Women and retirement: Financial planning

Women and Wealth

Women need to be prepared for unique challenges and considerations as they plan for retirement, regardless of their age.

A key to approaching this period of life with confidence is to have a comprehensive financial plan in place. A plan will help you clearly identify near- and long-term goals, consider the financial challenges associated with living a long life that could extend to your 90’s or even beyond, and account for the potential of unexpected events.

Here are five things to keep in mind as you begin the planning process.

1. Know your goals and milestones

When asked to prioritize their planning goals, the number one concern for women is to have enough money for retirement.1

Given increasing life expectancies and a variety of financial challenges, this requires planning and preparation.

Consider how the following will impact your retirement:

  • Your current and projected future income, spending habits, and your short- and long-term goals
  • Your interests, with whom you’ll spend your retirement and where you’d like to live
  • The realities of a longer life expectancy and other financial challenges

2. Take advantage of the power of investing

A key to achieving a financially successful retirement is to start saving. The reason is simple – the power of compound interest. The longer your money can grow, the more money you can accumulate before you retire. The good news is women tend to hold their investments for longer periods than men, which can help grow wealth over time.2

When investing, it’s important to determine a risk tolerance profile that aligns with your age and time horizon. This will help guide your personalized investment plan with an asset allocation strategy – a combination of stocks, bonds and cash investments – designed to work for you over the long term. As you close in on retirement, you may want to adjust your allocations to account for changing circumstances.

Here are three investment and savings vehicles to explore before and during retirement:

  • Capitalize on the opportunity to save pre-tax dollars in an employer-sponsored workplace plan such as a 401(k). If your employer offers matching contributions, try to defer enough income into the plan to get that full matching amount.
  • If you’re self-employed, leverage SEP or SIMPLE plans to save money in a tax-advantaged way for retirement.
  • Make regular contributions to IRAs or other tax-advantaged savings vehicles to help supplement your income in retirement.

Keep in mind that asset allocation does not ensure a profit or protect against a loss.

3. Plan your estate

An issue that’s easily overlooked is making sure you have estate documents in order. A financial plan is only complete when you prepare not just for the distribution of your assets after your death, but for the possibility of an untimely death, disability or illness.

Written wills, powers of attorney and healthcare directives should be drafted by your attorney and kept current. If other life changes occur, such as the end of a marriage or the death of a spouse, be sure you’re closely involved in any consequential financial decisions that need to be made.

If you find yourself in one of these difficult situations, don’t be afraid to lean on your network of friends and family for advice and support.

A key to approaching this period of life with confidence is to have a comprehensive financial plan in place.

4. Build a retirement “paycheck”

Some people aren’t prepared to make the adjustment that comes when they retire and no longer receive a regular paycheck from work. Part of the planning process is to determine how you’ll generate reliable income to help you sustain your lifestyle in retirement. This can include your personal savings, distributions from IRAs and workplace retirement plans, pension distributions, payouts from annuities, inheritances and Social Security.

The planning process will help you estimate the amount of income you’re likely to generate from various sources. More important, it will identify potential income gaps that need to be filled. Increasing savings, changing your spending assumptions or choosing to retire later are ways to overcome such gaps.

This is a process that should start well in advance of retirement and account for any specific issues you may need to consider.

5. Understand the role and rules of Social Security

A cornerstone of retirement income cash flow for most retirees is Social Security. It provides a stream of reliable income on a monthly basis. Part of the planning process is to determine at what age you should begin collecting benefits. You can start as early as age 62. But the sooner you start receiving benefits, the lower the monthly benefit will be.

The amount of Social Security you receive continues to rise each month you delay your initial claim for benefits, up to your 70th birthday. As you delay, the amount of the monthly benefit increases by 8 percent each year. You want to be sure to assess your options and determine how Social Security fits in within the context of your broader wealth plan.

A special consideration is that, on average, women earn less in Social Security benefits than men.3 This is because the benefit is calculated based on the amount of income earned during your working years. In 2017, the average Social Security benefit received by women age 65 and older was $14,353, compared to $18,041 for men.3

Start taking steps with this planning checklist

This checklist can help you understand, define and plan for your short- and long-term goals.

  • Establish a budget – compare your living costs today to what they may be in retirement. Try to determine a sustainable saving and spending plan.
  • Build cash reserves – establish an emergency fund equal to three-to-six months of income that is readily accessible.
  • Leverage workplace retirement plans – try to set aside 10 to 15 percent of your income for retirement, using your 401(k) or similar plan and other investment vehicles such as IRAs.
  • Run the numbers – if you need to decide whether to set your career aside to manage family matters, consider the pros and cons for your individual and family financial security.
  • Make catch-up contributions – if you’re 50 or older, you have the flexibility to save an additional $6,000 per year in your workplace retirement plan and another $1,000 each year in your IRA.
  • Strategize education savings – create a separate savings plan to help fund higher education costs for yourself or your children.
  • Review insurance overage – assess your existing coverage annually, which could include home, auto, health, disability, life and long-term care. Determine if there are gaps that need to be filled.
  • Create or update your estate plan – regularly check on beneficiary designations to make sure they remain up-to-date.
  • Be informed – develop a working knowledge of topics such as healthcare needs, Medicare, and when to start claiming Social Security.

Read about important factors that can affect how you plan for retirement in our retirement planning checklist