Retirement Planning for Women

Women don’t get equal pay, and they’re not advancing into management jobs as quickly as they should, according to a new Government Accountability Office study. Bad enough, right? But there’s more: a yawning gender gap in retirement security.

Income determines the size of critical Social Security benefits, and how much workers can contribute to retirement accounts. And women live longer than men, so they need to make their retirement assets last longer. At age 65, a woman can expect to live an average of 19 more years — three years longer than a man.

Those later years pose a big threat to economic well-being. The Center for American Progress notes that nearly one in six elderly unmarried women age 60 and over lived in poverty in 2008, and 16 percent of those 75 and older were poor. The comparable poverty figures for men are much lower.

The GAO report found that women managers in the United States are paid 81 cents for every dollar earned by male managers, and that they account for just 40 percent of management jobs — numbers that haven’t changed much since 2000. The U.S. House of Representatives passed a Paycheck Fairness Act early last year that would make it easier for women to sue companies for unfair compensation practices. The bill has been bottled up in the Senate ever since, so don’t hold your breath.

But while gender gap problems persist in the workplace, there’s plenty that women can do on the retirement planning front. Here are six ways that women can improve their odds for financial security in retirement.

Get educated and make a plan. “Many women are missing an opportunity to learn the basic principles of saving and planning for retirement,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies. “By simply getting educated, they could make more informed decisions and improve their retirement outlook.”

One approach is the old income-replacement rule of thumb-to retire comfortably, you must replace 80 percent of your annual pre-retirement income. But at best, this is a rough estimate. For example, it doesn’t take into account unforeseen spending needs such as higher health care expenses or a long-term insurance policy.

Instead, construct a detailed plan that takes into account what you spend now and try to project your expected retirement needs. The Women’s Institute for a Secure Retirement (WISER) recommends using the retirement planning planner offered by the American Institute of Certified Public Accountants. Also watch out for problems to avoid with some of the free retirement calculators on the web.

Focus on benefits. Look closely at retirement benefits when considering job offers, and even consider changing to a field that offers better packages. Could you get some additional education that will put you on a good career path leading to benefits?

Industry groups that pay the richest retirement benefits include chemical and drug companies, energy, utilities, financial services and healthcare; the U.S. Department of Labor’s Bureau of Labor Statistics publishes a report showing access to benefits for occupations and industry groups in the private sector.

In the public sector, the federal government is tops; retirement benefits include a 401(k) style plan and a defined benefit pension.

Start saving early: “The three most important words are ‘start saving now,’ says Manisha Thakor, an expert on personal finance for women. “So many women put it off until it’s very late. If they understood those three words in their thirties and forties, the power of compounding can make up for a fair amount of the headwinds they’ll face.”

Cindy Hounsell, WISER’s director, says younger women “need to think about putting away the equivalent of ten to 15 paychecks a year for retirement, and they’re not doing that now.”

Shed debt. Since you’ll probably live well into your 80s, plan to make it a debt-free retirement if at all possible — especially credit cards — to reduce debt expense and boost available cash.

Retire later. Don’t underestimate the retirement boost you can get by working even a few years longer than you might have planned. Doing so will boost your future Social Security benefits, you’ll be contributing to your retirement accounts — and you won’t be drawing down savings.

Understand Social Security’s spousal benefits. Since women tend to earn less, check to see whether you’d be better off planning to take your own Social Security benefit or the spousal benefit; you’re entitled to receive the greater of your own benefit or half of a spouse’s benefit amount. Use the Social Security Administration’s retirement estimator calculator to project your benefits and those of your spouse. A husband’s decision on when to file can make a big difference in annual Social Security income down the road for widowed spouses.

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