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Top Ten Retirement Tips For Women (And Men Too!)
By Sarah J. Schmidt
Fall 2006
Retirement may seem like a long way off, but if you hope to enjoy your golden years with gusto, it takes careful planning now.
For women, retirement planning requires even more forethought because of the unique challenges they face along the way, such as career gaps for family responsibilities, part-time work, lower pay and increased longevity. These factors make a big difference in the amount of savings women are able to accumulate for retirement. That's why it's crucial to plan now for the future rather than put it off or leave it up to your spouse to make those decisions.
These 10 practical tips can help you get started.
1. Crunch The Numbers
If you're like most people, you expect to cruise through retirement with the same standard of living you've always enjoyed. But most people have no idea what that will cost. A study conducted earlier this year by the Employee Benefit Research Institute (EBRI) found that six out of 10 Americans have not calculated how much money they need to retire comfortably.
Plenty of professionals offer valuable planning services, but you can do much of the groundwork yourself with a retirement calculator (check out the online calculators listed in the sidebar). If you or your spouse participate in the federal government's Thrift Savings Plan, then a good chunk of the groundwork is already available to you at www.tsp.gov. Feed those numbers into a retirement calculator, along with balances from any other savings you have. The results may surprise you.
2. Start Now
Most likely, your retirement calculation will show that you could or should be saving more. You're not alone. The EBRI study showed that 52 percent of workers over the age of 55 currently have less than $50,000 in retirement savings; for workers between the ages of 25 and 35, a figure was a whopping 88 percent.
The message: Start saving now and you'll be way ahead of the pack. If you don't have a savings plan, either through an IRA, TSP or employer-sponsored plan, then start one today!
3. Beef It Up
If you already have an established plan but your calculations show it won't be enough, beef it up now. Even incremental increases in the amount you regularly stash away for retirement will add up exponentially over time. A recent study by the Transamerica Center for Retirement Studies showed that an average woman's current retirement fund lags $51,000 behind a man's. While women are not paid as much as men on average, the study suggests other possible causes as well.
For example, the study found that 23 percent of women eligible for an employer-sponsored retirement plan were not participating in those plans, and women who participated failed to contribute as much as their male counterparts. If you're one of those women, you may be missing "free money" from employer-matching funds or free investment advice these plans typically offer.
4. Review Your Social Security Benefits
Women in the Transamerica study far underestimated the amounts they would need for retirement, averaging nearly $300,000 less than the men's estimates. Perhaps these women really won't need as much as men, but it's surprising that their estimates could be so far apart. A more likely explanation is that they weren't taking all costs and income into account.
For a more sobering picture, check your annual Social Security Statement. The Social Security Administration mails these about three months before your birthday every year. If you haven't received one lately, or if you've recently changed addresses, submit a request for your current statement at www.ssa.gov. This is a very useful planning document because it includes a summary of estimated retirement and disability benefits you and your family may receive based on your earnings. But your Social Security benefits certainly won't cover everything; think of it as just one component of your retirement income.
5. Open A Spousal IRA
For women who do not work outside the home, saving for retirement often seems impossible. But those women may be eligible for a spousal IRA, which allows them to save during the years they're out of the workforce. For 2006 and 2007, up to $4,000 can be contributed to a spousal IRA. In 2008, the maximum bumps up to $5,000. Certain requirements and limitations apply, but this is one significant retirement option that should not be overlooked, particularly for military spouses. Read more at www.irs.gov.
6. Don't Put All Your Eggs In One Basket
One of the first rules of investing is to diversify, and it's never more critical than in retirement planning. Let's say you and your spouse both have IRAs, plus one of you invested in the government's TSP plan. You don't want your IRAs and your TSP invested in high-risk funds, despite the higher yields those funds may generate. You'll be left with nothing if those funds go sour.
The solution is to invest some of your assets in stocks, some in bonds and some in cash savings accounts. The amount of each category depends on how long until your retirement. Your investments should be more conservative as you move closer to retirement.
7. Don't Touch It
A little nest egg can be oh so tempting when you need a cash infusion for temporary pleasures such as vacations or home improvements - but it will cost you dearly. If you withdraw money from your IRA, you'll pay income tax plus a 10 percent penalty if you're under age 59 1/2. Taking money out also decreases the amount of your investment that's allowed to grow tax-deferred, meaning it costs you even more in the long run.
The best approach: Put the money away and don't touch it.
8. Retire Later
Suppose you've performed all the calculations and increased your savings as much as reasonably possible, but you still won't have enough to retire in style. You have two stark choices: Revise your goals or work longer. A few more years on the job will create more earned income and savings, and will reduce the length of time you'll need to rely on your retirement savings.
9. Educate Yourself
If all this seems a bit daunting, don't be intimated. Most people don't understand retirement finances. In fact, 80 percent of the women and 67 percent of the men interviewed in the Transamerica study said they didn't know enough to feel comfortable about retirement planning. But there's an easy fix: Educate yourself!
Read up on retirement tips. Review the retirement and investing guides provided by your employer-sponsored plan. Many retirement plans also provide benefits for spouses, so make sure you read and understand any waiver or consent forms that require your signature as part of your spouse's retirement plan distributions.
10. Be Honest With Yourself
This final tip may be the most important: Don't fudge the numbers. Be honest about your finances, both now and each successive time you reassess your financial status in the years ahead. If you want a true picture of where you stand, it's the only way you'll know how to get where you want to go in retirement.
Retirement Calculators
Use these handy calculators to estimate how much you'll need in retirement:
American Savings Education Council offers its user-friendly "Ballpark Calculator." If you have a TSP account, go first to www.tsp.gov/calc/asec-ballpark.htmls for instructions on the info military families need before using the calculator: www.choosetosave.org/asec.
CNN Money provides basic tips on estimating retirement savings: http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp.
Social Security Administration offers three different calculators of varying complexity: www.ssa.gov/planners/calculators.htm.
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Attorney and military spouse Sarah J. Schmidt writes frequently for Military Money and other business publications. She's not anywhere near retirement but hopes to be ready when she gets there.
Related articles:
Retirement Planning For All Ages
'Lifecycle Funds' Aim To Maximize Retirement Savings
Nine Financial Planning Myths
Military Retirement Systems: A Summary
Thrift Savings Plan Open Season
The Power Of Compound Earnings
$30,000 Knife Has Careerists Cutting Their Own Retirement
Why Is It So Important To Save?
Why You Should Start Saving Now
