Financial Focus: Women Must Look Beyond Social Security to Help Fund Retirement
Women tend to depend more on Social Security for several reasons, including longer life spans, lower average earnings and more time spent away from the workforce to care for family members. Nearly half of all senior unmarried women receiving Social Security benefits rely on them for 90 percent or more of their total income, according to the Social Security Administration.
But this isn’t by choice, because Social Security payments by themselves are not enough to fund retirement. If you’re married, your situation is somewhat different, but you don’t want to depend on Social Security too much. To help boost your chances for a comfortable retirement lifestyle, what should you know about Social Security and other steps should you take? Here are some suggestions to consider:
• Understand your Social Security benefits. You can start taking Social Security as early as 62, but your checks will be bigger if you wait until your full retirement age, which likely will be between 66 and 67. You can also defer taking benefits up to age 70 and receive even higher benefits. Social Security offers spousal and survivor benefits, so it’s important that you coordinate your actions with your spouse. For example, you are entitled to receive up to half of your spouse’s full retirement benefit (offset by your own benefit, and reduced if you claim early). Additionally, the survivor benefit can provide either your benefit or 100% of your deceased spouse’s, whichever is larger. It may make sense to have the higher-earning spouse delay taking benefits for as long as possible to maximize the survivor benefit. You might be eligible for spousal and survivor benefits if you’re divorced, so it’s important to understand all of your options.
• Contribute as much as you can to your retirement plans. Because women take more time away from work to care for their families, they often have lower balances in their employer-sponsored retirement accounts. That’s why you may want to put in as much as you can to your 401(k) or similar plan – at least enough to earn your employer’s matching contribution, if one is offered. And whenever you get a raise, increase the amount you contribute. Even if you have a 401(k), you may still be eligible to invest in a traditional or Roth IRA. And with both your 401(k) and IRA, fight the temptation to invest too conservatively, especially if you’re many years from retirement. To make substantial progress toward your goals, you will need a reasonable amount of growth-oriented investments in all your retirement accounts, while still accommodating your risk tolerance.
• Create an appropriate withdrawal strategy. When you retire, you’ll need to calculate how much you can afford to withdraw each year from your 401(k), IRA and any other retirement accounts. You don’t want to withdraw too much, too soon, and risk outliving your resources. You may want to consult with a financial professional who can help you determine a withdrawal rate appropriate for your age, income sources, lifestyle, projected longevity and other factors.
The suggestions above can apply to everyone. But as a woman, you may find them particularly import as you strive to achieve the retirement lifestyle you deserve.