What's different about retirement plans for women
When it comes to retirement, women face unique challenges. On average, women outlive men by five years, so women need savings to cover a longer retirement. Yet women are also more likely to spend time at home caring for children or elderly family members, and have fewer years of income to build up savings. These 10 strategies for women and retirement can help ensure you have sufficient savings.
1. Determine how much you need to save for your retirement. Women's longer life expectancy means they often have higher retirement savings needs than men. Start figuring out how much money you want to ensure you are comfortable in your later years with this retirement calculator.
2. Take advantage of higher IRA and 401(k) limits once you turn 50. If you took time off to care for children and are returning to work, this is a great way to catch up on retirement savings. In 2010 the 401(k) "catch-up" contribution is $5,500, for an annual maximum contribution of $22,000. The IRA catch-up in 2010 is $1,000, for a total allowed contribution of $6,000.
3. Make the most of an employer-provided 401(k).
The 401(k) contribution rules for 2010 allow you to invest a maximum of $16,500 (more after age 50.) If your employer offers a matching contribution, at least contribute enough to get the full match. That money is like a bonus—you don’t want to turn it down!
4. Self-employed? Use a SEP-IRA or Solo 401(k). It's estimated that one-third of all small businesses are owned by women. If you are self-employed or run a small business, SEP-IRAs (Simplified Employee Pension Individual Retirement Account) and Solo 401(k)s are retirement plans that are designed for you and your employees.
5. Add a Spousal IRA. Wives without a paying job can have their own "spousal" IRA based on their husband's earnings. In 2010, a non-wage-earning spouse can contribute up to $5,000 to a Spousal IRA.
6. Invest with an eye on inflation. About half of today's 65-year-old women will live for at least 20 years. But based on the historic annual average inflation rate, the purchasing power of $1 today might shrink to about 50 cents in 20 years. In preparation for retirement, women should create a portfolio mix that balances their desire for preservation with their need to have a chance of earning inflation-beating returns—including stocks, which have historically been the best opportunity for gains above the inflation rate.
7. Get paid what you're worth. One recent report found nearly half of women surveyed didn't ask for a raise or promotion in the past 12 months. Hold your manager to an annual performance review; if you’ve met your targets, push for a raise.
Retirement Savings Tip #2
If your employer offers a 401(k) matching contribution, ask your HR department how much you need to contribute to qualify for the maximum company match.
8. Reduce debt before retiring. No doubt you've worked hard to afford a home and a comfortable lifestyle, but aim to pay off debts before you retire. You'll need less retirement income to live well.
9. Make retirement your main savings goal. Mothers want the best for their children, but that should not mean foregoing retirement savings to pay for your child's college or support adult children. When thinking ahead to retirement, women should consider that taking care of their own financial needs also means their children won't have to support them in later years.
10. Revise plans if you're divorced or widowed. If you find yourself unexpectedly single, will you continue to receive your husband's pension? Do what you need to take control of your financial situation, including returning to work or reducing spending. Consulting a financial advisor might help.
Looking ahead to retirement, women who follow these strategies can enjoy a more comfortable financial situation during their golden years.
What's next? What are your top financial concerns?
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