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START PLANNING FOR / MY RETIREMENT
Six smart ways women can catch up on retirement savings

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While the wage gap between women and men in the U.S. is steadily improving, women tend not to have as much in retirement savings.1 New studies indicate that women are better at saving, and no more conservative than men when it comes to making growth investments, but other factors contribute to lagging retirement account balances.2 To begin with, women get paid 20% less than men.3 Women also  live, on average, five years longer than men.4 Perhaps most significantly of all, women tend to be the ones who are removed from the workforce during their peak earning years to raise a family or become involved in other forms of caregiving.5 There is some good news, though: if you have missed out in the retirement savings department, a few key strategies are known to be effective in enabling you to catch up. 

While these techniques do come with trade-offs, they can help you to live a more financially secure retirement. You should ideally work with a financial representative or other advisor to coordinate and maximize your retirement funds, but all of the steps are things you can initiate yourself.

  • 1

    Work another few years. This is one of the most commonly recommended strategies, even by the U.S.government.6 If you could put in another three to four years, you could keep contributing to possible workplace retirement plans. Such plans are generally tax-advantaged, and some employers make matching contributions (basically “free money” from the employee’s standpoint). This would not only help you to delay drawing on your current retirement funds, but would also give them more time to roll over, and in turn, you’d be able to postpone accepting Social Security. You may also be able to use possible medical, dental, and vision benefits at work for a longer period of time.

  • 2

    Delay taking Social Security.  

    If you delay Social Security from age 62 (the earliest you can claim it) to age 70, the amount of money you receive each month will be higher.7  With the average retirement now lasting 20-25 years, this extra income can mean a lot over the long haul. 8 In order to bring this about, you may have to work longer, but during that time you’ll be paying more in to Social Security and this will likely increase the benefit. Couples can make use of other strategies that may increase their monthly entitlements still further. For more information, visit https://www.dol.gov/ebsa/publications/nearretirement.html.

  • 3

    If you have a retirement savings plan, raise your savings rate. Even a few extra percentage points per year can make a difference, especially when used in combination with the other techniques. This doesn’t just apply to benefits programs obtained through an employer – if you’re self-employed and have an independent savings plan, the same holds true. For those over 50, the US government’s annual allowable limits have been raised by an extra $6000 in 2015 and 2016, for a total of $24,000 per year. Check with your plan operator. While this may sound like a gigantic chunk of your paycheck, the government has raised the threshold specifically to allow older working people to escalate their retirement preparations. 9

  • 4

    Downsize expenses. The more of your money you can keep at this point, the better. So if your house involves too much maintenance or too much tax, do a hard assessment now. A smaller place, or a cheaper neighborhood, might significantly advance your retirement savings potential. You might even consider moving to a state that has lower taxes. Less drastic than moving, see if you can make reductions in monthly spending— perhaps by getting a lower cost cable/internet/phone package, buying generics instead of brand names, cutting a restaurant meal each month, etc. Take the “found” money that you would otherwise have spent and put it into retirement savings.10

  • 5

    Get a part time job in retirement. Instead of doing without employment income altogether, a part time job could help to compensate for the shortfall in your retirement savings. Consider this: you’re trying to, in effect, replace the rollover interest your savings might have earned if you had been able to save more money earlier in life. A new source of income might enable you to leave your retirement accounts alone, so the funds could continue to build.

  • 6

    When retirement comes, have a spending plan. It can make sense to spend different retirement accounts ahead of others. For instance, income taken from a Roth IRA won’t be taxed. If you expect your income early in retirement to be higher than it will be in the future, it might make sense to postpone spending the taxable accounts. When it’s time to pay your income tax, you’ll likely pay at a lower rate.11

For an optimal strategy that suits your own financial picture, you’ll probably want to consider getting professional financial advice. With a few adaptations, you may well be able to take steps that change your future retirement outlook for the better. 

1 Sarah O'Brien, "Women save more than men for retirement: Study," CNBC, February 25, 2016

2 Chris Taylor, "Why women are better investors: study", Reuteurs, June 7, 2017

3 Kevin Miller, "The Simple Truth about the Gender Pay Gap", AAUW, September 28, 2017

4 Shervin Assari, "Why do women live longer than men?", World Economic Forum, March 14, 2017 

Antonia Farzan, "You'll probably never make more money than you do in your 40s"Business Insider, July 15, 2015

6 Douglas Dubitsky, "6 Ways Women Can Catch Up On Retirement Savings", Forbes, June 8, 2016 

7 Jim Borland, "2017 Brings New Changes to Full Retirement Age", Social Security Administration, January 6, 2017

8,10,11 U.S. Department of Labor, “Taking the Mystery out of Retirement Planning,” November 2015 

9 Internal Revenue Service (IRS), “Retirement Topics - Catch-Up Contributions,” IRS.gov, October 26, 2015