Retirement Planning: A Woman’s Issue

By Martin Brown

picIf you’re thinking, I’m way too young at age 30 to give a moment’s thought to my life at 65 and beyond, don’t feel guilty. The vast majority of us simply cannot wrap our minds around what our lives will look like so far into the future. 

The reality trap that catches most of us is that while we see retirement savings as preparing for a distant time in the future, the truth is that the future is far closes than we think. If you’re thirty-five right now, sixty-five is just three decades away. That’s just a little more than the time it takes to plan a family, have a boy and a girl two years apart; raise them, do pre-school, elementary school, high school, college, a little post-graduate work, and guess what? Thirty years just went by. With no intention to depress anyone, the simple truth is that the years pass go by quickly.  And, when it comes to retirement, a little something done every month starting at age thirty-two is worth much more than a whole lot starting at age sixty-two. 

A single woman age thirty today as other special considerations she must take into account. Statistically you are more likely than your male counterparts to cycle in and out of the job market. You are also more likely to dip into your retirement savings in starting a family. From decorating the baby’s nursery to opening a college savings fund, there’s a good chance you’re going to want to take out some savings well before you reach retirement. The other special consideration is that a woman reaching age 30 in 2008 has a better chance of living to age 100 than all the generations who came before her. So retirement savings, on average, will need to work harder for you than your shorter lived ancestors. 

Also, remember this important goal: retirement savings allows you to choose if you want to work or not work at age seventy and beyond. There is little reason to doubt that by the mid-point of this century that many of us will be still engaged in our working lives at seventy, even eighty plus. The smart retirement saver is leaving themselves an option to work depending on their level of interest and commitment to their careers. You could argue that the senior who took your order today at McDonald’s is simply trying to have a life outside of their house, but an increasing number of seniors are taking part-time and full-time positions because their financial resources make it essential that they do that. Ideally you should be able to choose. And beyond being able to have that choice, retirement for twenty first century seniors is not what it was fifty years ago. Retirement today may well mean the pursuit of an active lifestyle that includes travel, tennis, golf, boating, and dozens of other choices.

As one semi-retiree said to me recently, “I want to be able to choose when I work and when I go off to play.” At age sixty-one, retirement for this early senior includes globe trotting to exotic destinations, long car trips to undiscovered destinations, and much more time with friends and family. 

So if you think that saving early for a secured retirement income means buying your rocking chair for the porch, get rid of that illusion right now. Sure there are some of us who won’t be a healthy sixty plus but most of us will, like my globe-trotting friend, be ready to explore new horizons after leaving the burden of a daily workplace job behind. 

If it’s your choice to have that kind of option available to you, and more importantly to face the future with a greater sense of financial security then start planning now. 

Here are a few easy ways to start doing just that:

The first and most obvious option available to many of us is to participate in a company supported savings plan. Some of these plans match your contributions as high as 4 to 6% of your earnings. So start by learning more about this option if indeed it is available to you. Millions of employees put into these corporate savings plans less than the maximum option, 2% for example, which is turning your back on free money. Never a smart move. So match the maximum your employer gives, and plan your budget accordingly. 

Start your savings plan as early as possible.  The real benefit in starting your savings plan by 28, 30, 32, for example, is that the difference in accumulated savings is eye-opening. Look at these projections based on an annual salary of $55,000. Saving at a rate of 7% of your gross earnings will produce a retirement nest egg at age 70 of approximately $535,000. But if our 28 year-old put aside 14% of that gross, or $7,700, her retirement savings at age 70 will top $1 million. The bottom line is that one of those scenarios yields a $24,000 annual return, while the $1 million dollar-plus savings gives you over $45,000 in annual income above and beyond whatever Social Security will yield in the year 2060.

Are there uncertainties in these numbers? Absolutely. We’re projecting today’s dollars and making certain assumptions about interest rates and fund performances that may under perform or outstrip those expectations. But take this bit of caution to heart. Many of us use the future’s natural degree of uncertainty as a convenient excuse not to save for retirement. Members of each generation who have made that choice have consistently guessed wrong. The world did not come to an end and they did not die young. Instead they lived out their retirement years in a relatively poor financial position wondering what may have been if they had been more confident in planning for their future. 

Finally, cultivate relationships with financial consultants. That does not mean going to one source, perhaps a pal who sells stocks for a living, and put all your investment eggs in that one basket. Work with two or three consultants, look at the long term performance records of the funds that they recommend and spread your investment dollars into several different baskets. The general rule that you should divide your savings into thirds, conservative, moderate-risk, and aggressive higher risk options, is a sensible approach. 

Most importantly, start your savings NOW! By the time we enter the midpoint of the 21st Century, you’ll be very glad that you did.

 

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