In the span of a month late last year, I was asked by three separate groups to talk to female audiences about the special challenges women face while trying to build secure retirements for themselves.
Studies show that 60 percent of boomer-age women say they aren’t confident they’ll have enough money to live comfortably in retirement.
The problem isn’t unique to boomers – it’s a woman thing. Some of our greatest strengths as women also make us more economically vulnerable. Specifically, our tendency to take care of others first – including taking time out of the workforce to care for children and ailing parents – can compromise our own financial futures.
The time out of the workforce not only lowers women’s lifetime earnings and savings – it also lowers their ultimate Social Security and pension benefits. Leaving the workforce to care for an aging parent costs the average woman more than $324,000 in lifetime wages and benefits, substantially increasing her risk of living in poverty in her own old age.
Many divorced women struggle to raise children without any assistance from a partner, and some compromise their financial security by supporting grandchildren.
With all of those gender-specific challenges, my audiences wanted to know how women can still build a secure retirement, especially if they’re a little late to the game. It boils down to six major action items:
- Define what retirement means to you. These days, it rarely means a condo in Sunny Isles, Florida. For most of us, it means slowing down and scaling back, maybe spending more time with family or outdoors. For many, it means continuing to work. The important thing is to write your retirement objectives down, listing the most important goals first.
- Figure out your Social Security benefits and when to claim them. For many of us, Social Security provides the biggest piece of our retirement income. In fact, it’s the only source of income for half of unmarried African-American and Hispanic women over 65, and for a quarter of unmarried white women over 65. Almost universally, working a little longer and delaying your claim will provide a much more secure retirement for life. Your benefit will automatically increase 8 percent for each year you delay claiming. Plus, by adding more working years to your Social Security earnings record, you could increase your benefit. And of course, the longer you work, the more opportunity you will have to save for your retirement instead of dipping into your retirement savings.
- Calculate how much monthly income your personal retirement savings will generate for you. There are basically two ways you can create income out of the lump sum sitting in your 401(k) or similar account. First, you can try to live off of the interest and preserve the principal so that it continues to earn interest for the rest of your life. As a rule of thumb, financial planners suggest withdrawing no more than 4 percent of your savings each year. But really, you shouldn’t withdraw any more than the interest actually earned. Alternatively, you can use part of the lump sum to build your own “pension” of sorts, by buying an income annuity through an insurance company. The annuity will provide you a guaranteed monthly check for life. There are a lot of complicated annuity products out there, but a a simple annuity may be good for many people which (1) you pay for in one lump sum; (2) the annuity starts paying you immediately, and (3) the annuity pays you a fixed amount for the rest of your life, no matter how long you live.
- Set your budgets. You need a current budget – to help you cut costs and pay off debt before you retire – and you need a retirement budget to make sure your monthly expenses don’t exceed your monthly retirement income.
- Fill the gap. For many of us, there will still be a gap between the money we will need in retirement and the income we will have in retirement. We may need to downsize or work longer, or work an easier part-time job, or convert our hobbies into money-making enterprises.
- Consider change. LifeReimagined.org is an AARP project that aims to help you reflect on your gifts, explore new possibilities and connect you with a community of like-minded people to support you on your journey. You’ll find all kinds of stories of life-change, from an exhausted former Broadway performer who became an acupuncturist, to a former office worker who started her own pet-sitting business so she could have the flexibility she needed to take care of her aging mother.Another related AARP initiative is WorkReimagined.org, which connects older workers with job openings at companies that value older workers and their experience and provides resources for people looking to reenter the workforce. Check out our website for upcoming and archived webinars about WorkReimagined and work issues generally.
Jean C. Setzfand is Vice President of the Financial Security Team in the Education and Outreach group at AARP. She leads AARP’s educational and outreach efforts aimed at helping Americans have a financial ‘peace of mind’ in retirement. She can be reached at email@example.com or on Twitter at @JSetz.