Saving Strategies for Women

By Jamar Bates

Like so many women, are you constantly juggling family, professional, and personal responsibilities? No wonder retirement planning continues to be relegated to the bottom of your “to do” list. But, procrastination is not the answer, as it will only increase your risk of becoming one of a growing number of men and women who will spend their golden years struggling to make ends meet. With the right planning, you can avoid that situation. Saving enough money 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. Retirement saving concerns are often more acute for women who are divorced, widowed, or otherwise single, 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, 2009), less than half of all working women in the United States participate in a retirement plan (46 percent of 61 million working women ages 21 to 64), and a woman retiring at age 65 can expect to live another 19 years on average, three 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, and the average woman in the United States who is employed full time earns less than her male counterpart with 80 cents for every dollar a man earned in 2009 (Bureau of Labor Statistics, 2011). 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 number of women currently do not receive enough in Social Security benefits to meet even their basic needs. According to the Social Security Administration (SSA, 2011), the average annual Social Security income received by women 65 years and older was just $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 their own retirement savings if they wish to maintain their 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 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, consider the long-term consequences of working at a firm that does not at least match contributions to a 401(k) or other defined contribution plan. If you are 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. Depending on your financial situation, you may find that making pre-tax contributions to a retirement account will not significantly reduce your net income. Contributions may decrease your current taxable income (and, consequently, your ultimate tax bill), and potential earnings are tax deferred. Taxes will be due when you begin taking distributions. If you withdraw money prior to age 591⁄2, a 10 percent Federal tax penalty may be due, in addition to income taxes, unless a qualified exception applies.

• 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 potential earnings grow tax deferred. Qualified distributions made after age 591⁄2 are tax free, provided the account has been owned for five years. Certain income limits apply.

Make saving for your own financial future a priority, even when there are bills to pay, along with the wants and needs of your children and other family members. While taking care of others is important, remember to take care of yourself by preparing for your retirement.