Tag - retirement planning

New realities for retirement for women

By Donna M. Phelan, MBA

Although it is improving, there is an economic cost to being a woman that reverberates into retirement. It results from multiple long-term socio-economic conditions.

The first is that women have consistently earned less than men, and real wages have stagnated.  Currently women earn about one-fourth less than men.  The disparities are even greater for black women, who earn about 30 percent less and Hispanic women, who earn about 40 percent less (census.gov). The Center for American Progress calculates that over a forty-year career life, that difference may add up to $300,000 for lower earners, $431,000 for average earners and $723,000 for higher earners.

Women are also less likely than men to start their careers in, or get promoted to management positions.  A March 2010 Catalyst article in the Harvard Business Review reports that “women continue to lag men at every single career stage, right from their first professional jobs.”  Women comprise only 5 percent of CEOs of the Fortune 500 companies.  A 2014 Grant Thornton International Business Report survey, featured in the March 6, 2014 issue of Forbes, found that the number of women in senior management has “stagnated” at 24 percent since 2007. This means that most women miss out on the majority of lucrative executive benefits that may help secure their retirement.

An August 14, 2013 article in the Wall Street Journal, quoted an Aon Hewitt study, which said that the 401(k) gender gap is even bigger than the gender pay gap. The study showed that the average man’s 401(k) savings was $100,000 dollars.  The average woman’s 401(k) retirement saving’s was $59,300 dollars– a full 40 percent less.

Women are more likely to leave the workforce for childcare and eldercare.  This redirects their resources of time, money and energy away from retirement saving.  It also hinders career progress.  Studies by Claudia Goldin of Harvard show that when women reenter the workforce, they permanently lag behind in pay and promotions.

Women who leave the workforce for caregiving also incur consequences for Social Security. Women receive about one-fourth less than men in Social Security benefits, $13,236 versus $17,004. Nearly 30 percent of women over age 65 rely on Social Security for virtually all of their income, a rate that increases with age. The percent of women older than 65 living below the poverty level of $11,670 was 11 percent versus 6.6 percent for men, and 18.9 percent versus 11.9 percent for those living alone.  Women who turn on Social Security early for financial reasons permanently lock in a lower lifetime benefit in what may be their only pension.

Women also tend to work in industries that don’t offer retirement plans, so they miss the opportunity for wealth building through an employer match. With women’s average income hovering around $38,345, it is difficult to see how women would have any discretionary income left over for retirement saving.

Marital status is also a factor. Married women fare best, divorced and widowed women next best. Never-married single women incur the most cautious outlook for retirement.

The longevity gap between men and women is narrowing, but women still outlive men, and end up living out their later years alone.  Greater longevity is accompanied by larger risk of diminished purchasing power due to inflation.

The many socioeconomic issues facing women and retirement raise concern. What if the old method of trying to save enough for retirement doesn’t work for women?

New strategies are needed if women are going to thrive in retirement. Women should consider working longer in their careers, and part-time in retirement.  Women should also consider non-traditional residence sharing – renting out empty bedrooms, getting a roommate, and downsizing.  With the savings from reduced housing expenses, women could make financial investments in income-producing vehicles. Women could also turn their hobbies – for which they already have the skills, tools and materials – into profitable home-based businesses.

Women need to understand the role they play in their own retirement and take responsibility. They need to become financially literate and realize they will need income for life.  Women need to create stackable income streams to empower their retirement security and meet their monthly spending needs.

Women should also start talking to other women about retirement planning.  What are their friends doing to prepare for retirement? What if they got together once a month over coffee to start a conversation about women and retirement? They might discover that they have ideas, talents and resources to share with other women, which might enhance the retirement planning experience and success of a larger scope of women.

About the author

Donna M. Phelan spent more than 18 years at some of Wall Street’s largest and most prestigious investment firms. She holds an MBA in finance from the University of Connecticut, and provides personal financial advice to clients coast to coast. The author of Women, Money & Prosperity: A Sister’s Perspective On How To Retire Well, she has lectured at conferences nationwide on a broad range of financial topics and has published numerous articles on investments, retirement and financial planning. Phelan was formerly president of the American Association of Individual Investors (AAII) Connecticut state chapter and was active in the Financial Women’s Association (FWA) in New York.


Retirement Planning: Who else wants financial independence in 2014?

By: Rick Rodgers

The New Year is a great time to make some positive changes in your financial life.  While Americans are good at creating resolutions, we often find them difficult to keep.  We resolve to lose weight, save money or end bad habits, but few of us stick with those plans for long.

If your goal is to be financially independent, and it should be, you need to make some changes in 2014 that you’ll stick with for the rest of your life.  Here are a few suggestions for small resolutions that can have a significant impact on your financial future:

  • Spend less than you earn. If you take home $1,000 per week, you cannot spend more than $1,000 per week. That seems simple, but a survey released by Bankrate.com in 2013 found 76 percent of Americans live paycheck to paycheck.  Resolve to live on a budget that’s below your means.  You will never be able to out-earn your capacity to spend, so get your spending under control this year.
  • Credit cards are a last resort. Spending less than you earn will cause your savings to grow.  The savings account will be there when the car breaks down or the washing machine goes out, so you don’t have to turn to credit to handle the emergency. Most Americans are not prepared financially for any type of unexpected financial burden. Your goal should be to have three to six months of living expenses set aside in a liquid account for emergencies.
  • Invest for financial independence. This is not the same as saving for retirement. The goal here is to get to the point financially where you no longer have to work to support yourself.  Set aside some of the money you’ve worked for today.  Allow it to accumulate and grow so one day that money will be working for you.  Start by controlling spending so you have money to save and invest.  Continue the process until the return on your investments exceeds what you earn by working.  Financial independence gives you the freedom to choose to continue working, change jobs, work part-time or not at all.  It is the ultimate financial goal.
  • Pay less in taxes. Anyone looking for a place to cut expenses might start with their own tax return.  Too many Americans pay more taxes than they should.  Take advantage of tax retirement accounts through work and health savings accounts, if they’re offered.  There are tax credits available for children, higher education, dependent care and retirement savings.  Many of these credits go unclaimed each year.  Resolve to minimize your income taxes this year and put the savings into your new financial plan.
  • Make a plan. Baseball great Yogi Berra said, “If you don’t know where you’re going, you wind up someplace else.” This is especially true if you want to be financially independent. You need a short-term financial plan for controlling spending — a budget. You also need a long-term plan that establishes the level of savings you maintain, a plan to get out of debt and an investment plan that will take you to financial independence. The plan becomes your road map. There will be detours along the way; your goals and plan will need adjusting as you progress in life. Keep working at it. Don’t be distracted by outside influences you can’t control. You don’t want to get to the end of your working career only to find you haven’t saved enough to maintain your lifestyle and you still have a mortgage on your home.

Chinese philosopher Lao Tzu, said “The journey of a thousand miles begins with one step.”  Financial independence may seem like a thousand miles now, but start the journey in 2014 is taking the first step.

Resolve to save something from every paycheck this year.  Keep increasing it until you are saving at least 10 percent of your pay.

Take the first step in 2014.

About Rick Rodgers: Certified Financial Planner® Rick Rodgers is president of Rodgers & Associates, “The Retirement Specialists,” in Lancaster, Pa., and author of The New Three-Legged Stool: A Tax Efficient Approach to Retirement Planning. He’s a Certified Retirement Counselor and member of the National Association of Personal Financial Advisers. Rodgers has been featured on national radio and TV shows, including “FOX Business News” and “The 700 Club,” and is available to speak at conferences and corporate events (www.RodgersSpeaks.com).