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Why Women Need to Plan for Their Retirement

The Longevity Factor: Why Women Need to Plan for Their Retirement
Time — for a good book, uninterrupted by a deadline or must-do project. Freedom — to take a present-laden trip to see the kids, help out at the community bazaar, or make a spur-of-the-moment decision to extend that ski weekend another two days. Peace of mind — to snuggle on the couch until midnight on a week night watching a favorite movie, not worrying about this bill or that one, or the need to obey the call of an alarm clock at the crack of dawn.

Heaven? No. Just retirement. If you’re looking forward to enjoying a peaceful, comfortable retirement someday, you’re not alone. A government report shows that only 19% of men 65 and older were part of the labor force in 2003, down from 46% in 1950. For women 65 and older, participation in the labor force has remained steady at around 10% since 1950. (Source: Few US Senior Working; Most People Retire by 65”, March 10, 2006,

The fly in the ointment: As a woman, you may have to put in more effort before you get to enjoy a worry-free, financially secure retirement.

One reason is the “longevity factor.” According to a global comparison in 2006, women in the United States outlive men by five years—80.8 form women and 75.0 for men. (Source: CRS compilation based on data from the US Census Bureau’s International Data Base Those are just the life expectancies at birth. By retirement, the gap widens even further. Since women still tend to marry men older than themselves, it is estimated that seven out of ten women today will outlive their male counterparts by at least 15 years. Indeed, the average woman is widowed at 56 and lives almost 20 more years without a spouse. (Women and Life Insurance LIMRA 2005)

Plus, most women have fewer retirement resources. According to the Social Security Administration, in 2005, retired men received a higher average monthly benefit than did retired women. In that year, retired women on average received $867 each month from Social Security, while men received $1,101.

Although women comprise over 46 percent of today’s labor force, only 53 percent of women employees participate in an employer-sponsored pension plan. Today, only 28.5 percent of all women age 65 and older receive pension income. (Social Security Benefits, Women Age 65 and Older: Their Sources of Income, Research Report Laurel Beedon, AARP Public Policy Institute Ke Bin Wu, AARP Public Policy Institute October 2005

These factors very likely will have a dramatic impact on your lifestyle and standard of living in your senior years. It doesn’t matter whether you are married or single; whether you are young and just starting out or so close to retirement that you can almost read the headlines as you dream about leisurely Monday mornings with the paper in bed.

You will in all likelihood need more retirement income than you thought — and you are the one who must make sure it is there. How much will you need? That depends on a number of factors.

One Scenario
Let’s assume that you will need $40,000 a year in today’s dollars at retirement. Let’s further assume that you will live six years longer than a man who is the same age as you. That means you will need an additional $240,000 in income! Some may come from Social Security; some may come from a pension at work. But you may need to make up the shortfall yourself — or run the risk of spending your retirement years struggling financially.

Recommendation: Plan for a long life. If possible, make maximum contributions to qualified plans through work. Sacrifice in other areas if necessary.

Dare to dream. By making little sacrifices today, you can lock in the retirement lifestyle and security you want tomorrow, helping to assure that your retirement years are in fact your golden years — safe, secure, free of financial worry.

The Income Factor
Caught by surprise, their glances locked by accident — two generations divided by a luncheon counter, reverse images connected by what-if expressions. Brenda, crisply dressed and confident, her bag shrugged onto her shoulder, smiled first as she tucked away her newspaper and rose to go. Sandy, her face already tired from the breakfast crowd, juggled the fifty cent tip in her hand. Finally, slowly, she nodded, then smiled. “Knock ‘em dead,” she said flatly, the unfinished warning left hanging between them. “Thank you,” said Brenda. “Thank you.”

That women, on average, earn less than men is old news. What is not always so clearly understood is how this “income factor” can directly impact not only your standard of living today, but also your lifestyle in retirement. For many women, unless they start taking steps now, retirement may not be possible. Fortunately, there are steps you can take... but you need to get started.

The “gender income gap” is persistent and well-documented. According to 2005 US Census statistics, when a man and a woman work in the same occupation, the woman is likely to earn77 cents for every dollar received by her male counterpart. ( U.S. Census, Income, Poverty, and Health Insurance Coverage in the United States: 2005. “Table 1. Income and Earnings Summary Measures by Selected Characteristics: 2004 and 2005.”)

The simple math: Lower income can result in lower retirement benefits. This is one reason why, when it comes to company pension plans, 61 % of working women today do not have pension plans, while 76 % of women who are now retired receive no pension benefits. Of the 60 million wage and salaried women working in the United States as of March 2005, just 47 percent participated in a retirement plan. (Source: U.S. Department of Labor Employee Benefits Security Administration,2007)

Most serious of all: Many women are not doing anything about their situation. According to the 2007 Retirement Confidence Survey conducted by Employee Benefit Research Institute (EBRI),half the women indicated they had less than $10,000 in savings, which included retirement accounts such as IRAs and 401(k)s. Moreover more than 50% of women think they need less than $250,000 for retirement or have no idea at all. (Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2007 Retirement Confidence Survey.)

Recommendation: It doesn’t matter whether you are married or single; in your 20s or so close to retirement you can taste it. If you are not already actively and aggressively involved in making sure you will be financially secure, it’s time to take the plunge.

What To Do Right Now

  • Contact Social Security to make sure your earnings records are right and to find out how big your benefits checks will be at retirement. The toll free number is (800) 772-1213. Or you can reach them online at:  This link will open an external site in a new browser. .
  • Do the same with your pension administrator at work, as well as with all administrators from previous positions.
  • If possible, make maximum contributions to your employer-sponsored 401(k) and other qualified plans and IRAs, as well as saving after-tax dollars in annuities and other financial vehicles.
  • If you’re married, work closely with your husband. Remember, odds are that you will outlive him; make sure your financial arrangements reflect that.
  • Look before you leap. As a rule, “If you change jobs frequently, over a period of years you may build up vesting with several employers, but you would have built up much more if you’d stayed in one place.”
  • Your future is in your hands. Regardless of income, you will be the one who decides your level of financial security in retirement. Take charge of your retirement planning today.

For Love or Money
Joanie and Jake learned a valuable lesson recently. It seems that when Jake works, it is always for love AND for money. No questions asked. But when Joanie “works” — because she has alternated between keeping the home fires burning and earning a paycheck — it is either for love OR for money. The lesson: If they hadn’t done some focused retirement planning together, Joanie risked being short-changed big time financially in her senior years. The story is fairly typical.

As a young bride, Joanie worked until the children came, then spent a decade as an at-home mom, followed by nine years in banking before a mega merger left her free, so to speak, to pursue other goals.

Today, they’re empty nesters. While Jake works as a self-employed consultant from his office at the house, Joanie divides her time between part-time tax preparation and trying out the latest Martha Stewart recipe on Jake and the dog. It’s a great life.

Here’s the problem. When looking at their retirement plans, they discovered that after more than 30 years of going about her life’s work — sometimes for pay, sometimes for love — Joanie’s total retirement benefits will total less than $300 a month. Jake’s — the payoff for three decades plus of uninterrupted workforce participation — will be more than ten times that.

The situation isn't all that uncommon. What goes wrong for millions of women like Joanie could be called the "vesting factor." Here are the facts:

  • Women, on average, in our society leave or change jobs every 4.8 years, according to the Bureau of National Affairs. Men move every 6.6 years. That may not seem significant. However, vesting for pension benefits often does not take place until the five-year anniversary. So, while men tend to vest (acquire ownership) in their pension benefits, women tend to leave right before they vest. (“Money for Women,” by Selena Maranjian January 13, 2006 Motley Fool)

Why do women change jobs more frequently or step in and out of the income-generating workforce? Two reasons:

  1. They do it for the kids, taking time off to raise and care for families. According to Kiplinger’s Personal Finance Retirement Guide, 2004, women take off an average of 12 years away from the work force. Overall, 70 percent of women report responsibility for taking time off work because of children’s needs, in comparison with 30 percent of men (Families and Work Institute). The Way Women Work, New, America Foundation, March 4, 2004
  2. They do it for aging parents. It is estimated that, nearly half of all women in the work force will have some day-to-day responsibilities for elderly parents. Women far more than men compromise their work schedules by moving in and out of the labor force, experiencing breaks in their work histories. According to the Social Security Administration, women workers retiring in 1998 at age 62 had on average 29 years of service credit for Social Security benefits while men had 38 years. As a result, many women end up sacrificing their own financial security in retirement. The real-life statistics are daunting:

For every year out of the workforce, a woman has to work five years to recover the lost income, pension coverage, and career promotion. (Source: “Money for Women,” by Selena Maranjian January 13, 2006, MotleyFool)

In 2004, men’s median pension income was nearly twice women’s, $12,000 and $6,141, respectively. (Source: October 2007, GAO Report RETIREMENT SECURITY: Women Face Challenges in Ensuring Financial Security in Retirement)

As husband and wife, Jake and Joanie learned that there was a lot they could do. For starters, they began talking about money — not his money or her money — but their money. They mapped out a retirement strategy that covered the whole range of “what if” scenarios: if he should die first, if she should die first, if they should divorce (yes, it needs to be addressed), if one became incapacitated, and so on.

What about you? If you’re married, the two of you need to sit down and discuss your future and make sure you’re both provided for. If you’re single, you need to plan for yourself. Either way, talk to your pension administrator at work; max out your 401(k) contributions, as well as your IRAs; and consider the vesting factor before you change jobs.

Things You Can Do to Boost Your Retirement Security
If you’re a woman, odds are high that your pension will be lower than that for the men you car pool with to work. So, whether you’re a golly-gee kid just starting up the career ladder or a well-established veteran, complete with brass nameplate on the door, you need to do more than just think about boosting your retirement security. Fortunately, there is a lot you can do.

  1. Make a conscious effort to take charge of your own retirement planning. Don't leave it to chance... or your husband. Start saving for retirement. No excuses.
  2. Get knowledgeable about finances. You don't need to become a Wall Street wizard. You can learn enough to make intelligent choices — or at least understand the advice of experts — by reading a few books or attending one of those weekend seminars. Investing a few hours learning the basics can pay big dividends in knowledge today, and financial security tomorrow.
  3. Make maximum contributions to qualified retirement plans through work and IRAs on your own. No if, no ands, no buts. Just do it.
  4. If you're single, don't wait for Mr. Right to come along and solve all your problems. Too many women torpedo their own financial security by deferring to their husbands — even the one they haven't met yet. Besides, even if he is Mr. Right, you will probably outlive him. Your best bet: Take charge of your own future.(Maxing Out)
  5. If you're married, take an active part in your household's finances. Become economic partners with your husband.
  6. If you're married, discuss the critical differences between joint and single life pension and annuity benefits. Under a single life option, when he dies, his benefits die with him. Also, since you probably will outlive him, make sure that your (his and yours) estate plan provides for you after he is gone.
  7. Look before you leap when changing jobs. Don't go solely for a bigger paycheck; make sure you won't lose retirement benefits. Also, you may want to think twice before retiring early — before your benefits are maxed out.
  8. Become financially aggressive. Historically, women have tended to be conservative with money. While this is changing, many women still tend to focus too much on protecting principal than on achieving solid returns.(Maxing Out)

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Why Women Need to Plan for Their Retirement

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