Saving for retirement is something that most working adults think about a lot but don't discuss enough. Women, especially, need to hone their money management skills to save for the golden years, research shows.
According to Bank of America Merrill Lynch's annual Workplace Benefits Report, more than 70 percent of women lose sleep over their retirement savings, compared to 58 percent of men. What's worse, 61 percent of women believe they will have to work longer than they anticipated in order to support themselves in retirement.
Glink suggests that to live comfortably in retirement, you'll need an income of between 70 and 100 percent of the income you earned in the final year of employment. That amount will cover your basic living expenses, she said, plus medical insurance and other costs.
The sad truth: They're not wrong. Despite living an average of five years longer than men, American women are saving less in their 401(k) accounts and have an average of $77,000 less in investment assets than male workers, according to the report.
Why Saving More Is Critical for Women
It's a fact that women live longer than men, which means they must support themselves longer in retirement. For this reason, it's concerning that women are saving less for retirement than men.
According to Ilyce Glink, CEO of Best Money Moves and publisher of ThinkGlink.com, women face a special set of challenges that can make saving money more difficult than it is for their male counterparts.
"In their working lives, women earn roughly 80 percent of what men earn," she said. "They're also much more likely to be caregivers to children and aging relatives or to be single parents. This means that despite their lower incomes, they have to provide for children and dependents as well as themselves. These realities may lead women to feel they can't afford the 'luxury' of contributing to a 401(k), so they save less."
If men and women both continue to retire at or around age 65, that means a woman will spend more time in retirement than a man, which could mean more medical expenses, more housing costs, and a higher likelihood that they will need assisted living or other care.
In short, Glink said, "Every woman should be saving more, not less, for retirement. You should start saving as much as you can as soon as you launch your career. That will allow the power of compounding to help make your retirement savings grow through the decades of your career."
Build a Budget That Allows for Savings
Saving more means spending less – or, at least knowing where your money goes each month. That's why Glink believes everyone who wants to save more needs to build a proper budget. This allows you to assess your financial situation and find more effective ways to save.
Here's how to build one of your own:
- Figure out your net (or after-tax) income. This is the amount that hits your bank account after contributions to your retirement plan(s), health insurance, life insurance, or prepaid commuting costs.
- Next, add up annual expenses like car insurance premiums, student loans, or homeowners insurance. Divide those by 12 and subtract that number from your monthly net income to see what you have left over each month.
- Write down everything you spend every day for a month, then tally it all up. (One easy way to do this is to exclusively use your debit or credit card for a month so that all of your spending is in one place.)
- From that list of expenditures, identify your nonessential spending. Some examples of nonessential spending include restaurant meals, alcohol, fancy coffee drinks, and car services.
- Eliminate those items for a month and make note of how much money you have left over after 30 days.
- If you have credit card debt or medical debt, use the savings you've created by cutting out the nonessentials to pay down that debt.
- Once you've paid off your debt (or reduced it to a manageable amount), begin funneling that extra money into your retirement accounts.
- If crunching the numbers is a bit off-putting, visit Glink's other website, ThinkGlink.com, and click on the Best Money Moves icon to sign up for a free account.
How to Calculate What You Need to Save
Certified Financial Planner Cathy Curtis has made a career of helping women manage their money. Her firm, Curtis Financial Planning, specializes in helping female clients meet their financial goals.
When clients come to her with questions about how much they need to save for retirement, she explains her philosophy.
"I look at retirement as the healthy years and then the declining years," she said. "In the healthy years, you're probably going to be spending more. Some people travel more because they have more free time, for example. Then, in the declining years, you're at home more, you're going out less, you're not traveling. So, I do a projection of the expenses that takes these two stages of retirement into account."
Keeping longer life expectancies in mind, Curtis advises her clients to save enough money to support themselves until they are 95 years old. She determines whether her clients are on track to meet that goal by examining their savings plan, investments, social security, pensions, or other sources of income. If they aren't on track, she starts a conversation about how and where they can be saving more money.
"At that point, we start getting really into the nitty-gritty on their spending," she said.
Glink agrees. She points out that a child born today has more than a 50 percent chance of living past 100 years old. (Women in the U.S. currently have an average life expectancy of 81.1 years, according to Centers for Disease Control and Prevention research.) This needs to be considered when it comes to retirement savings.
Glink suggests that to live comfortably in retirement, you'll need an income of between 70 and 100 percent of the income you earned in the final year of employment. That amount will cover your basic living expenses, she said, plus medical insurance and other costs.
"If you earned $50,000 per year [during your last year of employment], you'll want to have a total retirement income of around $38,000 to $50,000 per year in retirement, including Social Security, any pension that you're entitled to receive, and income generated by your savings," Glink said.
Pro Tips for Saving More for Retirement
The good news is that any woman can find better financial footing and start saving for retirement right away, regardless of her current income level. Here are simple steps you can take today to plan for the future.
Automate your savings
The expression "out of sight, out of mind" definitely applies to money. It's harder to spend what's not in your checking account, so if your paycheck is automatically deposited by your employer, set it up to automatically deposit a fixed amount into savings each pay period. This money can accrue quickly and, since you don't see it in your paycheck, you will be less tempted to spend it.
Weigh employee benefits when evaluating job offers
As a jobseeker, it's critical that you examine a company's employee benefits before accepting a job offer. Don't just look at salary, Curtis warns.
"If a company doesn't have a 401(k) match, that's huge. Working for a company that matches your 401(k) saving will ramp up your retirement savings big time. And it's free money."
In 2019, people younger than 50 years old can save up to $19,000 in their 401(k) accounts, while workers older than 50 can save an additional $6,000 in their retirement accounts. Do your best to save the maximum allowed each year, Curtis and Glink both advise.
If you can't save the maximum, Curtis said, save at least the amount that your company will match. So, if your company will match up to 4 percent of your paycheck in a 401(k), be sure you are saving at least 4 percent as well.
"It's free money," she said. "Take advantage of it."
Consider a Roth IRA
Beyond your set 401(k) contributions, Curtis recommends that women contribute to a Roth IRA. Unlike a 401(k), a Roth IRA offers more flexibility in the event that you need to access the money. And because Roth IRA accounts are funded with after-tax dollars, you don't pay taxes when you withdraw the money.
"I talk to a lot of people about Roth IRAs because when you put your money into a retirement account, you're really locking it in," Curtis said. "If you withdraw the money before age 59 and a half, you not only pay tax on it, but you pay a 10 percent penalty. So, you could be paying anywhere between 25 and 35 percent or more on that withdraw."
Save for future medical expenses
Another tip Curtis gives her clients is to look into health savings accounts (HSAs). Unlike with a flexible spending account (FSA), HSA funds roll over and accumulate year over year. Plus, HSA funds can be used to pay for qualified medical expenses without a tax penalty.
To qualify, however, you must be enrolled in a high-deductible health insurance plan, you can't be enrolled in Medicare, and you can't be listed as a dependent on another person's tax return.
Change your mindset about spending
People don't typically associate frugality with fun, but Curtis says tweaking your mindset about spending can add up. She doesn't advise her clients to give up their creature comforts; rather, she tells them to figure out ways to get what they want for less.
Curtis acknowledges that women experience more pressure to purchase clothing, cosmetics, and other nonessentials than men do, which is why she advises her clients to become savvier spenders.
Women don't have to give up designer clothing, for example, but they should consider buying those items at consignment stores rather than at fancy department stores. Or, she suggests, consider skipping that expensive European vacation and choose to go camping instead.
"We're a spoiled culture, so I know this isn't easy for everyone to do," she continued. "We look to our peers to see what they're doing and buying, and it's a really difficult thing to cut back. But it's a mindset."
Give up the non-essentials
"I'm a big believer that saving money isn't as dependent on how much you earn as it is on what you don't spend," Glink said. "Take a careful look at where you're spending money each month and, as a test, cut back on all nonessential spending to see what it feels like."
She suggests starting by cutting out the true nonessentials, like Uber or Lyft, entertainment expenses, and extravagant gifts. Opt out of fancy meals and cocktails and gourmet coffee shops.
Instead, bring your lunch to work, cook dinner, give up alcohol, make your coffee at home, and use public transportation. Don't pay for cable. Shop around for cheaper car insurance. Every little bit helps, she said.
"If you can't save at least 10 percent of your income, then you have to look at how to cut down your expenses," she said.
Keep an eye on your credit score
"Women should really pay close attention to their credit score because you'll be paying higher interest rates if you don't have a high credit score," Curtis said. "If you hold credit card balances, that'll cost you more. If you apply for a mortgage, that'll cost you more. The higher those costs are, the less you'll have to save."
You can monitor your credit report for free online once a year. Or, look into whether credit reporting is a feature offered by your credit card companies. But be sure to take advantage of the free credit-locking services now being offered by Equifax, Experian, and TransUnion.
Be your own financial hero
Glink explains that for true financial wellness, it's critical that women be able to stand on their own two feet. Counting on your spouse, for example, to provide for your retirement needs is a risky gamble.
"You never know the curve balls life will throw at you," she said.
If men and women both continue to retire at or around age 65, that means a woman will spend more time in retirement than a man, which could mean more medical expenses, more housing costs, and a higher likelihood that they will need assisted living or other care.
Getting a divorce or being widowed can happen unexpectedly and, especially for stay-at-home mothers, it's often difficult to rejoin the workforce and earn what you need both to support your family and save for retirement. Glink offers her clients the following advice:
"While you may want to stay at home with your children, it's smart to stay in the workforce in some capacity," she said. "Continue burnishing your skills and adding new ones so that you can rejoin the workforce if you have to."
Curtis also suggests that staying in the workforce, at least on a part-time basis, is important. And it's never too late.
"I tell my clients to get creative. Almost everyone has a marketable skill. Think about your skills and past work experience and how you can turn those into a job," she said. "There are only two ways to protect yourself. You either need to save more money or you need to earn more money."
