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The Honolulu Advertiser
Posted on: Thursday, August 10, 2006

Women can catch up on retirement savings

By Sandra Block
USA Today

In the race to retirement, there's no doubt about it: Women are falling behind. Because they typically earn less than men, they don't save as much money. They're less likely to receive a traditional pension.

Add the fact that they live longer, and you can understand why a new study by the Harvard Generations Policy Program concludes that boomer women risk a "never-ending struggle" to get by in their elder years.

But there's no reason to panic, either. There are steps women can take to prepare for a secure retirement. Here are some examples:

  • Consider working longer but have a backup plan.

    Working longer will give you more time to save for retirement, which is important if you got a late start. And it could make a big difference in the amount of Social Security benefits you receive.

    Social Security benefits are based on the 35 years of your highest earnings. If you left the work force for several years to care for your children, the years in which you had no or low earnings will still be included to bring the total to 35 years. Working an additional year or two, then, will allow you to replace those with higher-earning years, resulting in larger benefits.

  • Delay Social Security benefits.

    Most boomers aren't eligible for full Social Security benefits until they're 66; those born in 1960 or later aren't eligible until 67. Yet 59 percent of women opt to claim reduced benefits at 62, according to the Center for Retirement Research.

    The problem with claiming partial benefits is that you'll receive the reduced amount for the rest of your life.

    Not sure when you're eligible for full benefits? Go to the Social Security Administration's Web site, www.ssa.gov. The site also features calculators you can use to estimate the benefits you'll receive, based on your age when you retire.

  • If you divorce, don't give up your retirement security.

    When couples divorce, the wife often gives up all rights to her husband's retirement savings so she can keep the family home. In most cases, it's a bad trade, divorce experts say.

    Most women, even those who have worked, haven't saved as much for retirement as their husbands, says Carol Ann Wilson, a certified financial divorce practitioner in Longmont, Colo. Women are also less likely to have a company pension plan.

    Worse, divorced women often find they can't afford to keep the house. Even if the mortgage is paid off, the house may need a new roof or have plumbing problems. Those costs can soak up a divorced woman's income and savings, says Joyce Pearson, a financial planner in Scottsdale, Ariz.

    A better plan might be to sell the house and split the proceeds in exchange for a portion of your husband's pension, 401(k) or other retirement savings plan.

    Negotiating the division of a retirement plan is complicated. Make sure you have a divorce lawyer with experience in that area. If your lawyer doesn't know what a Qualified Domestic Relations Order is, it's time for a new lawyer. A QDRO is a court order that divides pension or other retirement benefits between divorced spouses.

  • Don't be afraid to take risks with investments.

    Returns from certificates of deposit and other supersafe investments probably won't keep up with inflation. And unless you have a large pot of money, it's unlikely you can live off the interest and dividends from your investments.

    If you're new to investing, start educating yourself. The Women's Institute for a Secure Retirement offers lots of information on selecting a mutual fund, choosing a financial adviser and investing in a 401(k) or an individual retirement account. Find them at www.wiser.heinz.org.

  • Consider annuitizing some of your savings.

    One way to reduce the risk of running out of money is to buy an immediate annuity. You give an insurance company a specific amount of money and receive guaranteed monthly payments for as long as you live, or for a specific period. In effect, you're using your savings to create your own pension.

    Companies that sell immediate annuities say the lifetime guarantee makes them ideal for women because women typically live longer than men. The downside is that insurers reduce payments to women to account for their longer lifespan, says Drew Denning of Principal Financial. A 65-year-old woman who invests $200,000 in an immediate annuity would receive about $1,300 a month for life, while a 65-year-old man would get about $1,400, according to ImmediateAnnuities.com.

    Once you buy an immediate annuity, you give up control of your money.

    If you have a health emergency or some other crisis, you can't take a big withdrawal to pay the bills. That's why most financial planners advise against investing all your savings in an annuity.

    Another problem with immediate annuities: Inflation will erode the value of your monthly payment.

    Some immediate annuities include a cost-of-living adjustment, but at a price: Your initial monthly payment might be up to 30 percent lower than one for an annuity without the inflation adjustment, Denning says. A better idea: Buy your annuity in stages. Your money that's outside your annuity will have more time to grow and stay ahead of inflation.