Posted on 29 September 2010
By Mark Miller
For women, the gap has serious implications for retirement security, since retirement benefits are driven by career income. Social Security benefits are derived from income history, and the ability to contribute to a retirement account is driven by earnings, too.
And since women live longer, retirement assets must last longer. At age 65, a woman can expect to live an average of 19 more years-three years longer than a man.
Here are six tips that can help women build retirement security:
Get educated and plan. “Many women are missing an opportunity to learn -the basic principles of saving and planning for retirement,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies. “By simply getting educated, they could make more informed decisions and improve their retirement outlook.”
One approach is the old income-replacement rule of thumb-to retire comfortably, you must replace 80 percent of your annual pre-retirement income. But at best, this is a rough estimate. For example, it doesn’t take into account unforeseen spending needs such as higher health care expenses or a long-term insurance policy.
Instead, construct a detailed plan that takes into account what you spend now and try to project your expected retirement needs. The Women’s Institute for a Secure Retirement recommends using the retirement planning planner offered by the American Institute of Certified Public Accountants. Also check out my story on problems to avoid with some retirement calculators.
Focus on benefits. Look closely at retirement benefits when considering job offers, and even consider changing to a field that offers better packages. Could you get some additional education that will put you on a good career path leading to benefits?
Industry groups that pay the richest retirement benefits include chemical and drug companies, energy, utilities, financial services and healthcare; the U.S. Department of Labor’s Bureau of Labor Statistics publishes a report showing access to benefits for occupations and industry groups in the private sector.
In the public sector, the federal government is tops; retirement benefits include a 401(k) style plan and a defined benefit pension.
Start saving early: “The three most important words are ‘start saving now,’ says Manisha Thakor, an expert on personal finance for women. “So many women put it off until it’s very late. If they understood those three words in their thirties and forties, the power of compounding can make up for a fair amount of the headwinds they’ll face.”
Cindy Hounsell, WISER’s director, says younger women “need to think about putting away the equivalent of 10 to 15 percent of their annual pay for retirement, and they’re not doing that now.”
Shed debt. Since you’ll probably live well into your 80s, plan to make it a debt-free retirement if at all possible-especially the credit cards-to reduce debt expense and boost available cash.
Retire later. Don’t underestimate the retirement boost you can get by working even a few years longer than you might have planned. Doing so will boost your future Social Security benefits, you’ll be contributing to your retirement accounts-and you won’t be drawing down savings.
Understand Social Security’s spousal benefits. Since women tend to earn less, check to see whether you’d be better off planning to take your own Social Security benefit or the spousal benefit; you’re entitled to receive the greater of your own benefit or half of a spouse’s benefit amount. Use the Social Security Administration’s retirement estimator calculator to project your benefits and those of your spouse.