The Facts About Retirement Planning for Women

By Doug Charney

Retirement planning is an important issue for everyone. Unfortunately, most people arent’s as prepared as they should be. According to Employee Benefit Research Institute (EBRI) in Washington, DC, forty-five percent of all American workers over the age of fifty-five have less than $25,000 in savings. Women, especially, don’t save enough for retirement. But, in reality, they are the ones who should be most concerned.

Women need to be even more concerned about their retirement planning than men for a number of reasons. According to the Bureau of Statistics, women live an average of four years longer than men. Seventy-one percent of women will live past the age of eighty-five. Second, most women over the age of sixty-five are single, so they have to support themselves.

Because of their longer life expectancy, women should save more for retirement than men. But saving and retirement planning seem to be more difficult for women. They still bring home seventy-six percent less than men, according to EBRI. In fact, from 1983 to 1998 women, ages twenty-six to fifty-nine, made thirty-eight percent of what men made, according to the Institute for Women’s Research.

Women also generally spend more time out of the workforce, taking care of children and elderly parents. The shorter length of time spent in the work force, compounded with the fact that women are more likely to hold jobs that pay lower wages, means fewer retirement benefits. Social Security benefits are based on earnings and total years of employment, and a lower lifetime of earnings translates to lower Social Security benefits. According to the Social Security Administration, the average man received $1,008 a month while the average woman received $774 in 2003.

Pensions, like Social Security, are based on total years of service and earnings while you work at the company. Again, women are probably going to receive a lower pension benefit. According to the Women’s Institute for Secure Retirement, women are half as likely as men to have pensions, and if they do, their accounts are half the size of men’s.

If any of these situations sound familiar, you are probably asking yourself, “Will I have enough money?” “What happens when my savings runs out?” and “Am I prepared for the unexpected?” These questions are common for many women. In fact, the EBRI Retirement Conference Survey found that women are less assured than men that their savings will last through retirement.

The good news is you can take charge of your finances and build confidence in your retirement plans by using the following tips:

1.      Don’t be Afraid to Invest

When women invest, they are often afraid they will lose what they have. In general, women tend to be more cautious in many areas of life. For example, women often make excellent pilots because they are less likely to take irresponsible risks. But when it comes to investing, women need to take on some level of risk to get the most out of their efforts.

The real risk of retirement is not loss of money, but rather not planning to have enough. Therefore, women need to develop an Asset Allocation Plan that will meet their future needs. An Asset Allocation Plan is designed to suit an individual’s goals and personality. If you are a conservative investor, your financial advisor will develop a plan appropriate for you. Find a trusted Financial Advisor and a CPA and work with them to develop a plan.

2.      Force Yourself to Save More

Most people like to live for today. They don’t like to think about the future and retirement. So people put off saving until they are in their forties and realize they want to retire early, but you can’t retire unless you have money saved. Use your 401(k) or 403 (b) at work to force yourself to save for retirement. Start small and increase the percent you add every year. Your goal should be generally 10 percent of your income every year.

And do not forget your IRA. Even if you work from home, you can still add to IRAs. IRAs grow tax deferred, while Roth IRAs grow tax free. Talk to your Financial Advisor or CPA to see which works best for you.

3.      Plan With Your Spouse

Too often women let their husbands handle all the investments. They either take the backburner on investment issues, or they don’t feel confident handling them. As a result, many women have no clue where their money is. You need to ask your husband what you are saving and where it is being invested.

When your husband retires, make sure you fully understand what he is doing with his pension and 401(k). Often men roll over their accounts with a short-term horizon. During this planning phase you should always be involved in meetings with your Financial Advisor. When you husband is getting ready to retire, you need to consider your survivor benefit, life insurance and your life expectancy. Does your husband have the option to choose from a survivor benefit and a single life expectancy on an annuity? If he takes the single life expectancy option and dies a few years later, his pension benefits will cease. You’ll be used to living off his pension with him, and be left with income from his pension at all.

Many husbands take the single life expectancy option because they get a higher income from their pension, but taking a survivor benefit option gives the wife the full amount or portion of his benefit until her death. While many couples take the single life expectancy pension and supplement it with a life insurance policy, this may not be the most beneficial route. A survivor benefit is usually the better way to go.

Also, if your husband is taking a 401(k) or pension rollover, you need to know where the money is going. Women who are going through a divorce need to work with lawyers who have experience in evaluating pensions and tax consequences.

4.      Plan for the Unexpected

Many people dip into their retirement savings when something unexpected happens. This can result in a ten percent penalty for early withdrawal if you’re under fifty-nine and a half years old, plus state and federal income taxes. So don’t forget to put three to six months’ income aside in case of the unexpected, such as a job loss, divorce or death of a spouse.

Secure the Future

While retirement requires major planning for everyone, women need to most concerned about their finances. A longer life expectancy, less time in the workforce and lower wages make it more difficult for women to save enough money to last for a retirement lifetime. However, by following prudent measures to take charge of your finances, you can help secure your future and live your retirement years with confidence.

This information is provided courtesy of Doug Charney, Vice President/Investments with Wachovia Securities in Harrisburg, PA. For more information, call Doug Charney at 888-529-2974, e-mail him at dcharney@wachoviasec.com, or visit www.charney.wbsec.com.

The accompanying information was prepared by or obtained from sources which Wachovia Securities believes to be reliable, but Wachovia Securities does not guarantee its accuracy or completeness. The material has been prepared solely for information purposes and is not a solicitation to participate in any investment strategy. For more information, please call Doug Charney at 888-529-2973. Wachovia Securities, LLC, member NYSE//SIPC, a registered broker-dealer and separate non-bank affiliate of Wachovia Corporation.

Wachovia Securities does not render tax or legal advice. Please consult with your tax or legal advisor before making any transactions, which may cause a taxable event. Asset Allocation cannot eliminate the risk of fluctuating prices and uncertain returns.

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