Linde Murphy, CRPC™ | Managing Director, Institutional Services
Let’s face it: Women live longer, make less and invest less than men. It’s a perfect storm that puts us at high risk of having to work longer and/or face a retirement that’s suboptimal. So how do we change that and ensure retirement planning is effective for women?
Unfortunately, there’s no simple fix for the wage gap, the wealth gap, the fact that women have fewer years of earned income or the fact that women are more likely to work part-time jobs. The good news is that there are steps women can take to help reach our retirement goals.
First and foremost, pay yourself first. Contribute to your retirement accounts, build up your investments and set money aside.
Retirement is the biggest expense of a person’s life. We’ll (hopefully) have 20 to 30 years to enjoy our retirement, and that’s a lot of time to spend money. Plus, you can’t take a loan out for retirement. You’ll need to have enough money to last.
If you’re just starting your retirement planning, a 401(k) is one of the easiest ways to invest. Many women respond that “my husband has a 401(k), so we just use his.” Wrong answer. There are many reasons why you should still use your own if you have access to a 401(k). For starters, you may be leaving money on the table. If your employer offers a match, you won’t receive it unless you’re personally contributing to the plan. Many employers offer a safe-harbor match, which would mean the company puts in another 4% of your salary if you’re contributing 5%. Remember, you can contribute up to $19,500 in 2021, plus an additional $6,500 once you reach 50 years old.
Another retirement planning option is an Individual Retirement Account (IRA). There are both pre-tax and Roth IRAs. Depending on your income level, you may be eligible for a Roth IRA, which allows you to pay taxes on the money as you contribute so that you don’t pay any taxes on withdrawals during retirement. Be sure to talk to your tax advisor to see which option may be best for you. Just because you choose one type now doesn’t mean you’re locked into it forever. You can always decide to contribute to a different type of IRA in the future. Contributions to an IRA can be made annually. The important part to remember here is that your total contribution can’t exceed the limit, currently $6,000 for 2021.
To decide what is the best vehicle to save for retirement, it’s important to look at what’s available to you. If your employer offers a 401(k) with a match, then be sure to take advantage of the full potential match. If you don’t work but your spouse does, you may still be able to make annual contributions to an IRA.
If you want to boost your retirement income, then take advantage of all savings avenues that you can. Use your 401(k) or employer-sponsored plan, an IRA and a regular investment account if you’re already maxing out your retirement accounts. Remember to plan ahead for upcoming expenses so that you don’t have to dip into your retirement savings.
Once you know which vehicle you want to use, take a look at the investment options. Depending on the vehicle, you may have access to target date funds. Target date funds allow you to pick the date close to when you expect to retire, with the investment manager managing the investments based on that withdrawal date. The asset mix becomes more conservative as you get closer to retirement. These may not be right for everyone, but they can be a great way to get started with retirement planning. Be sure to look at your own personal situation to decide. If you have a wealth management consultant, you can always ask them for advice.
Another way to boost your retirement income is to keep track of your old 401(k)s and move them into lower-cost IRA accounts. Many of us will change jobs multiple times in our careers. Take your 401(k) with you by rolling it over into an IRA or your new employer plan. Before moving your money, find out the cost on both the old and new 401(k) and compare them to the costs of an IRA. You may be able to keep more of your returns by using an IRA. If you’re not sure, reach out to a financial advisor who can help you walk through the process.
It is never too late or too early for women to start retirement planning! Take advantage of the tools your employer provides by using the 401(k), maxing out the company match and keeping track of your money. Then keep building your wealth through other investment accounts. One of the most empowering changes for a woman is to have her own nest egg. Let’s get building.
Interested in learning more about retirement planning? Reach out to an Argent advisor and get started.
