When it comes to retirement planning, women face a double whammy: Not only do they tend to live longer than men – by an average of three years – they also tend to have a lower median income. According to data collected in 2012 by the U.S. Census Bureau, women’s median earnings for full-time, year-round work was just 77 percent that of men – a figure that hasn’t budged since 2007 and isn’t expected to equalize for another 45 years or so.
Put these two factors together, mix in the fact that women tend to practice more cautious investment behavior and have — on average — about half as much money to invest as men and what do you get? Gender-specific retirement-planning considerations. In essence, women earn less over their professional careers than men yet must fund 30 years (or more) years of retirement, a time in which health conditions and long-term care considerations may come into play.
These gender-specific challenges underlie the importance for an early and pro-active commitment to financial planning in order to maintain a desired lifestyle in retirement. These 5 key retirement strategies can help women maintain a comfortable lifestyle and financial security during those golden years.
1) Make hay while the sun shines. In other words, start saving as soon as possible and save it when you make it. The sooner you start, the more time you have to grow your savings – and every bit counts. Even small amounts grow into large amounts over time, so starting right now and contributing regularly until retirement age is key.
Put as much away as possible in various investment vehicles; contributing between 10 and 12 percent of your yearly income is key, but if that’s not in your budget, start with 2 or 3 percent. If your employer offers a 401(k), now is the time to jump in. Many 401(k) plans offer an employer match, so if you’re not contributing to yours, you’re essentially turning down free money! If you’re self-employed or work part-time, look into self-directed retirement plans, such as a SEP IRA (Simplified Employee Pension Individual Retirement Account), a Solo 401(k), or a Simple IRA.
2) Don’t overlook disability and long-term care insurance as ways to protect your financial well-being. Women’s longer life spans mean a higher risk of health decline and the need for long-term care; while you may be lucky enough to never require it, if disability strikes, the costs of home and community-based healthcare can quickly deplete retirement savings. About 70 percent of seniors require care, and the most intensive form – nursing homes – can cost $300+ per day.
However, long-term and disability insurance aren’t cheap and if you stop paying premiums, the benefits are lost. Be proactive and look into the pros and cons of disability insurance and long-term care now, while you’re still young and can lock in lower rates.
3) Familiarize yourself with market volatility, fear of the unknown and fear of outliving your money. If you pay attention to the headlines in the financial media, you probably already realize that the market is volatile. But what you may not realize is that a long-term approach to investments, as opposed to reacting to every little up or down trend, tends to yield better results.
Empirical evidence indicates that attempts to “beat the market” rarely, if ever, result in greater returns than those who don’t panic and hold steady through the ups and downs. This is one area where women and men’s different investment strategies favor women; studies indicate that female money managers tend to take a more cautious approach, managing risk more effectively and trading their equities and stocks 45 percent less than do men – resulting in an average 6 percent higher return.
4) Identify your most important financial goals and concerns. Got kids that need braces? Concerned about rising college costs? Though you might consider focusing these other needs, don’t forego retirement savings.
Sit down with your partner so you understand his or her needs and develop both a priority list and a budget plan. Ask the tough questions: How old will you be before you claim Social Security? What will Medicare cover – and not? How will you leverage your investments to provide financial security? And don’t forget to review important legal and insurance documents and check for missing items.
5) Prevention is key. The expenses associated with healthcare and long-term care can quickly deplete your retirement savings, so take a proactive approach to your health. Avoid those processed foods in favor of locally farmed, organic food, get in that 30 minutes of daily exercise, reduce your stress with yoga and meditation, and think positive thoughts.
And speaking of reducing stress, creating and following through on your retirement plan now will offer you peace of mind – it’s all about balance.
Please listen to our podcast below which was broadcast on this topic live on FM 106.1 WNBP and WNBP.com
// ]]>Stu Steinberg of Eaglerock Financial, Inc. has worked with families for more than 25 years, helping them work toward their financial goals through a holistic, well rounded approach rooted in objectivity, education, and empowerment. Stu is highly regarded by clients and colleagues for his unique combination of investment, CPA and entrepreneurial experience in the high net worth market.
8 January 2014