This month's guest author is Cindy Hounsell, President of WISER, the Women's Institute for a Secure Retirement, a nonprofit organization that seeks to improve opportunities for women to secure retirement income.
Why do women need to save more?
The main factor is longevity -- simply that women live on average about three years longer than men, but many women live decades longer than the average. The thing about old age is that the longer you live...the longer you are expected to live.
That means you will need more income for those extra years. Living longer means that woman should be saving more in order to pay for those years of increasing health care and prescription drug expenses. Today, retirement preparation is a do-it-yourself process that requires you to take charge early and learn the rules. The sooner the better!
So how do you prepare for retirement and make a plan?
Let's start with what you need to know. There are just a few ways to get retirement income: from your Social Security benefit, a retirement plan at work, and your personal savings. So the first step is to know what you have and what you will receive from each of these sources. Use this worksheet from WISER, Get Your Ducks in a Row, to figure it out.
Steps to Take
1. Find your Social Security benefits statement - this statement comes three days before your birthday. Remember that Social Security is intended as the foundation for retirement; right now it replaces about 40 percent of an average earner's wages. The problem is that too many women rely on it as their primary or only source of retirement income.
2. Review your retirement plan statement - if you have a 401(k) or 403(b) plan at work, find out your current balance.
3. Open up an Individual Retirement Account - this personal savings account will provide another channel for saving money and helping close your retirement income gap.
One More Factor to Consider
Now think about how long your retirement may last. Be realistic. Look at your health and family history. If women in your family live a long time, then you need to plan for a longer retirement. For example, you may want to work until age 70 to max out your Social Security benefit, and then plan for 25 more years, living until age 95.
Doing the Math
So how much income will you need? You can take all of this information you have pulled together and try an online retirement planning calculator. The calculator at www.360financialliteracy.org allows you to test various scenarios and see if you are on track. But try not to get overwhelmed by what the calculator may tell you. Remember that you have lots of ways to make your individual retirement plan work - maybe you will move to an area where taxes are lower or you will work part-time. The most important thing is to start planning. If you need help, there are thousands of financial planners who are willing to help you set up a retirement plan that works for you. For more information, tips, tools, and resources, go to www.wiserwomen.org.