Women face special challenges when planning for retirement.
Because their careers are often interrupted to care for children or elderly parents, women may spend less time in the work force and earn less money than men in the same age group.
As a result, their retirement-plan balances and Social Security and pension benefits are often lower.
In addition to earning less, women generally live longer than men, so they face having to stretch their limited retirement savings and benefits out for many years.
To meet these financial challenges, women need to make retirement planning a priority.
Start saving now
To maximize the chances of achieving a financially secure retirement, start with a realistic assessment of how much you'll need to save.
If the figure is substantial, don't be discouraged. The most important step is to begin saving now. Although it's never too late to save for retirement, the sooner saving starts, the more time investments have to grow.
There are many options that can be used to start saving.
If your employer offers a retirement savings plan, such as a 401(k) and 403(b) plan, join the plan as soon as possible and contribute as much as you can. It's easy to save this way because contributions are automatically deducted from pay, and some employers will match a portion of employees' contributions.
If the employer offers a pension plan, find out how many years an employee needs to work for the company before they're vested in the plan.
Women struggling to balance work and family sometimes shortchange their retirement savings by leaving their jobs before they become vested in their pension benefits. Keep in mind, too, that because pension benefits will be based on earnings and years of service, the longer an employee stays with one employer, the higher the pension will likely be.
Most employer-sponsored plans allow employees to choose from several investment options, typically mutual funds. Women who have many years to invest or who are trying to make up for lost time should give special consideration to growth-oriented investments such as stocks and stock funds.
Historically, stocks have outperformed bonds and short-term investments over time, although past performance is no guarantee of future results.
Along with potentially higher returns, however, stocks carry more risk than other, less volatile investments.
A good way to get detailed information about a mutual fund is to read the funds prospectus or to ask a financial professional for help evaluating retirement plan options.
Even women who are staying home to raise their families can - and should - continue saving for retirement.
Women who are married and file income taxes jointly, and who meet other qualifications, may open and contribute to traditional or Roth individual retirement accounts as long as their spouses have enough earned income to cover the contributions. Both types of IRAs allow contributions of up to $5,000 in 2009, or if less, 100 percent of taxable compensation. Those ages 50 or older are allowed to contribute up to $6,000 in 2009.
Plan for retirement income
Outliving retirement income is a realistic concern for many women.
At age 65, women can expect to live, on average, an additional 20.3 years, according to the National Vital Statistics Report published in November 2008. Many women will live into their 90s, which means that they should generally plan for a retirement lasting 20 to 30 years.
Women also should prepare for the possibility of spending some of those years alone. For married women, the loss of a spouse can mean a significant decrease in retirement income from Social Security or pensions. Here are some tips for making sure income will last throughout retirement.
• Estimate how much income is needed. Use current expenses as a starting point, but note that they may change dramatically by the time retirement comes.
• Find out how much to expect from Social Security, pension plans and other sources. What benefits will be available should you become widowed or divorced?
• Set a retirement savings goal to work toward, and keep track of progress.
• Save regularly - as much as possible and look for ways to save more. Dedicate a portion of every raise, bonus, cash gift or tax refund to retirement savings.
• Consider buying long-term-care insurance to protect retirement savings and income from high costs of nursing home care.
Perhaps some women are so wrapped up in balancing responsibilities that they haven't given much thought to retirement planning. That's understandable, but they risk shortchanging themselves if retirement planning isn't moved to the top of the to-do list.
A financial professional can help set retirement goals and choose appropriate investments.
Paula Dougherty, CFP, ChFC, CLU, is a senior financial adviser with Dougherty & Associates, Ameriprise Financial Inc. in Springfield. She may be reached at paula.j.dougherty@ampf.com.
Paula Dougherty, CFP, ChFC, CLU, is a senior financial adviser with Dougherty & Associates, Ameriprise Financial Inc. in Springfield. She may be reached at paula.j.dougherty@ampf.com.
