3.11 How to Invest for Retirement

Instrukcije

Learning Objectives

Students will be able to:

Understand what a 401(k) plan is and its advantages
Explain the options available to them if an employer does not offer a 401(k) plan
Conduct research to compare different types of retirement accounts, including Roth IRAs, traditional IRAs, 401(k)s, and pensions

National Standards for Personal Financial Education

Earning Income

1d: Examine the benefits of participating in employer sponsored retirement savings plans and healthcare savings plans
10c: Explain the importance of participating in employer sponsored retirement plans, when available, and contributing enough to qualify for the maximum employer match

Saving

6a: Explain how traditional IRAs (individual retirement accounts), Roth IRAs, and education savings accounts provide incentives for people to save
6b: Compare the tax advantages of traditional and Roth IRAs
7a: Explain how an employer match of employee contributions to its retirement plan provides an incentive for employees to save
7c: Describe the pros and cons of saving through an employer retirement plan as compared to saving outside of an employer plan

Investing

8b: Describe the advantages of investing through a tax deferred account such as an IRA or 401(k) versus a taxable account
8c: Investigate the contribution limits and tax advantages of a traditional IRA versus a Roth IRA

TEACHER TIP: It is common for people to confuse investment accounts with the types of investments that go into those accounts. You may wish to remind students that when they want to start investing:

They first need to open an investment account (such as a brokerage account, an IRA, or an employer-provided 401k).
Then, they need to select the types of investments that go into those accounts (such as stocks, bonds, index funds, target date funds, etc.)

You can even use the analogy of “investment accounts are like buckets. The various investment types are what go into the buckets.

QUESTION OF THE DAY: How much would I need to save monthly to have $1 million when I retire? 📷5 min

Answer the question on the first slide in the space below. Then, compare your answer to the answer on the second slide. Finally, follow your teacher’s directions on how to answer the follow-up questions on the last slide.

1

FINCAP FRIDAY: Saying “OK” to the 401(k) 📷9 min

You may be wondering, “Where do I start if I want to invest for retirement?” A 401(k) is one of the most popular retirement investment accounts. Watch the video to learn about the advantages of a 401(k) and answer the questions. As your teacher progresses through the slides, answer these questions, just writing A, B, C, or D for questions 1 - 5.

5

1

Opening an employer-provided 401(k) or an IRA is just the first step towards investing for retirement. What other action do you need to take? Why?

VIDEO: IRA vs. 401(k)

ARTICLE: IRA vs 401(k) 📷9 min

As you learned in the previous FinCap Friday, if your employer doesn’t offer a 401(k), you have other options! Anyone can open a personal retirement account, called an IRA, to get many of the same benefits as a 401(k). Watch the video, read the article, and answer the questions.

1

Why might someone want to open an IRA as their retirement account?

1

What is one noticeable difference between an IRA and a 401(k)?

2

VIDEO: What is an IRA? 📷11 min

When opening up an IRA, you’ll have to decide which type of IRA you would like. Watch this video to learn more about the various IRAs. Follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.

1

Select the best definition of an IRA.

An IRA is a tax-advantaged investing tool set up by individuals for retirement savings

An IRA is a retirement plan offered to you by your employer

An IRA is an investment type with a fixed rate of return

An IRA is a retirement savings plan that guarantees a fixed rate of return

2

1

ACTIVITY: COMPARE: Types of Retirement Accounts

Let’s dive deeper into the different types of investment accounts you can have, including pensions, traditional 401(k)s, Traditional IRAs, and Roth IRAs. In this activity, you’ll compare the features of each type of account. Follow the instructions on the worksheet to complete the activity.

COMPARE: Types of Retirement Accounts

Choosing the right retirement account is key to reaching your financial goals. Each retirement account has different rules, benefits, and limitations.

Part I: Key Features of Retirement Accounts

In the chart below, each row has a statement about retirement accounts. Mark an "X" for each account type that the statement applies to.
Resources to Help You

Overview: Understanding the Differences: Pension, Social Security, IRA, and 401(k)
Pensions: If you haven’t already, read this article, What is a Pension? Is It All You’ll Need to Retire?
401(k): Watch this video, What is a 401(k)?
Traditional IRA: Watch this video, What is an IRA?
Roth IRA: Watch 0:43-4:30 of this video, Why I Love Roth IRAs!

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1

Printed for you. What is ONE thing you learned from this activity?

1

Jenny says a Roth IRA is best because you pay taxes now and avoid them in retirement. Jomaine says a Traditional IRA or 401(k) is better because you pay taxes later. How might both be right?

2

Your friend Sonia says pensions and 401(k)s are the best retirement options because they offer you “free money.”
What does she mean by this?
Does she have a good point? Why or why not?

1

401(k)s and IRAs are both…

Types of investments that you can choose to have in an investment account

Investment accounts that are commonly offered by employers

A type of savings account that generally offers around a 1% rate of return

Investment accounts that you can open to help you invest for retirement

1

All of the following are advantages of a 401(k), EXCEPT…

You don’t pay taxes on your investments’ growth each year

You can invest your 401(k) into a wider variety of asset types than you can with an IRA

Your employer may match some of your 401(k) contributions

You can contribute more money into a 401(k) than into an IRA

1

Which type of retirement account is an investment option for ANY young person?

Traditional IRA

Pension

401(k)

Social Security

3.11 How to Invest for Retirement

Learning Objectives

Learning Objectives

QUESTION OF THE DAY: How much would I need to save monthly to have $1 million when I retire? 📷5 min

FINCAP FRIDAY: Saying “OK” to the 401(k) 📷9 min

Opening an employer-provided 401(k) or an IRA is just the first step towards investing for retirement. What other action do you need to take? Why?

VIDEO: IRA vs. 401(k)

ARTICLE: IRA vs 401(k) 📷9 min

Why might someone want to open an IRA as their retirement account?

What is one noticeable difference between an IRA and a 401(k)?

VIDEO: What is an IRA? 📷11 min

Select the best definition of an IRA.

ACTIVITY: COMPARE: Types of Retirement Accounts

Printed for you. What is ONE thing you learned from this activity?

Jenny says a Roth IRA is best because you pay taxes now and avoid them in retirement. Jomaine says a Traditional IRA or 401(k) is better because you pay taxes later. How might both be right?

Your friend Sonia says pensions and 401(k)s are the best retirement options because they offer you “free money.”What does she mean by this?Does she have a good point? Why or why not?

401(k)s and IRAs are both…

All of the following are advantages of a 401(k), EXCEPT…

Which type of retirement account is an investment option for ANY young person?

Learning Objectives

Learning Objectives

QUESTION OF THE DAY: How much would I need to save monthly to have $1 million when I retire? 📷5 min

FINCAP FRIDAY: Saying “OK” to the 401(k) 📷9 min

Opening an employer-provided 401(k) or an IRA is just the first step towards investing for retirement. What other action do you need to take? Why?

VIDEO: IRA vs. 401(k)

ARTICLE: IRA vs 401(k) 📷9 min

Why might someone want to open an IRA as their retirement account?

What is one noticeable difference between an IRA and a 401(k)?

VIDEO: What is an IRA? 📷11 min

Select the best definition of an IRA.

Select all of the statements that are a true characteristic of a Traditional IRA. (hint: choose 2 correct answers)

Select the TRUE characteristic of a Roth IRA.

True or False: You can only have ONE IRA account, so it is important to weigh the pros and cons of a Traditional vs a Roth IRA and choose wisely!

ACTIVITY: COMPARE: Types of Retirement Accounts

Printed for you. What is ONE thing you learned from this activity?

Jenny says a Roth IRA is best because you pay taxes now and avoid them in retirement. Jomaine says a Traditional IRA or 401(k) is better because you pay taxes later. How might both be right?

Your friend Sonia says pensions and 401(k)s are the best retirement options because they offer you “free money.”What does she mean by this?Does she have a good point? Why or why not?

Raheem is unsure how Social Security will factor into his retirement planning. How can Social Security impact his savings strategy, and why is it important to consider alongside accounts like IRAs and 401(k)?

401(k)s and IRAs are both…

All of the following are advantages of a 401(k), EXCEPT…

Which type of retirement account is an investment option for ANY young person?

Select all of the statements that are a true characteristic of a Traditional IRA. (hint: choose 2 correct answers)

Select the TRUE characteristic of a Roth IRA.

True or False: You can only have ONE IRA account, so it is important to weigh the pros and cons of a Traditional vs a Roth IRA and choose wisely!

Raheem is unsure how Social Security will factor into his retirement planning. How can Social Security impact his savings strategy, and why is it important to consider alongside accounts like IRAs and 401(k)?

Your friend Sonia says pensions and 401(k)s are the best retirement options because they offer you “free money.”
What does she mean by this?
Does she have a good point? Why or why not?

Your friend Sonia says pensions and 401(k)s are the best retirement options because they offer you “free money.”
What does she mean by this?
Does she have a good point? Why or why not?