Focus on Women Building Retirement Security
Focus on Women: Building Retirement Security If, like many women, you are juggling competing demands, such as family, career, and a household, you may feel tempted to relegate retirement planning to the bottom of your “to do” list. But by putting off preparations for retirement, you run the risk of becoming one of the large number of women who spend their golden years struggling just to get by. And you don’t want to be in that group—especially since you can avoid it with the right planning. Saving enough money to pay for a comfortable retirement can be a challenge for most Americans and it can be especially challenging for women who may, when compared with men, earn less, spend fewer years working, and live longer. These concerns are often more acute for women who are divorced, widowed, or otherwise single, or as well as for those who have spent all or a significant portion of their adult years caring for children and other family members. According to the U.S. Department of Labor (DOL, 2011), less than half of all working women in the United States participate in a retirement plan (46% of 61 million working women ages 21 to 64), and a woman retiring at age 65 can expect to live another 19 years, 3 years longer than her male counterpart. In addition, women typically spend nearly 12 years out of the workforce while taking care of children or elderly parents. Also, the average woman in the U.S. who is employed full-time earns less than her male counterparts with 80 cents for every dollar a man earns. Women are further disadvantaged when their jobs are part-time or with smaller firms that do not offer substantial retirement benefits. Because of shorter careers and possibly lower incomes, a significant proportion of women currently do not receive enough in Social Security benefits to meet even their basic needs. The Social Security Administration (SSA, 2011) reports the average annual Social Security income received by women 65 years and older was $12,155 in 2009. Further, married women often do not realize that the retirement benefits accrued by their husbands may be reduced if they are widowed or divorced. These combined factors put many women at high risk for poverty as they age, especially if they do not prepare accordingly. Clearly, most women will need to build up their own retirement savings if they wish to maintain a reasonable standard of living in their later years. Here are some strategies you can use to get started: If your current employer does not offer a good retirement plan, consider your options for securing better benefits. While companies with defined benefit plans that replace a percentage of income (based on your salary and years of service) are becoming increasingly rare, you should consider the long-term consequences of a job with a firm that does not at least match contributions to a 401(k) or other defined contribution plan. If you are lucky enough to be employed by a company with a traditional pension plan, find out what your benefit is likely to be and at what age you can collect the maximum benefit. Take advantage of the tax benefits of qualified retirement plans and traditional Individual Retirement Accounts (IRAs). Depending on your financial situation, you may find that making pre-tax contributions to a retirement account will not significantly reduce the amount of money you have available to spend. Contributions may decrease your current taxable income (and, consequently, your ultimate tax bill), and earnings are tax deferred. Taxes will be due when you begin taking distributions. If you withdraw money prior to age 59½ a 10% federal tax penalty will be due in addition to income taxes. Consider the role a Roth IRA or annuity may play in your long-term plan. Contributions to Roth IRAs must be made with after tax dollars, but earnings grow tax deferred. Qualified distributions made after age 59½ are tax free, provided the account has been owned for five years. Certain income limits apply. Annuities allow you to save money on a tax-deferred basis and offer you a variety of options for managing assets and receiving retirement income. All guarantees of income are dependent on the claims-paying ability of the issuer. Plan to work longer if necessary. Even a few extra years spent working will enable you to save more money toward your retirement. Your costs may also be substantially lower if you put off retiring until you qualify for full Social Security and Medicare benefits. Arrange to pay off your mortgage and other debt as quickly as possible. Owning a house outright in retirement not only ensures that you will have a place to live, but it can also serve as a valuable source of equity, should you need it. To give yourself an incentive to pay off your credit cards, you may want to resolve to turn your monthly credit card payments into retirement account contributions, when the debt is gone. If you are married, assess the capacity of your husband’s retirement benefits to meet your future needs. Given the possibilities of divorce and widowhood, it is essential that you plan for a time when you will have to manage on your own. If you are staying at home while your spouse is working, set up an IRA in your own name. Find out, too, what rights you may have to your spouse’s pension in the case of death or divorce, and research the effects of divorce and remarriage on your Social Security benefits. If your family budget is tight, carefully evaluate the benefits of putting extra funds into your own IRA or 401(k) versus putting money in a savings account for your children’s college education. Your children may be able to get financial aid or low-interest loans to help pay for college, but there are no grants or scholarships for retirement. Also bear in mind that some funds may be withdrawn from a retirement account before the age of 59½ penalty free if used for qualified education expenses. If you own a business, you should consider implementing a retirement plan for you and your employees. Not only will a plan help you to live comfortably in your retirement years, but it may also be fully deductible, thereby reducing your business’s current tax liability. If you already have a retirement plan for your business, you should review it with your advisor every few years to ensure it is still the best plan for your business and you are taking advantage of all tax benefits you may be entitled to take. If you are an executive and your company offers you the opportunity to participate in a non-qualified deferred compensation plan, consider the opportunity. Again, it will decrease your current income tax liability while providing you with an additional pool of money to draw upon in your retirement. Saving for your own financial future should be a priority, even when there are bills to pay and the wants and needs of children and other family members feel pressing. While taking care of others is important, so is paying yourself for the many contributions you make to family life.