Retirement planning is essential to enjoying your golden years. Successfully employing the tools and strategies available to you is vital to making sure that you can maintain your standard of living after you stop drawing a regular paycheck. Unfortunately, women are often less prepared for retirement than their male counterparts.
There are many reasons for this. To begin with, women earn and consequently save significantly less than men. The gender pay gap means that women take home around 80 cents compared to every $1.00 that a male co-worker receives[i]. Women are also very likely to take time away from their work to have children and raise families or care for loved ones, causing them to lose career momentum.
Some women elect to take on a passive role in retirement planning, failing to account for the fact that women often outlive their husbands, and that average annual healthcare costs for women are often higher than for men[ii]. Unfortunately, this all adds up to the fact that only 62% of women have a plan in place to prevent them from outliving their savings.
5 Ways for women to prepare for retirement
The good news is that knowing and understanding the dynamics of retirement planning for women can help you tailor and execute a retirement plan that works for you. Here are five of the most important things that women should do to prepare for retirement:
- Bridge the pay gap. On average, women earn less than men and often do not work as long as men do because of caregiving responsibilities. Thanks to this decreased earning power, there is less money available to save for retirement.
There are several ways to maximize your earning power, depending on your particular situation. First, ask for a raise. Women often underestimate their worth and receive less pay because of it. If a pay increase is feasible or you can obtain additional benefits, request it.
For women returning to the workforce after raising a family or caring for elderly parents, consider planning to work longer to capitalize on your peak earning years as you gain career momentum. Decide if you are willing to wait to maximize social security benefits by beginning to collect at age 70 rather than drawing upon it as soon as you reach 62.
- Develop a retirement strategy. Take ownership of your retirement goals and set a plan. Far too many women reach retirement without having taken an active role in its planning.
Consider what your long-term goals are and what it will take to achieve them. If, for example, you plan to travel during retirement, that plan will look different from a plan that accounts for aging in place. Define your expectations and get a clear picture of what it will take for you to retire comfortably.
- Talk to a financial advisor. Financial planning is key to determining how much you need to save and invest. Discuss the tools at your disposal for wealth management, including tax-advantaged savings options like 401k’s, IRA’s, and even HSA’s. Knowing your options will better prepare you for executing your plan and achieving the retirement lifestyle that you want.
Make sure that the growth potential of your investments is in line with your expectations. Women tend to favor safer, longer-term investments that are more secure but yield lower returns. To outpace inflation, you may decide to assess your risk tolerance and invest in different, more aggressive instruments.
It may be helpful to ask how many female clients your advisor has as a way to gauge their ability to help you prepare. Vet your advisor thoroughly to make sure that you receive the best guidance available.
- Start saving early and aggressively. Women routinely save less for retirement than men do. By saving early and aggressively, you can have your money work for you while you work towards retirement, thanks to the wonders of compounding interest.
If your employer offers a retirement savings plan, enroll. Far too many women fail to take advantage of these programs. If your employer will match what you put in up to a certain amount, prioritize contributing at least that much. Otherwise, you’re essentially leaving free money on the table.
Plan to contribute a little bit more to your retirement every year. If you get a raise, consider increasing the amount that you save by just as much. You’ll maintain the same salary but contribute more towards your retirement without feeling the pinch.
Consider a health savings account. Your contributions are tax-deductible and allow for tax-free withdrawals for healthcare expenses. After age 65, you’ll only pay income tax on non-medical withdrawals. An HSA can be especially helpful as women tend to have higher average healthcare costs.
- Pay off debts and prioritize living debt-free. Liabilities can be a considerable impediment to saving and can quickly siphon away the money that you receive during retirement, especially any type of limited monthly income.
If you can, refinance your debts and prioritize paying them off. This includes student loans, credit cards, and any other obligations. With those out of the way, you can continue building up a sizeable nest egg without having these debts loom large over your retirement.
Women face plenty of obstacles to retirement planning, and the odds are stacked against them at several turns. The best way to plan for retirement is to create a plan to save as much money as you can as soon as possible. Talk to a financial advisor to make sure that you’ll reach your goals and optimize your strategy by taking advantage of any 401(k) benefits that your employer may offer.
Look for ways to bridge the pay gap—the more money that you earn, the more you’ll have available to save. Finally, prioritize paying off debt so that your retirement income is unencumbered.
Only by proactively considering your options and finding the best way to maximize your earning and saving potential can you hope to reach retirement age and enjoy it. The sooner you implement these solutions, the better.
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