Having been married for a number of years and having a daughter, I recognize there are differences between men and women. That being said, I have identified a number of financial-planning issues I believe women should consider to help ensure their lifestyle in retirement is all that they want it to be.
First, I believe women need to look forward to a long retirement and plan accordingly. The U.S. Census Bureau recently reported that a woman who reaches age 50 today without serious health problems is likely to reach her 92nd birthday. That could potentially become an extended retirement.
Second, brush up on the basics of personal finance. Women, on average, outlive their spouses by almost 5 1/2 years. So if you've always left money matters to your husband, start learning what you need to know to manage on your own.
Third, pay yourself first. Instead of paying bills first and then saving whatever is left, prepare for your future by investing on a regular basis. Many financial institutions offer systematic withdrawal and investment programs. You may be pleasantly surprised by how fast your nest egg can grow.
Fourth, fund your 401(k) or other employer-sponsored program to the maximum. Contribute as much as you are allowed to deferred-income plans, such as a 401(k). Not only will you reduce your current taxable income; the tax-deferred compounding feature of these plans allows you to accumulate more than you would in a comparable account that taxes earnings each year.
Fifth, before you switch jobs, give careful thought to your complete benefits package and the portability and vesting rules of your retirement plan. The U.S. Bureau of Labor Statistics reports that, on average, working women over age 25 switch jobs every 4.8 years. Plan vesting retirements are often set at five years. So frequent job changes could limit the growth of your retirement plan assets.
Sixth, choose the IRA that's right for you. Many financial advisers and firms have IRA calculators available to assist you in determining which IRA is right for you. It can help you to compare the amount available at retirement if saving through a traditional IRA versus a Roth IRA.
Seventh, check on your Social Security benefits. The Social Security Administration reports that 64 percent of retirees rely on Social Security for half or more of their income. With the maximum monthly payment for women totaling $1,307, clearly Social Security should be thought of as supplementary income during retirement, and not as a main source of funds.
Eighth, beware of being too conservative in your investments. While there is a correlation between your age and the amount of risk you should assume when investing, a retirement account that you may need to rely on for decades should be long-term oriented. To maximize the potential for capital appreciation, consider keeping a significant portion of your portfolio in stocks for as long as possible. Proper asset allocation is critical in determining what mix is right for you.
Ninth, consider long-term insurance. Given that the average cost of nursing care is approximately $60,000 a year and home care costs can reach more than $200 a day, long-term care insurance makes a lot of sense for millions of Americans. It can help protect your retirement savings.
Tenth, don't leave Uncle Sam any more than you have to. You owe it to your heirs to establish an appropriate estate plan. Without one, estate and income taxes on retirement plan distributions could reduce your estate by as much as 49 percent (in 2003). Strategies exist for reducing the impact of estate taxes, paying remaining taxes cost efficiently and transferring the maximum amount possible to heirs and/or charity.
These general guidelines are designed to increase your financial awareness and even prevent an oversight that could affect your future.
For more information, call me at 689-8704 or William.a.Creekbaum@smithbarney.com.
n William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of SmithBarney, a financial services firm serving Northern Nevada at 6005 Plumas Street, Ste. 200 Reno, NV 89509.