When it comes to building retirement security, women face stronger headwinds than men – and typically end up with less money saved up by the time they retire. The fact that, on average, women earn 77 cents for every dollar earned by men is one reason women tend to accumulate less in retirement savings. Women also get a later start on saving for retirement – again, largely due to their lower income. Women begin at an average age of 30 compared to 28 for men, according to a 2010 survey conducted by the Transamerica Center for Retirement Studies.i
As a woman, you need to assign a high priority to retirement planning, making your best effort to balance it with your other day-to-day and long-term priorities. With employer-paid pension and retiree health benefits being eliminated or scaled back, your retirement security is no longer something you can assume will be taken care of on your behalf. You need to take ownership, planning jointly with your spouse or partner if you have one.
Don't put it off
Resist the urge to delay saving and investing for retirement. Even contributing only a few dollars per paycheck to a workplace retirement savings plan or an IRA can have a significant impact on the size of your nest egg by the time you're ready retire. The earlier you get started, the longer your money will have time to grow through compounding, in which earnings are continually reinvested to produce more earnings. Over time, compounding can add a powerful boost to your savings.
Invest for a longer life
Your retirement portfolio's asset allocation – its breakdown among various asset classes, each class with its own risk and return profile based on past performance – is the primary determinant of how the portfolio performs. Your portfolio should be allocated according to your goals, when you want to achieve those goals, the level of return you'd like to get and your tolerance for risk.
Many women invest too conservatively for retirement given their current life stage, raising the risk that the value of their investments will depreciate due to inflation. Your own asset allocation should reflect the longer average life expectancies assigned to women – and the fact that your nest egg may well have to last longer than that of the average man. Remember that your own life expectancy will be influenced by your health, your family medical history and other personal factors.
Understand the impact of taking time out
Another reason women lag behind men in building retirement security is that women spend an average of 11 more years than men outside the paid workforce caring for children or parents. Women are far more likely than men to leave employment to provide child or elder care.
Having the flexibility to take time out to raise children or care for parents is a great benefit, but leaving your job to take care of family matters does not necessarily require you to sacrifice your retirement dreams. If you're currently employed but foresee an extended leave at some point in the future, it's especially critical for you to be saving and investing now for retirement. If you're already saving and investing, see if you can increase the rate at which you're setting money aside. The more you salt away now, the greater your chances of staying on course toward retirement goals even if you end reducing or suspending your savings contributions while not earning a paycheck.
Take advantage of learning opportunities
Over the past several decades, along with the rise of IRAs and workplace retirement savings plans has come a dizzying array of new financial products, including investment options. It can seem as if you have a million potential routes to retirement – but no map or GPS to help you find a way to the retirement you really want for yourself.
Fortunately, there's a bounty of resources for self-education about retirement planning and investing. You'll find a wealth of information and tools on TIAA-CREF's website. There are books and magazines targeted to women at all ages and income levels. Starting or joining a discussion group will enable you to engage in an open exchange of ideas and insights with other women who share your need to learn. You can also enroll in a course at a local community college or online.
Consider getting professional guidance
Self-education is essential, but you might also benefit from enlisting a professional financial advisor for guidance on investing and building retirement security. An advisor can use his or her background and experience to help you design and maintain an appropriate asset allocation and navigate through all the issues you need to address as you plan your retirement.
i “Women & Retirement: Current Outlook & New Opportunities,” Transamerica Center for Retirement Studies, August 2010
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TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.