What Women Need to Know About Retirement
9 August 2006Smartmoney has an article up talking about the unique problems women face in retirement:
Behind these numbers, however, is a disturbing disparity: When it comes to retirement planning, women lag significantly behind. “Women often underestimate how much money they’ll need in retirement,” says Ginita Wall, a certified financial planner (CFP) and co-founder of the Women’s Institute for Financial Education, or wife.org. “They either think they’ll cut their expenses or they’ll live off Social Security.”
But the fact is, a comfortable retirement is a breathtakingly expensive endeavor. Financial planners suggest that one should shoot for an annual retirement income that’s roughly 80% of your preretirement income. Translation? Everyone needs to save — a lot. But women — who tend to live five years longer than men — should actually be saving more than men.
The problem is a combination of a lack of knowledge about money and a tougher road due to the longer life expectency of women, meaning they have to save enough to cover those extra years.
About a year ago I recall reading an article to the effect that the biggest problem women have is that they aren’t ever taught the same basic financial lessons by their parents as girls that young boys are. I couldn’t find it today, but it’s important to keep in mind because if you think about it, it’s true - fathers often give their sons financial advice. I recall being randomly told about mortgages and saving money and even talking over potential stock investments with my dad. Girls, however, aren’t seen as being interested in money. And frankly, some parents feel reluctant to talk about money, period, with anyone. The problem is that if you end up later in life without learning some basic lessons about money, you’re going to fall behind. Especially for women with their longer life span, you can’t afford to wait until your thirties or later to start saving.
So what should women do if they think they’re falling behind?
1) Learn about personal finance. There are lots of good books and websites about it - so start reading up. Commit to reading a book a month about how to manage your finances. There are even experts who tend to speak directly to women’s specific problems, such as Suze Orman. If you want to “Oprah-ize” the learning process, there’s stuff available to make it accessible to women who don’t really want to sit down and read a treatise on value investing or watch the kinds of money shows men like, such as Jim Cramer’s Mad Money, which tend to involve more yelling about stuff and screaming “Buy! Sell! Buy buy!” than women may be used to.
2) Stop spending so much and save. You need to be saving a big part of your income to retire happily - 15% is often given as a general rule. So you’re probably going to have to cut down on your consumption and save a lot more money than you thought.
3) Don’t let your husband be the only one making financial decisions. That’s probably the biggest mistake women make. It’s not just about the whole equality thing. The problem is that if you never make financial decisions, you’ll never learn by experience. So if you end up divorced or your husband dies or whatever, you end up screwed.
4) Come up with a detailed, specific retirement plan with an end goal and the amount you need to save each month to get there. This is the best way to combat the “what comes will come” attitude mentioned in the piece. Know exactly where you’re going - how much money do you want at retirement? Run the numbers to see if you can actually live off the amount you’re planning on, too. Then figure out how much a month you need to put into your savings to get there - and remember to account for the growth of your money each year based on interest or stock market gains.
5) Go to http://www.wife.org. It’s mentioned in the piece, and it’s a good resource for women looking to learn about specific financial problems they face - from divorce to death of a spouse.
6) Teach your daughters about money. If your parents didn’t teach you, don’t fail your kids in the same way.
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