating
Want
FICO score
Budget
Installment loan
Late fees
Identity theft
Credit history
What Youll Learn

Living within their means - spending no more than a family has available from
their income can be a struggle for people. Understanding the difference
between a want and a need, knowing where money is spent, how to budget so
that expenses do not exceed income and establishing and maintaining a good
credit rating are all essential life skills. By identifying wants and needs and
creating a spreadsheet to track income and expenses, you can see how to live
your life on a balanced budget and avoid debt. Finally, we will explore identity
theft, including what can be done to minimize the chance of being a victim as
well as what strategies to use if your identity is stolen.
Wants vs. Needs
Everyone has certain needs that must be met in order to survive, including
essentials such as food, water and shelter. When looking at needs realistically,
living in society necessitates other expenses that qualify as needs even
though they are not truly essential to existence. Some could include clothing,
need
basic survival necessities
expense
an expenditure of money; cost
Career Link
We need to get specific information on the role that actuaries play in helping creditors
assess risk. Bank Loan Officers help creditors assess risk and are typically employed by are
employed by commercial banks, credit unions and mortgage companies. They are
primarily responsible for evaluating, authorizing and recommended whether or not loan
applications should be approved for individuals and businesses.
29
access to health care and hygiene products, transportation and basic

household utilities such as electricity. Needs also include obligations, such as
paying off a loan. While you will still survive if you dont pay off your debts, the
consequences would be very serious, so its best to consider these types of bills
as essential.
want
something a person desires

that is not essential
In addition to our needs, we all have things we wantthings it would be nice

to have but that we could live without. For example, while we need clothing,
expensive designer clothing is not essential. Similarly, transportation can take
many forms. We might be able to get by with a bicycle or used car rather than
a brand new luxury car. We need food, but we want candy bars.
Heres a simple test. Next time you are tempted to make a purchase, ask
yourself: Do I need this to live, or is this purchase just something that would be
nice to have? Many times, you will find that you purchase something because
you want it, not because you need it.
budget
an itemized list of income and

expenses over a given period
of time
Does this mean that we should never purchase wants? Absolutely not! What it
means is that we should develop a plan for using our money wisely so we live
within our means and have the ability to purchase wants without acquiring
debt. How can I do this, you ask? Its simple. Create a budget.
Budget Basics
A budget is an itemized list of income and expenses over a given period of
time; it allows you to plan how you will spend your money and see how what
you actually spent compares to your plan. When you are developing a plan for
how you will earn, save and spend your money, it is important to keep in mind
that you have a finite amount of cash to work with. Using a budget to carefully
track income and expenses can help ensure that you live within your means,
meaning you do not spend more money than you make. Most people create
monthly budgets since many major expenses such as housing, transportation
costs and utilities are paid on a monthly basis.
As you establish your budget, you must think about meeting your needs first.
After all of the needs have been listed, then you can begin adding wants to
your budget. Before you allocate all your remaining funds to the things you
want, you should set aside some money as savings or investments so you will
have a safety net to prepare for retirement, or if something happens to your
income unexpectedly.
On the following pages (pages 32-33) you will find a household budget. You
will notice the following:
Expenses are divided up into categories and some of those expenses have
variable amounts.
There are three columns for expenses: the budgeted amount, the actual
amount and the difference between the two. When an item is over budget,
30
it appears in ( ) to show the overage. If an item is under budget, it simply

shows up as a dollar amount. If an item is exactly on budget, an amount of
$0.00 appears in the difference column.
Since each category has a total budgeted amount, actual amount and
amount of difference, it is easy to see if a category is on, over or under
budget.
The bottom two lines of the budget show the total amount of budgeted
and actual expenses along with the amount under or over the budgeted
amount.
The Cash short/extra category is especially important. By planning a
budget that allows for extra money each month, you can help to build the
safety net mentioned previously.
Try It!
Study the budget on the previous page create a spreadsheet with two
lists, one labeled needs and the other labeled wants. Sort the line items
from the budget into the appropriate category and note the amount of
money budgeted for each item. Then calculate the overall percentage of
income each item equates to each month based on the $3,500 monthly
income shown on the budget.
Needs Budget Item
Amount Budgeted
% of Income
Wants Budget Item
Amount Budgeted
% of Income
2
3
When creating your budget, think about the following.

Percentage of Income = Amount Budgeted Income x 100
How would you express the statements above as a formula for the
spreadsheet?
Looking at the data on the spreadsheet, address each question
What is the total percentage of income that will be spent on needs?
What percentage of income remains to be spent on wants?
What would cause the total percentage of income between the two
categories not to equal 100%?
Suppose you are in a car accident and need to pay a $750 insurance
deductible to repair your car and another $1000 in medical bills from
injuries you sustained in the accident. In addition, you miss 2 weeks of
work because of your injuries, resulting in the loss of pay (about $1750)
during that time since you dont have any paid time off remaining for the
year. All totaled, this equals approximately $3500, which is a full months
wages. Review the budget carefully and decide where you can realistically
make the cuts necessary to pay for your car repairs and medical bills and
make up for lost wages over the course of one year.
31
1
2
HOUSEHOLD BUDGET
Budgeted
Actual
Difference
INCOME
Monthly Wages
3,500.00
3,500.00
0.00
Income totals
3,500.00
3,500.00
0.00
Mortgage/rent
725.00
725.00
0.00
Utilities (electricity, water, natural gas,
250.00
246.00
4.00
Cellular telephone
80.00
79.00
1.00
10
Groceries
240.00
186.00
54.00
11
Dining out
200.00
227.00
(27.00)
12
Cable television
110.00
106.00
4.00
13
Trash service
20.00
20.00
0.00
14
Home repairs
75.00
42.00
33.00
15
Home totals
1,700.00
1,631.00
69.00
17
Car payment
250.00
250.00
0.00
18
Gas/fuel
170.00
200.00
(30.00)
19
Insurance
75.00
75.00
0.00
20
Repairs and maintenance
50.00
140.00
(90.00)
21
Parking
75.00
55.00
20.00
22
Public transportation
20.00
28.00
(8.00)
23
Transportation totals
640.00
748.00
(108.00)
25
Video/DVD rentals
10.00
6.00
4.00
26
Movies/plays
25.00
20.00
5.00
27
Sporting events
50.00
85.00
(35.00)
28
Concerts/clubs
50.00
60.00
(10.00)
29
Other activities
50.00
35.00
15.00
30
Entertainment totals
185.00
206.00
(21.00)
EXPENSES
Home and Daily Living
16 Transportation
24 Entertainment
32
HOUSEHOLD BUDGET
Budgeted
Actual
Difference
31 Health
32
Health club dues
25.00
25.00
0.00
33
Insurance
150.00
150.00
0.00
34
Prescriptions
10.00
10.00
0.00
35
Over-the-counter drugs
10.00
7.00
3.00
36
Co-payments/out-of-pocket
25.00
10.00
15.00
37
Life insurance
20.00
20.00
0.00
38
Health totals
240.00
222.00
18.00
39 Personal Care and Services

40
Clothing
75.00
85.00
(10.00)
41
Dry cleaning
20.00
12.00
8.00
42
Salon/barber
40.00
30.00
10.00
43
Personal totals
135.00
127.00
8.00
45
Long-term savings
100.00
100.00
0.00
46
Retirement (401k, Roth IRA)
100.00
100.00
0.00
47
Credit card payments
150.00
150.00
0.00
48
Other debt
0.00
0.00
0.00
49
Financial obligation totals
350.00
350.00
0.00
44 Financial Obligations
50 Misc. Payments
51
Charitable donations
75.00
75.00
0.00
52
Gifts
50.00
75.00
(25.00)
53
Other
75.00
48.00
27.00
54
Misc. payments totals
200.00
198.00
2.00
Total expenses
3,450.00
3,482.00
(32.00)
Cash short/extra
50.00
18.00
32.00
55
56
57
58
59
33
late fees
an extra charge imposed

when your payment is
received after the due date or
grace period
credit history
information about the

number and types of credit
accounts, how long the
accounts have been open, the
amounts owed on each
account , the amount of
available credit being used,
whether bills are paid on time,
the number of recent credit
inquiries and information
about bankruptcies, liens,
judgments and collections
credit report
a report detailing an
individuals credit history,
including timeliness of
payments related to bills,
loans, credit accounts and
bankruptcies; used to
determine creditworthiness
credit rating
a ranking typically expressed

as a number or letter, based
on ones credit history and
used by financial institutions
for loan and credit approval
as well as determination of
loan or credit terms
34
Keeping It Balanced
The key to successful budgeting lies in making sure you do not spend more
than you make. Sometimes unexpected expenses occur. Your car might break
down or you might have an unexpected medical expense. If your budget is
tight and you have not put money aside to cover these sorts of events, then it
can be very easy to get off budget and incur unexpected and unwanted costs.
If you face unexpected costs like those from the Try It exercise above and dont
have the savings to cover them and cannot cut your budget enough to pay all
of the unexpected costs, one of two things will likely happen. You will either
have to extend your payments on some items by making payments past the
established due dates, or you will have to borrow money to cover the costs.
Both options create undesirable consequences. Borrowing, such as using a
credit card, to cover unexpected costs will force you to incur additional costs,
namely the interest expense associated with the use of the credit card.
However, being late on payments may be worse. Not only will you likely have
additional costs in the form of late fees, the late payments may also have a
negative impact on your credit history, credit report and credit rating and
drastically increase your interest rate for credit card payments.
Most service providers and lenders allow customers a set amount of time to
pay their bills. When you receive your billing notice, or statement, a due date or
pay by date is typically visible on the bill. In addition, the bill will include an
explanation of what fees will be incurred if the payment for the bill is late.
Sometimes these fees are a set amount ($25.00 or more in some cases) while
other times they are a percentage of the amount due. In either case, the end
result of late bill payment is a higher cost to you.

Create a spreadsheet that includes the data from the chart in the
following columns.
Try It!
Billing Amt.
Set Late Fee
% Late Fee
D
Total Amt. Paid
Now enter the data into your spreadsheet

Bill 1 = $200 with a set late fee of $35.00 if not paid on time.
Bill 2 = $200 with a 3% late fee if not paid on time.
Total Amount Paid = Billing Amount + EITHER the Set Late Fee OR
the Percentage Late Fee
Percentage Late Fee = Billing Amount x Percentage Late Fee
How would you express the statements above as formulas for the
spreadsheet?

In this scenario, which fee results in a greater cost to you?
If you paid both of these bills late, what would be the total amount of
money you would pay in late fees for the month?
Maintaining Good Credit

Weve seen how not budgeting and not paying bills on time can be costly in
terms of dollars and cents, but another major factor to consider is the effect the
late payments have on your credit worthiness. There are many times in life
when your credit report will be reviewed and considered. For example, if you
want to purchase a car or a home, potential lenders will want to view your
credit report so they can see your credit history and your credit rating. This will
help them determine several things including whether or not they will give
you a loan, what interest rate they will charge, and other terms such as the
amount of a down payment they want you to pay. All of these items factor in to
the overall cost of the loan. The better your credit rating is, the easier it is to get
a low interest rate for major purchases such as cars and homes.
In addition to loans, many service providers also consider your credit report
before extending service. Some who commonly use your credit rating to
determine customer service terms include cell phone providers, utility
companies and cable television providers. If these companies see that you
have a history of not paying your bills on time, your ability to get service can be
affected.
The most common means used for evaluating creditworthiness is a FICO score.
The higher the score is (on a scale from 300 to 850), the better your credit is
because it shows you have a history of paying your bills on time, that you do
not have access to more credit than you can afford to pay and that you do not
FICO score
payment history, current level

of indebtedness, types of
credit used and length of
credit history, and new credit
information are used to
determine creditworthiness
and risk by assessing a
number between 300 and 850
Building Your Future, Book 4: Retirement
35
pose a great risk of failing to repay the money you borrow. Typically the
guidelines for various credit ratings are as follows:

FICO Score
Below 560
560-659
660-724
725-759
760 or Above
Rating
Bad
Still not good
OK
Better
Great

Follow the link below to see an example of a typical credit report and the
information contained on the report.
Try It!
http://www.aie.org/managing-your-money/credit-scores-and-reports/
read-a-credit-report.cfm
Roll your mouse over each section to see and read about the kind of
reporting that is done by creditors. This will allow you to see examples of
what a potential lender might see if you applied for a car or home loan. If
you apply for a revolving line of credit such as a credit card, this same
information is considered.
Building Your Credit History

While you want to save for as many unexpected expenses and major purchases
as possible, it is important that you also take steps to develop a positive credit
history. A strong credit history is important when applying for a mortgage, for
example, and employers may check your credit history when evaluating you as
a job candidate. This means that you must apply for and use credit carefully as
a means of proving you are able to use it responsibly. Without a credit history,
you may not be able to get a mortgage.
installment loan
a loan where the principal

and interest are repaid in
equal payments at fixed
intervals, usually monthly
In order to establish a credit history, you have to maintain at least one credit
account that reports to one of the credit reporting agencies for at least six
months. In addition, this account needs to be in good standing, meaning there
have been no missed or late payments. A revolving charge card is often a good
way to begin establishing your credit. By using it for small purchases and
paying off the balance on time each month, you show that you are a good
credit risk and can develop a positive credit history. Another great way to build
your credit history is through an installment loan, where you pay the same
amount each month over a set period of time. Examples of installment loans
include car loans and student loans.
Even though most people take on the responsibility of credit with the best of
intentions, sometimes people make late payments or miss payments
36
altogether. When this happens, it can start to have a negative impact on your
credit report. If this happens, it is extremely important communicate with the
creditor as soon as possible to discuss the missed or late payments, and to
make the payments as soon as possible so the account is current and no
further delinquencies can be reported.
Identity Theft
With the growing use of credit, internet banking, online purchasing and other
factors, the rate of identity theft has grown significantly in the recent past.
With millions of incidents annually and billions of dollars lost through identity
theft, knowing how to prevent it is very important.
identity theft
illegally using someone elses

personal information to
obtain money or credit
One of the most important things you can do to prevent identity theft is check
your credit report at least once each year. Credit reports from the three major
reporting agencies are offered for free on an annual basis upon request at
www.equifax.com, www.experian.com, and www.transunion.com. By visiting
each of these websites, a free credit report can be obtained online, by phone or
by mail.
Taking simple, common sense precautions when handling important personal
information such as social security numbers, banking data and credit card
information will help you protect your identity. Never give this information out
over the phone or leave it where someone else can see it. Dont carry this
information with you so that it can be easily lost or stolen. Either secure or
shred documents containing this kind of information. In short, guard this data
carefully and share it only when necessary. For example, when applying for
post-secondary financial aid, applying for a mortgage or loan, then it is
appropriate to share personal information with the institution.
If you are the victim of identity theft, it is important that you contact your bank
and all other financial institutions immediately and let them know what has
happened. You can also review your banking and transaction records for
fraudulent purchases. Finally, it is imperative that you contact the three major
credit report providers to make them aware of the identify theft. Working with
the credit reporting agencies and financial institutions, you can repair any
damage that has been done through identity theft, but it is a long, timeconsuming process that is can often be avoided by carefully guarding your
personal and financial information.
For additional information about identity theft, visit the National Council for
Crime Prevention to see their booklet related to identity theft prevention at
www.ncpc.org/cms-upload/prevent/files/IDtheftrev.pdf.
37
You are working on a household budget that will allow you to meet your monthly
expenses, place 5% of your earnings in savings for unexpected expenses and still
allow you to acquire some of your wants each month. Assume the following.
You have an annual salary of $31,000 net pay (after taxes)
You are working on establishing your credit history. To do this, you must be sure
to pay your installment loans on time.

o You have a student loan payment of $200 per month

o You have a car payment of $250 per month
Create a spreadsheet like the sample one used in the Examples and Practice exercise
on page 31. Now use the overall data from the previous spreadsheet and
information in the scenario to complete the spreadsheet below and answer the
questions.
Monthly
Income
Monthly
Needs
Expenses
Monthly
Savings
Monthly
Wants
Expenses
Total
Monthly
Expenses
Now enter the data into your spreadsheet.

Begin by entering your needs in dollars first based on the percentage of income
each need consumed in the spreadsheet you created earlier in the lesson.
Enter your savings in dollars based on the percentage you indicated you wanted
to save
Enter your installment loan amounts. Decide if these go in the wants or needs
column.
Enter your wants in dollars based on the percentage of income each need
represents in the spreadsheet you created earlier in the lesson.
Total Monthly Expenses = Monthly Needs Expenses + Monthly Savings +
Monthly Wants Expenses
How would you express the statements above as formulas for the spreadsheet?
What percentage of your income was used by wants?
What percentage of your income was spent on needs?
Did you have to cut anything from your budget in order to live within your means (not
exceed your monthly income)? If so, what did you cut? Why?
Were you able to incorporate 5% savings into your budget? What wants did you have
to forego to do this?
38

Did You Know.

Only 58% of us are currently saving money for retirement and 60% of those that are have less
than $25,000. Thirty percent have less than $1,000. Most financial planners advise their clients
to expect to save eight to 10 times their final annual salary for retirement.
Key Terms:
Retirement
Medicare
Compounding interest
IRA
Risk
401(k)
Inflation
403(b)
Social Security
Pension
What Youll Learn

While it is still many years in the future, it is never too early to start thinking
about and educating yourself on the costs of retirement and various ways to
fund your retirement. By considering options early and planning your savings
strategy, you will be able to enjoy a retirement lifestyle that allows you to do
the things you want to do. Learning about ways to save and how you can use
the power of compounding interest to build wealth can lead to a retirement
free from financial stress.
Retirement Basics
We spend years going to school and learning so we can obtain jobs to help us
earn a good living. Many people take all of these steps in anticipation of
retirement, when they no longer have to work and can spend each day doing
the things they truly enjoy. Whether it is travel, being with family or pursuing a
hobby, retirement has traditionally been viewed as the time in life when
people enjoy themselves without having to worry about working and earning
income.
retirement
the point in time when a

person chooses to leave the
workforce permanently,
usually at age 65 or older
Career Link
Social Security is the single largest employee benefit plan in the U.S. The government relies
on actuaries to monitor and evaluate the cost impact of proposals related to Social
Security in addition to reviewing the soundness of the balance between the benefits
obligations being built up and the Social Security taxes being collected. Actuaries spend a
great deal of time researching short-term and long-term demographic and economic
trends, analyzing mortality and morbidity rates, and preparing reports and special studies
on the financial aspects of the Social Security system that are of concern to the Congress
and the general public.
39
There is one catch to this scenario. Retirement can be very difficult if people do
not begin planning for it very early in life. Once people retire they are expected
to live off the money they have saved over the years. Most financial planners
tell people to plan to save up to ten times the amount of their annual final
salary in order to retire without having to make major changes to their lifestyle.
Try It!

Lets assume you want to retire at age 65 after being in the workforce for
approximately 45 years. During your last year of employment you earned
a salary of $75,000.
Calculate the amount you would need to have saved over the years if you
want to retire with ten times your last annual salary amount.
How much would you have to save each year in order to have this amount
of money?
Compounding Interest
compounding
interest
when money is earned on the

total amount in the account
including the initial deposit
and interest that has already
been credited to the account
40
If the thought of trying to save thousands of dollars per year seems difficult,
you need to remember that when we save money we earn interest on it. Many
of the investments people select for retirement savings rely on compounding
interest. The beauty of compounding interest comes from the fact that, over
time, these investments grow significantly because investors are paid interest
not just on the principle amount invested, but also on the interest they have
already been paid. With compounding interest, it is important to pay attention
to how frequently the interest is compounded. If it happens daily, you will earn
the greatest amount of money. If the interest is compounded monthly, you will
earn a little less. If the interest is compounded annually, you will earn even less.
Try It!
Create a spreadsheet that contains the following columns and data.
Interest
Compounding
Terms (Daily/
Monthly/
Annual)
Interest
Rate
Beginning
Balance
Interest
Payment
Ending
Balance
$1,000.00
As you construct the spreadsheet, remember that the interest rate is

usually quoted as an annual rate. This means that if you compound it
monthly, you must divide the annual rate by 12 (months in a year). If you
compound it daily, you must divide the annual rate by 365 (days in a
year).
Interest Payment = Interest Rate x Beginning Balance
Ending Balance = Beginning Balance + Interest Payment
Beginning Balance = Ending Balance from previous line
spreadsheet?

Use the formulas to practice calculations for various interest

compounding frequencies. Then answer the following questions. You
will calculate the following scenarios.
You invest $1,000 at an annual rate of 7%.
How much will you earn after 1 year? 3 years? 5 years?
You invest $1,000 at an annual rate of 7% with interest
compounded monthly.
You invest $1,000 at an annual rate of 7% with interest
compounded daily.
Why is it important to look not just at the interest rate on an investment,
but also at how often interest is compounded?
Challenges of Saving for Retirement

Clearly, having a plan in place for how you will pay for retirement is important.
There are a couple of challenges you must consider beyond that of how you
can actually set aside enough money each year. One of the most important
factors to consider is the amount of risk you are willing to take with your
retirement investments. Generally speaking, investments that offer higher
risk
the likelihood of suffering

losses or earning less than
expected on financial
investments
41
returns also reflect a greater level of risk of loss. For young investors just
starting in the workforce, investment options with higher risks and potential
earnings (such as stocks) can be considered because retirement is still years
away, and if short-term losses occur, there is time to make them up. However,
as one gets closer to retirement, the amount of risk on investments should be
decreased. If great losses are suffered through events such as declines in the
stock market, making up those losses gets increasingly more difficult as
retirement age edges closer.
inflation
the annual percentage

increase in the prices of goods
and services
Besides risk, inflation also plays a role in the amount of money that needs to
be saved for retirement. Ask retirees what a gallon of gas or a candy bar cost
them when they were your age. In all likelihood, the amount of money you
spend on these items today is much more than it was for the retirees. This is
due to inflation. Costs typically increase over time. You have to take this into
consideration when calculating your retirement needs. With these challenges
in mind, lets look at some of the most common types of investments you can
make to ensure that your money will grow over time.
Government Programs
Social Security
a U.S. government program

that provides retirement,
disability, and death benefits
income for eligible employees
Medicare
a U.S. government program

that pays for certain health
care expenses for people 65
years of age and older
The U.S. government offers retirees two programs - Social Security and
Medicare - that help to ensure that they have some retirement income and
basic medical coverage after leaving the workforce. As we learned previously,
both of these programs are funded through payroll taxes paid by both
employees and the employers. On a typical pay stub, employees pay 6.2% of
their income to FICA, which
is Social Security. In return,
Your Earnings Record
retirees receive a set benefit
Your Taxed
Your Taxed
based on their earnings.
Years You
Social Security
Medicare
Medicare costs employees
Worked
Earnings
Earnings
another 1.45% of each
1989
1,489
1,489
paycheck. Through this
1990
2,663
2,663
1991
4,483
4,483
program retirees can
1992
6,221
6,221
receive health care
1993
7,491
7,491
1994
9,224
9,224
coverage and prescription
1995
11,897
11,897
medications.
1996
14,677
14,677
In order to qualify for
government programs, a
worker must pay into the
program through payroll
taxes and earn 40 Social
Security credits, which
typically takes about 10
years. Workers can earn up
to 4 credits per year. Credits
are issued for each dollar
42
1997
1998
1999
17,434
20,071
22,827
17,434
20,071
22,827
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
25,588
27,576
29,004
30,772
33,097
35,102
37,501
39,927
41,487
41,446
25,588
27,576
29,004
30,772
33,097
35,102
37,501
39,927
41,487
41,446
2010
2011
2012
42,973
44,833
42,973
44,833
Not yet recorded
Total Social Security and Medicare taxes paid over your working caree
Your Estimated Benefits

*Retirement
*Disability
*Family
*Survivors
Medicare
You have earned enough credits to qualify for benefits. At your current earnings rate, if you
continue working until
your full retirement age (67 years), your payment would be about ........................................................$
age 70, your payment would be about ....................................................................................................$
age 62, your payment would be about ....................................................................................................$
You have earned enough credits to qualify for benefits. If you became disabled right now,
your payment would be about .................................................................................................................$
If you get retirement or disability benefits, your spouse and children also may qualify for benefits.
You have earned enough credits for your family to receive survivors benefits. If you die this
year, certain members of your family may qualify for the following benefits:
Your child ................................................................................................................................................$
Your spouse who is caring for your child ...............................................................................................$
Your spouse, if benefits start at full retirement age................................................................................$
Total family benefits cannot be more than .............................................................................................$
Your spouse or minor child may be eligible for a special one-time death benefit of $255.
You have enough credits to qualify for Medicare at age 65. Even if you do not retire at age 65, be
sure to contact Social Security three months before your 65th birthday to enroll in Medicare.
1,619 a month
2,023 a month
1,113 a month
1,441 a month
1,131 a month
1,131 a month
1,508 a month
2,778 a month
* Your estimated benefits are based on current law. Congress has made changes to the law in the
past and can do so at any time. The law governing benefit amounts may change because, by 2033,
the payroll taxes collected will be enough to pay only about 75 percent of scheduled benefits.
We based your benefit estimates on these facts:
Your date of birth (please verify your name on page 1 and this date of birth) ...................................... April 5, 1973
Your estimated taxable earnings per year after 2013 .............................................................................
$44,833
Your Social Security number (only the last four digits are shown to help prevent identity theft)......... XXX-XX-1234
How Your Benefits Are Estimated
that is earned during the calendar year. For every $1,130

earn,benefits
one credit
is on current law. The
(3) Youryou
estimated
are based
To qualify for benefits, you earn credits through your
governing benefit
amounts
awarded.
Once
you
earned
$4,520,
then
be awarded
4 credits
formay
thechange.
work up
to four
eachhave
year. This
year, for
example,
you you will law
(4) Your benefit amount may be affected by military
earn one credit for each $1,160 of wages or self-employment
calendar
service, railroad employment or pensions earned
income. year.
When youve earned $4,640, youve earned your
through work on which you did not pay Social

four credits for the year. Most people need 40 credits, earned
Security tax. Visit www.socialsecurity.gov
over their working lifetime, to receive retirement benefits. For
to learn
more.
disability
and survivors
benefits,mails
young people
need an
fewer
Each
year the
government
workers
annual Social
Security
statement. The
Windfall Elimination Provision (WEP) In the future,
credits to be eligible.
statement
shows
an
estimate
of
how
much
the
person
has
earned
each
In in which you do
if
you
receive
a
pension
from year.
employment
We checked your records to see whether you have earned
not pay Social Security taxes, such as some federal, state
enough
credits
to
qualify
for
benefits.
If
you
havent
earned
addition, the amount of money paid into Social Security
and Medicare
by both
the
or local government
work, some
nonprofit
organizations
enough yet to qualify for any type of benefit, we cant give
or foreign
and you also
qualify this
for your own
you a benefit
estimate
now. If is
youalso
continue
to work,
wellstatement.
employee
and
employer
listed
on the
Toemployment,
see an example
of what
Social Security retirement or disability benefit, your Social
give you an estimate when you do qualify.
Security
may be42,
reduced,
but comes
not eliminated, by
information
will look
on aenough
statement,
look at the
chartbenefit
on page
which
What we assumed
If like
you have
work credits,
WEP. The amount of the reduction, if any, depends on
wepage
estimated
your
benefit
amounts
using your average
from
3 of
the
sample
document
provided at http://www.socialsecurity.gov/
your earnings and number of years in jobs in which you
earnings over your working lifetime. For 2013 and later
paid Social Security taxes, and the year you are age 62 or
myaccount/SSA-7005-OL.pdf.
(up to retirement age), we assumed youll continue to work
become disabled. For more information, please see Windfall
and make about the same as you did in 2011 or 2012. We
Elimination Provision (Publication No. 05-10045) at
also included credits we assumed you earned last year
www.socialsecurity.gov/WEP.
and
this
year.
According to the U.S. government, workers can access
SocialPension
Security
benefits
once
Government
Offset
(GPO)
If you receive a
Generally, the older you are and the closer you are to
pension
based
on
federal,
state
or
local
government
theyretirement,
reach age
62
or
greater,
with
full
retirement
benefits
available
once
you
reach
age work
the more accurate the retirement estimates will be
in which you did not pay Social Security taxes and you
because they are based on a longer work history with fewer
67. uncertainties
Look at the
chart
at thefluctuations
top of this
page,lawwhichqualify,
comesnow
from
2 offorthe
sample
or inpage
the future,
Social
Security benefits as a
such
as earnings
and future
or former spouse, widow or widower, you are likely
changes. We
encourage you
to use our
online
Retirement
statement
referenced
above.
Here
you
can see thatcurrent
the
longer
you
work,
the
greater
to be affected by GPO. If GPO applies, your Social Security
Estimator at www.socialsecurity.gov/estimator to obtain
benefit will be
reduced early
by an amount
theimmediate
retirement
benefit is.benefit
Looking
at the sample statement,
retiring
at ageequal
62 to two-thirds
and personalized
estimates.
of your government pension, and could be reduced to zero.
We
cant
provide
your
actual
benefit
amount
until
you
if your
benefit
is reduced toage,
zero, you
would
result in a benefit of $1096 per month. If youEven
wait
to full
retirement
thewill be eligible
apply for benefits. And that amount may differ from the
for Medicare at age 65 on your spouses record. To learn
estimates
stated
above
because:
benefit increase to $1590 monthly, and by continuing
work
age 70,
theOffset (Publication
more,to
please
see until
Government
Pension
(1) Your earnings may increase or decrease in the future.
No.
05-10007)
at www.socialsecurity.gov/GPO.
greatest
benefit
of
$1983
monthly,
nearly
twice
the
early
retirement
benefit,
is paid. It
(2) After you start receiving benefits, they will be adjusted
for cost-of-living increases.
is easy to see that by extending the amount of time in the workforce, employees can
[C]
2
gain a greater lifetime benefit from the Social Security
program. To help retirees
retain
their buying power in the face of inflation, the program calculates annual cost of living
adjustments (COLA). If there has been no increase in the Consumer Price Index (the
amount typically paid for basic goods), then no COLA is provided.
43
Another important piece of information on page two of the statement is

whether or not a worker has qualified for Medicare benefits. Average retirees
spend about 20% of their income on health care (http://www.dol.gov/ebsa/
publications/nearretirement.html#.UKzbHYZXlv4). Looking at the sample again,
you will see that this worker has qualified to receive the benefits, meaning that
the government will provide basic health care services free or at a reduced cost
once the person has enrolled in the program. These are typically basic benefits
that help retirees to access doctors, hospitals and prescription medications at
reduced cost.
Try It!

Think about what you learned in earlier chapters about the cost of living
and the budget that you created. Knowing those expenses, answer the
following questions.
In most cases, will the income provided by Social Security benefits allow
you to meet all of your budget needs? What about your budget wants?
What other things can you do to ensure you can meet all of your expenses
during retirement?
Investing for Retirement

For most people, Social Security benefits do not provide enough income to
maintain the lifestyle and budget they were used to having while earning
income. This is why saving for retirement is critical. The earlier you begin saving,
the more money you will have when you retire, thanks to compounding
interest. But what types of investments are good for retirement savings?
IRA (Individual
Retirement Account)
a retirement investment
account that allows a person
to save a specified amount of
income each year in a
tax-deferred account
Many people select Individual Retirement Accounts (IRAs) to save for

retirement. These types of accounts allow investors to take advantage of
compounding interest and avoid paying taxes on the money they save. The
interest rate earned on these types of accounts varies, depending on the type
of investment selected, and is usually compounded yearly. The two main types
of IRAs are traditional and Roth IRAs. With a traditional IRA, if you put money
into the account each month, that money is deducted from your paycheck
before the taxes on your earnings are calculated, meaning you are not paying
current taxes on it. This type of IRA is a tax-deferred investment. When you
begin withdrawing the money during retirement, the amount you withdraw
each year is considered taxable income, and you will pay taxes on it at that
time. The benefit of this arrangement is that you would be expected to pay far
less in taxes since your tax rate is usually lower as a retiree than it was when
you were working.
The second type of IRA is the Roth IRA. With this type of account, you make
contributions, but do not receive a tax deduction for the amount contributed
to the account.. When you reach retirement and begin withdrawing the
money, the withdrawals are usually tax-free, meaning you will not have to pay
income taxes on it.
44
With both traditional and Roth IRAs, the government limits the amount of
money that can be contributed to the account each year. Depending on the
age of the investor, this can range from a total annual contribution of $4,000 to
$5,000.
Since IRAs are designed to encourage long-term investing, people with these
types of accounts are generally not allowed to withdraw their money until they
reach the age of 59. If funds are withdrawn before this time, significant
penalties and taxes are imposed.
Try It!
Create a spreadsheet that will help calculate the amount of money you
could earn on a traditional IRA investment. Include the following
columns and data.
Year
Interest
Rate
Annual
Investment
Interest
Payment
Ending
Balance
3.20%
$4,000.00
2.80%
$4,000.00
5.70%
$4,000.00
5.20%
$4,000.00
4.80%
$4,000.00

Interest Payment = Interest Rate x (Annual Investment + Ending
Balance Prior Year)
Ending Balance = Annual Investment + Interest Payment + Ending
Balance Prior Year
spreadsheet?
Over the course of five years you invested $20,000. How much did you earn
in interest?
What was the average interest rate over that 5 year period?
Explain how compounding interest adds value to this investment.
Many employers also offer either a 401(k) or 403(b) account investment

option to their employees. With both a 401(k) and a 403(b), the employee can
invest money tax-deferred. Non-profit organizations such as schools, hospitals
and religious groups typically offer the 403(b) option, while traditional, forprofit employers usually offer a 401(k). Both of these options usually offer
specific investments the employee can choose. These investments include
401(k)
a retirement investment plan

that allows an employee to
invest a percentage of their
wages into a tax-deferred
account chosen by the
employer
403(b)
a retirement plan available to

employees of certain
non-profit organizations that
allows them to invest a
percentage of their wages in a
tax-deferred account
45
various mutual funds, stocks and bonds. As with other long-term investments,
the amount of interest earned on the account varies. For those who want to
minimize risk, fixed interest rate investments allow employees to know exactly
how much interest they will earn, but the rate is typically lower than
alternative variable interest rate investments.
In both cases, companies may match employee contributions. This may be a
percentage or dollar match established by company policy. For example, if an
employee invests in the plan, the employer may match the investment by
including $1 for every dollar the employee invests in the plan up to $1000. This
means that the employer will put $1000 in the employee account if the
employee does the same. In another situation, an employer may offer a
percentage match, meaning if the employee contributes $5000 in the plan and
the employer offers employees a 20% match, then the employer will put $1000
in the plan on behalf of the employee. Taking advantage of these employer
matching opportunities is an excellent way for employees to build extra
money for their retirement.

Construct a spreadsheet to help you see how various contributions can
add up. Include the following columns and data.
Try It!
Interest
Rate
Annual
Investment
Employer
Match
Interest
Payment
Ending
Balance
3.20%
$4,000.00
2.80%
$4,000.00
5.70%
$4,000.00
5.20%
$4,000.00
4.80%
$4,000.00

Interest Payment = Interest Rate x (Annual Investment + Employer
Match + Ending Balance Prior Year)
Ending Balance = Annual Investment + Interest Payment + Ending
Balance Prior Year
Employer Match (percentage) = Annual Investment x Match
Percentage
spreadsheet?
46
Calculate the following investment scenarios and analyze the data:

Scenario 1: You are investing in a 401(k) and you have a $1000 annual
employer match
Over the course of five years you invested $20,000. How much did you your
employer invest?
How much did this employer match change your interest payment? Your
ending balance?
Explain how the employer match adds value to this investment.
Scenario 2: You are investing in a 401(k) and you have a 30% employer
match.
Over the course of 5 years you invested $20,000. How much did you your
employer invest?
ending balance?
Which employer match is better, Scenario 1 or 2? Why?
Scenario 3: You are investing in a 403(b) and earn a set interest rate of
4.25%. There is an annual employer match of $250.
Over the course of 5 years you invested $20,000. How much did you your
employer invest?
ending balance?
Is this 403(b) a better investment than either of the other scenarios? Why?
If you were going to select one of these investments from an employer,
which would it be assuming you will be in the workforce for another 25
years? Why?
A few employers may offer employees a pension plan. This is a financial
commitment the employer agrees to make to its employees as a retirement
primarily as a retirement benefit. The amount paid to the employee from a
pension can vary greatly and is usually a percentage of the employees annual
salary. While pensions offer employees guaranteed income for life, the amount
can be small and if the company has nancial difficulty meetings its
obligations to the pension plan, the pension can be reduced or eliminated.
Most companies or nonprofit organizations offer other retirement options
such as 401(k) and 403(b) plans, but there are still some employers that offer
valuable pensions to their employees.

pension
money paid to an employee by

the employer from a specic,
employer-funded (and in some
cases partially employee funded)
retirement investment fund after
retirement or separation from
service before retirement
Building Your Future, Book 3: Appendix
47
You have just accepted a job offer and are excited to begin work. One of the things
you must decide as you start this new job is which retirement investment options
you want to take advantage of with your new company. You have an annual salary
of $31,000. Your employer offers a 401(k) account that averages 4% annual interest.
Your employer will match 5% of your annual contribution to the account. You also
found an IRA that you really like because the average annual interest it earned over
the past 10 years was 4.25%. Create a spreadsheet that will calculate how much your
account will grow if you put 1) contribute $100 a month to the 401(k) account or 2)
contribute $1200 to the IRA each year for the next 10 years.
Answer the following questions based on this spreadsheet.

What will your total 401(k) value be at the end of the 10 year period?
What will the total IRA value be at the end of the 10 year period?
How much will you have saved for retirement at that point?
Which investment, the 401(k) or the IRA, is a better? Why?
48

Appendix: Online Resources
Below you will find a list of additional resources related to the chapters in this book. These
resources can be used to extend your understanding and study of the subjects in each section.
O*Net Online
A career research resource from the U.S. Department of Labor
http://www.onetonline.org/
Chapter 2: Paying for Postsecondary Education
Student Aid
Information on federal financial aid from the U.S. Department of Education
http://studentaid.ed.gov/home
Big Future
Information on attending and paying for college from The College Board
https://bigfuture.collegeboard.org/
Internal Revenue Service

A wide range of information on federal taxes
http://www.irs.gov
Identity Theft
Information on preventing identity theft from the Federal Trade Commission
http://www.consumer.ftc.gov/features/feature-0014-identity-theft
Consumer Information on Retirement Plans

Information on various retirement plan options from the Department of Labor
http://www.dol.gov/ebsa/consumer_info_pension.html
How Should I Plan for Retirement?
The Social Security Administrations guide to planning for retirement
http://www.ssa.gov/retirement/
49

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Building Your Future:

Copyright 2013, 2014

About This Book

About The Actuarial Foundation

Building Your Future

Career Planning Basics...................................................................................................................................2

Chapter 2: Paying for Post-secondary Education

Chapter 3: Making a Living

Chapter 4: Making a Life

Wants vs. Needs............................................................................................................................................ 29

Building Your Future

Did You Know.

What Youll Learn

from a group of careers that

the amount of money a

the total amount of money

an individuals innate ability,

the ability to do something

a set of achievements, skills,

Career Planning Basics

Building Your Future, Book 4: Path to Employment

Examples and Practice

Visit O*Net Online at http://www.onetonline.org/find/career. There you

As you construct the spreadsheet, think about the following:

Building Your Future, Book 4: Path to Employment

measures what is gained from

working, usually for free or a

training for a specific industry

a two-year academic degree

a four-year academic degree

an advanced university degree

Investing in Career Education

Building Your Future, Book 4: Path to Employment

Examples and Practice

As you construct the spreadsheet, think about the following:

Understanding Earning Potential

the highest level of a

the amount one must pay for

fair market price

the price that a reasonable

money paid or received for

the amount and employee is

wages an employee receives

Building Your Future, Book 4: Path to Employment

a sum of money one receives

money, in addition to regular

Examples and Practice

a sum of money given to an

As you construct the spreadsheet, think about the following:

Building Your Future, Book 4: Path to Employment

Building Your Future, Book 4: Path to Employment

Building Your Future, Book 4: Path to Employment

Building Your Future

Did You Know.

Supplemental Educational Opportunity Grant

529 account (ESA)

Reserve Officers Training Corps Deferred payment

Estimated Family Contribution Parent Loan for Undergraduate Students

What Youll Learn

Building Your Future, Book 4: Paying for Postsecondary Education

the price youd pay to attend

an education savings plan

529 account (ESA)

a higher education savings