How to prepare for retirement: Retirement planning tips for women

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If you haven’t taken time to set up a retirement account, this is your official nudge. If you already have one, make sure your contributions reflect the lifestyle you desire. According to the U.S. Department of Labor, more than half of working women — 54% — don't participate in a retirement plan.

Rachael Burns, a Certified Financial Planner and Certified Divorce Financial Analyst based in Folsom, Calif., says that women face unique financial challenges, which makes retirement planning all the more important. 

“Women tend to live longer than men and therefore need their retirement savings to last longer,” says Burns, who specializes in helping newly single women across the U.S. achieve financial independence. She says women typically earn less and take more breaks from employment to raise kids or care for family members, which can make saving more difficult.

“In my experience, people who haven't done the calculation are drastically overestimating the lifestyle they can expect during retirement,” Burns says. These people are often forced to slash their expenses unexpectedly or drain their retirement savings. “Without a financial plan, they run the risk of running out of savings and having to live on minimal Social Security income.”

Here are 3 steps to prepare you for retirement:

  1. Saving for retirement
  2. Opening a retirement account
  3. Allocating assets in a retirement account

Step 1. Saving for retirement

Studies find that women are better at investing than men, but they save and invest far too little, too infrequently, which puts us at a huge disadvantage. Time to take control of our lives, ladies. Here’s how to get started.

How much of your paycheck should you save?

A general rule is that you should set aside 10% to 15% of your pretax income, which sounds like a lot. That's because it is — especially when you're raising children.

If you’re still in the process of building your career, saving 10% should do the trick. But as your income increases, so should your retirement savings goals.

This can be a challenge even for people who don't have kids. But you need to do it anyway. If it simply isn’t possible to save 10% right now, then try to get as close as you can.

Pro tip: Setting up a budget that includes a “savings” category will help prioritize your retirement and other long-term financial goals.

Wendy Barlin, CPA and Chief Strategist for the About Profit accounting firm in Los Angeles, says it’s easy to become hyper-focused on your present finances and forget to prepare for the future.

“When I was a single working mom, I was so focused on making money, taking care of my daughter and getting the bills paid, there was no space in my world to think beyond the present,” she says. “I wanted to own a home for our financial security, and I think I just assumed that that would be my retirement fund.”

Best way to save for retirement?

Burns says if you have access to an employer-provided retirement plan like a 401(k), you should take advantage of any match or profit-sharing contributions before any other savings vehicle. 

You can also contribute to a Roth IRA, which offers excellent tax advantages, as long as you earn within the limits. Otherwise, a regular IRA (individual retirement account) or even a taxable brokerage account are recommended for saving and investing long-term, since they offer tax advantages and also deter you from early withdrawal, since doing so means facing penalties and taxes.

“Tax deductions allowed with IRAs and 401(k)s make these very attractive,” Barlin says. She also recommends making sure all of your bills are paid and that you have at least 12 months of living expenses saved before you begin contributing to investment accounts. 

Ideally, you’ll wind up using more than one of the options below – or maybe even all of them.

Step 2. Opening a retirement account

Traditional and Roth 401(k)

If you work for someone else, you may have access to a 401(k) plan. With this type of plan, employees contribute a certain percentage of their wages and may even receive a “match” of some of those funds from their employer.

The money contributed to a traditional 401(k) is added to your account on a pre-tax basis up to annual limits, and this will reduce your taxable income for the year.

From there, your money grows tax-free, and you don’t pay income taxes on it until you begin taking withdrawals during retirement.

For tax year 2021, employees under the age of 50 could contribute up to $19,500 to these accounts. Employees 50 years or older could contribute up to $26,000 ($6,500 more).

These limits have changed for the 2022 tax year: To $20,500 for employees under 50 and $27,000 ($6,500 more) for employees 50 or older.

Like with a traditional IRA, there are penalties to pay if you need to withdraw money from your 401(k) before you reach age 59½.

When it comes to Roth 401(k)s, these investing accounts work similarly to Roth IRAs in the fact you contribute to them with after-tax dollars.

However, with a Roth 401(k), required minimum distributions start at age 70½ and there are no income limitations.

It is important to note that employers who do offer a Roth 401(k) are also required to offer a traditional 401(k).

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Simple IRA

A Simple IRA (Savings Incentive Match Plan for Employees) is another type of employer-sponsored plan that is even less common than the Roth 401(k). This type of plan is often offered by small employers but is also used by the self-employed.

With a Simple IRA, employers are required to make either matching contributions or nonelective contributions to the plan.

In the case of matching contributions, the employer may match the employee contribution for up to 3% of the employee’s salary.

With nonelective deferrals, the employer makes contributions to the plan whether the employee contributes or not.

Like other plans, contributions made to a Simple IRA are tax-advantaged up to certain limits.

Money then grows tax-free and is taxed once you begin taking distributions in retirement.

Like other plans, you’ll need to pay a penalty if you need to take money out of your Simple IRA before age 59 ½.

In 2021, employees could contribute up to $13,500 each year to their Simple IRA. This limit will increase to $14,000 for the 2022 tax year.

Traditional IRA

A Traditional IRA lets you save money that will grow tax-deferred until you reach retirement age. This means that you put money in now, depending on your income level, you may be able to deduct the amount you contribute to a Traditional IRA (up to annual limits) to reduce your taxable income that year.

Individuals younger than 70½ can contribute to a Traditional IRA. For the 2021 and 2022 tax years you can contribute up to $6,000 to all IRA accounts combined if you are under the age of 50, or $7,000 if you’re ages 50 and older.

Since this type of account is for retirement, you cannot withdraw money without penalties until you’re at least age 59½.

Required minimum distributions are also required on these accounts by April 1st of the year following the year you turn age 70½.

If you or your spouse do not participate in a retirement plan at work, your Traditional IRA contribution is fully deductible up to your contribution limit, which is based on your income.

The combined annual contribution limit for Roth and traditional IRAs is $6,000 — or $7,000 if you're age 50 or older for the 2021 and 2022 tax years.

2022 income limits for Traditional IRAs are:

  • Singles with modified adjusted gross income of $68,000 or less, with adjusted phase-outs up to income of $78,000
  • Joint filers with income of up to $109,000 can deduct their full contribution, with phase-outs up to $129,000 income

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Roth IRA

A Roth IRA works differently than a traditional IRA since you contribute after-tax dollars to this account.

The same $6,000 limit applies for those under the age of 50 (or $7,000 if you’re ages 50 and older) across all your IRA accounts.

Since the funds you contribute are made with after-tax dollars, the money also grows tax-free and can be withdrawn on a tax-free basis once you reach retirement age.

As an added bonus, you are able to withdraw your contributions to a Roth IRA account at any time without penalty (though you would have to pay taxes on any profits earned).

Keep in mind that income requirements apply, and many high-income individuals and couples cannot use a Roth IRA.

In 2021, phase-outs for Roth IRA contributions start at:

  • Single filers: $125,000, up to $140,000
  • Married couples filing jointly $198,000, up to $208,000

In 2021, phase-outs for Roth IRA contributions start at:

For 2022, Roth IRA income limits are:

  • Single filers: $129,000 up to $144,000
  • Married couples filing jointly: $204,000, up to $214,000

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Investing outside of a retirement plan

If you’re investing in a retirement account outside of your workplace plan, open an account with an investment firm like Vanguard, Fidelity, Ellevest. You will choose either an IRA or Roth IRA as your account type, and link it to your bank account so you can move money into it regularly.

Next, select your investment options. As with the 401k, you don’t have to make it complicated. You can find target-date funds at every investment firm. There are hundreds of target-date funds (explained below), and they are a great, low-stress and low-fee way to plan for the future.

If you’re investing outside of a retirement account, open an account with an investment firm like Vanguard, Fidelity, or Ellevest and select a brokerage account or general investing account type.

Again, you need to connect your bank account so you can move money easily, and then select your investment options. If you’re investing for a goal that is closer than retirement, then you can pick a shorter-dated target-date fund or a moderate or conservative investment mix with a robo-advisor.

Step 3. Asset allocation within your retirement account

Within each of these investment vehicles, you will be asked to choose stocks, bonds, mutual funds or index funds. Here is what you need to know:

Mutual fund definition: Group of stocks, bonds and cash investments

A stock fund, typically called a “mutual fund,” is way better than a single stock. The mix means you are better protected in case the market crashes, and more likely to make money when it goes up.

There are more than 30,000 mutual funds available on the market. Mutual funds can provide a great balance of investments to help you reach your goals, and minimize risk. The downside is that all funds come with fees. Increasingly, mutual funds are going out of fashion in favor of index funds.

Target date fund definition = a fund managed to maximize the time you own it

For retirement accounts, chose a target-date fund that ends around the date you expect to retire.

For example, I am 45, and expect to retire around the year 2040, so have a lot of my retirement investments in Vanguard Target Retirement 2040 (VFORX).

Vanguard is famous because it is low-fee, and in return for that low fee, a bunch of nerds are paid huge salaries to make my money grow.

I'm not a fund manager, so I would never pretend to do a better job than those nerds. They got you. A target date fund is awesome. Do that.

If you want to check whether your 401(k) is performing as well as it could, I recommend the robo-advisor Blooom, an online tool that automatically maximizes your 401(k) investments, without you having to move your account.

If you don't have a retirement program at work, you can create your own!

Index funds = no-fee funds that track the market 

An index fund is a mutual fund that is also an “exchange-traded fund,” or ETF. This means that the entire portfolio tracks or copies a certain market index. There are ETFs for the Dow Jones Industrial Average, so a share of that fund tracks the 30 stocks that make up the DJIA. When the DJIA goes up and down, your stock goes up and down by the same percentages. 

Because we now have more than 100 years of stock market data, experts are reasonably sure that over time, all the stock and bond markets do go up, eventually.

There are index funds / ETFs for all kinds of things: International stocks, U.S. domestic stocks, specific markets like biotech, green energy, cannabis, big corporations, small companies, green energy companies, fossil fuel producers — you name it.

There are also target-date index funds. 

One of the big benefits of ETFs and index funds is that the fees are extremely low — since there is like active management of the fund, which is what makes mutual funds so expensive. 

Your employer retirement benefit may offer an ETF as an option.

Whether you are a woman, man or even child investing for the future, ETFs are an excellent choice.

Invest in bonds 

Bonds are an important part of any investment portfolio for women. Bonds are a very safe asset class that allows you to invest money in a government or business for a set amount of time, typically with a guaranteed rate of return.

Because they are so safe, bonds tend to be very popular when the stock market is volatile. Bonds can also be a great place to park your emergency fund or cash savings, since they tend to pay more than a savings account. 

Invest in or buy gold

Gold has hit record highs in 2020, and the yellow metal is often considered a safe, modest investment to balance out a larger portfolio — especially since gold has typically moved in opposition to the stock market. However, this is not necessarily true.

The long-term stats (since 2005), gold, as represented by GLD has had over 20% higher volatility than the S&P 500. Remember that gold doesn’t pay a dividend or interest, but can be a strategic diversifier to a portfolio.

Invest in art

Since 2000, blue-chip art (work from a list of 100 artists that has reliably increased in value like Kahlo, Rothko, Manet) has outperformed the S&P 500 by more than 250% without dividend reinvestment, according to Artprice’s art market index.

Why invest in art? Fine art has proven to be more stable during down times. During the 2008-2009 financial crash, art markets dropped less than 26% from their peak, while the S&P declined 57%.

According to Deloitte's 2017 Art and Finance report, 88% of wealth managers say art and collectibles should be included as part of the wealth management offering. But how can everyday, non-billionaire people invest in fine art?

Investment philosophy

Increasingly, investors are concerned about the social, environmental and political activity of the companies and governments in which they invest. You can align your investments through mutual funds, index funds, and those offered through roboadvisors, including Betterment's Socially Responsible Investing Portfolio.

Ethical investing and ethical investment funds

Ethical investing is a general term that includes all kinds of funds or individual stocks that align with an investor's values and morals. Some investors do not invest in ‘sin stocks' — or those that profit from gambling, tobaco, alcohol, pornography or firearms.

Faith-based investments include Shariah-compliant funds that are governed by the requirements of the principles of Islam, and Catholic-compliant funds avoid investing companies that support abortion, contraceptives, and embryonic stem-cell research.

Sustainable investing and green investments

Sustainable investing and green investments are those that only invest in companies that adhere to strict environmental regulations focused on reducing global warming, minimal waste, renewable energy, and related social responsibility. The Global Sustainable Investment Alliance sets guidelines for investors and member funds.

Socially responsible investing

Socially responsible investing ins a broad term that seeks to focus investments in companies committed to causes including:

  • Gender equality
  • Ethical treatment and fair pay for laborers
  • Ethical corporate governance
  • Environmentally sustainable

How to start investing for women

Retirement or college savings? Advice for single moms about investing

Prioritize retirement investing far above your kids' college education.

An Allianz survey found that Americans over-save for their kids' college fund when compared with retirement, and guilt-ridden single moms are especially prone to this mistake.

Instead: Remember the oxygen-on-the-airplane rule: Take care of yourself before trying to save anyone else.

When you have your finances in order, cash in the bank, your investments under control, you are a less-stressed, more secure mom today, and relieves your children from the worry and resentment for caring for you in your later years. There are countless ways to finance college, but no Pell grants or loans for retirement!

Believe that you are worth it.

You deserve to have a fat wad in the bank, peace of mind and confidence that you can have a comfortable, joyful life and financial future!

You are not dumb or lazy because you have not started investing — or not saved enough.

The system is stacked against you. You are smart and you can do this.

When you succeed in your finances, all women succeed.

We lift each other up, set great role models for one another, and together we are going to close this wealth gap!

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Common concerns women have about retirement planning

How much should a single woman have saved for retirement? 

Carrie Cheang, a CPA and Internal Audit Senior Manager for the Las Vegas Sands, recommends single women put away 10% to 15% of their income toward retirement and make adjustments based on their personal savings goals. 

“For example, you should take into account your housing situation,” Cheang says. “If you have a mortgage, then you may not need to put as much of your income toward retirement as you would if you were anticipating having to pay rent in your later years.”

This free retirement calculator from Nerdwallet shows you whether your current retirement savings are on track and how much you’ll need to contribute going forward to have a healthy retirement fund. You can also calculate your projected Social Security benefits here.

Barlin says that given the rising costs of eldercare and current inflation, it’s impossible to know exactly how much you’ll need for retirement, but contributing the maximum amount into your IRA or 401(k) plan is a good place to start. 

“I recommend women focus on doing the best they can today with the funds they have and saving as much as they reasonably can,” she says.

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How much income do I need in retirement?

A common rule is that you’ll need 80% of your preretirement income to survive. So if you earn $80,000 a year by the time you retire, then you’ll need $64,000 to make it once you stop working. That translates to about $5,333 per month.

But it also depends on your situation. For starters, how much can you expect from Social Security check? The Social Security Administration projects that by 2035 it will be able to pay out only 80% of your benefits, unless Congress acts to fix things. For example, if your check would have been $2,000 a month, you’d get only $1,600. That might not happen – but it could. In other words, it will be great if you get all the money you’re owed, but don’t rely on it.

So many other factors to consider, such as:

  • Did you get an early start saving for retirement or are you playing catch-up?
  • How many more years before you don't have to at least partially support your kids?
  • Any chance you might be helping your parents as they get older?
  • Will you have paid off your home before retiring? If so, how much will taxes and maintenance cost if you decide to age in place rather than downsize to a cheaper area?
  • Does your post-retirement life include goals like travel, starting a business or helping your kids financially as they build their young-adult lives?

In other words, you might need more than 80% but you also might need less if your expenses are low. For now, just focus on 80% of preretirement income as a reasonable goal. You can always save more money as it becomes available.

Want to know if you’re on track right now to retire comfortably? Find a retirement savings calculator and run the numbers.

The NerdWallet retirement savings calculator is a good example.

How long will my retirement savings last? 

Ideally, at least as long as you do! According to the Social Security Administration, a woman who's 30 years old right now can expect to live to about age 82, on average. Assuming you stop working at 65, your retirement savings would need to last at least 17 years.

Of course, you might also retire earlier than 65, or live longer than 82. Some years you might have to take more than you expected out of retirement funds.

In other words: No one really knows. Save as much as you can.

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What happens if you don't save for retirement?

What happens if you don’t save for retirement? You’ll likely wind up in big trouble once you stop working.

Don’t make the mistake of thinking, “Well, I’ll just work until I die!” You have no way of knowing how long you’ll be able to work, due to factors like illness or your employability in an ever-changing job market.

If you expect to rely only on social security, you will likely live below the poverty line, and be dependent on your kids or other loved ones.

In the meantime, you are guaranteed to be stressed about your lack of retirement investments between now and retirement age.

You owe it to yourself to do what you can now to increase your chances of having a comfortable retirement — not just for your future you, but for your current mental health, as well as your relationship with those who may fall responsible for your care.

How much does the average American have saved at retirement?

The median amount of retirement savings for women is $23,000, according to “19 Facts About Women’s Retirement Outlook,” a 2019 study from the Transamerica Center for Retirement Studies.

By comparison, the common rule of thumb for what you need for retirement is 80% of your pre-retirement income. So, if you earn $50,000 per year just before you retire, you'll need around $40,000 of income in retirement.

How many retirees have no savings?

The Transamerica study notes that 31% of women have less than $10,000 – or nothing at all – in retirement savings.

How can I survive in retirement with no money?

Short form: It will be challenging. The average Social Security payment is currently $1,461 per month, or $17,532 per year. Does that sound like enough to live on, even if you owned your home free and clear?

What to do if you don't have enough money to retire

It can be challenging to get started, let alone to play catch-up. But even small steps now can make a huge difference in your quality of life later, as well as your peace of mind now. Financial planning = self care.

You are responsible for your own well-being in retirement. Now is the time to take charge of your money.

What to do if you don't have a pension or a 401(k) or 403(b)

Only 22% of workers have pensions, according to the U.S. Bureau of Labor Statistics. Even if you’re a member of that lucky group, your pension probably won’t be enough to live on. (One woman I know is promised a whopping $360 a month from a former journalism job.)

And only 61% of women are offered workplace retirement plans, according to the TCRS study. That’s probably because women are more likely to work part-time (30% of us do, compared to 14% of men). 

The solution is a mix of solutions:

Workplace retirement plan. Your job may offer a 401(k) and/or IRA plan, which can be a good, easy way to start. Remember: If there’s an employer match, contribute at least that much. It's free money! Another plus is the ease of automation: Each week HR sends a percentage of your paycheck toward your future. If you don’t see it, you won’t miss it (much).

Self-directed retirement saving. You can always open your own 401(k), IRA or brokerage account to plan for retirement. For example, a target-date retirement fund administered through a company like Vanguard or a robo-advisor such as Ellevest. 

Social Security. Despite what you hear, Social Security is not likely to go bankrupt, although starting in 2035 the system might be able to pay only 80 percent of promised benefits. Again, you should be planning for Social Security to be just one retirement income source – not the only one.

Cash savings. Keep some liquid funds on hand in addition to investment funds.

Pension. If you’ve got one, it’s just one more piece of the financial puzzle.

Also, consider earning more through a work-at-home career or through quick ways to make money.

How much should a single woman have saved for retirement?

Carrie Cheang, a CPA and Internal Audit Senior Manager for the Las Vegas Sands, recommends single women put away 10% to 15% of their income toward retirement and make adjustments based on their personal savings goals.

How much income do I need in retirement?

A common rule is that you’ll need 80% of your preretirement income to survive. So if you earn $80,000 a year by the time you retire, then you’ll need $64,000 to make it once you stop working. That translates to about $5,333 per month.

How long will my retirement savings last?

According to the Social Security Administration, a woman who's 30 years old right now can expect to live to about age 82, on average.

What happens if you don't save for retirement?

You’ll likely wind up in big trouble once you stop working.

Wealthysinglemommy.com founder Emma Johnson is an award-winning business journalist, activist, author and expert. A former Associated Press reporter and MSN Money columnist, Emma has appeared on CNBC, New York Times, Wall Street Journal, NPR, TIME, The Doctors, Elle, O, The Oprah Magazine. Winner of Parents magazine’s “Best of the Web” and a New York Observer “Most Eligible New Yorker," her #1 bestseller, The Kickass Single Mom (Penguin), was a New York Post Must Read. As an expert on divorce and gender, Emma presented at the United Nations Summit for Gender Equality and multiple state legislature hearings. More about Emma's credentials.

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