Written by Sabrina L Brathwaite, CRPC™
With increased longevity and economic power come both advantages and obstacles.
When Should You Start?
First, some facts: According to the U.S. Census Bureau, the current life expectancy for a woman is 80.5 years; it’s 75.5 years for a man. While longevity continues to increase for both sexes, the U.S. government projects that the longevity gap between men and women will exist for the foreseeable future.
That means that women may need more income than men do to last through their retirement years. Unfortunately, women tend to accumulate less than men in retirement savings, despite the fact that women now enjoy more financial power than ever.
When to start?
For younger women at the start of their careers, beginning to save early is a great way to hedge against future events. For example, if you think there’s a possibility that you may temporarily downscale or step away from the work force at some point, it may make sense to prepare for that well in advance. If possible, make the maximum contribution to your workplace retirement plan. If you are eligible, funnel additional funds into a traditional or Roth IRA.
If you can’t contribute to a deductible IRA because of your income level or coverage by an employer-provided retirement plan, consider a nondeductible IRA. You’ll have to fund it with after-tax dollars and potentially pay taxes on withdrawals in retirement. “Thanks to compounded growth, spending a little less while you’re younger can help to significantly boost your retirement stash,” Greenberg says. “Go through your monthly bills and identify places where you can cut back. Almost everybody can find that extra $50 a month somewhere.”
Women who start a business or work part time during their caregiving years can take advantage of the opportunity to add pre-tax earnings to one of several kinds of small-business retirement plans, such as Simplified Employee Pension (SEP) IRAs, SIMPLE IRAs or Individual 401(k)s. Though similar to employer-sponsored and individual options, these plans for small businesses have their own rules and contribution limits.
Finding ways to continue saving during nonworking years can also help bridge the gap. Women with working spouses can make tax-deductible (or nondeductible) contributions of up to $5,500 in 2013 ($6,500 for those age 50 and over) to a spousal IRA as long as their husbands make enough to cover the contribution and the couple files jointly.
Consider asking your financial advisor the following questions about your retirement.
• Am I currently on track to have my retirement funds last as long as I do?
• Do my investments give me sufficient potential for growth?
• Should I reconsider my risk tolerance with regard to my investments?