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by Danielle Dresden



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Approaching retirement is a complicated dance, and women can feel like they're Ginger Rogers—doing everything their partners do, but backwards and in high heels.

Men and women must both balance current obligations with long-term needs. But differences in earning power, work history, health, and social roles mean women face a different set of challenges than men.

Women need to be prepared for these challenges, regardless of their marital status. As Anna Rappaport, president of Anna Rappaport Consulting and chairperson of the Society of Actuaries Committee on Post-Retirement Needs and Risks, says, "It's really important for couples to have a plan that works for each individual as well as the couple."

Expanding the planning horizon

Retirement requires planning, but not all Americans seem interested in preparing for their futures. Rappaport says 15 to 25% of eligible employees don't participate in employer-sponsored retirement programs.
Women are more likely to need paid care in late life.

"A lot of people don't have longer-term planning horizons," she explains. "Retirement seems so far away, they don't even think about it. And they underestimate how long they'll live."

Women tend to live longer than men, which increases how much money they'll need for retirement. Preliminary 2011 data from the National Center for Health Statistics reveals a life expectancy, at birth, of 76 for men and almost 81 for women.

But, as Ginita Wall, CPA, CFA, and director of the Women's Institute for Financial Education, notes, "You don't get those extra years in the middle. They're tacked on at the end when costs are going up."

Rappaport agrees. "While women have longer life expectancies, they also have a longer period of time that they're expected to be moderately to severely impaired," she said.

Social customs also shape women's later years. Women tend to marry older men. If their spouses die, Rappaport explains, men typically remarry but women don't. As a result, women are less likely to have family support and more likely to need paid care.

Wage differences and Social Security

While women are more likely to enjoy a lengthy retirement, they face substantial challenges in preparing for it.

First of all, women, on average, earn only 77 cents for every $1 a man earns, which sets them back from the start. Wall also points out, "Women are more likely to be the ones who took time out of the work force to raise children, or who left early to care for parents and grandchildren."

This means women receive less in pension income than men and have less invested in Social Security, even though Social Security is the mainstay of many women's retirement resources. "For about 40% of older widows, Social Security is most of the money they have," Rappaport says. 
Women live longer than men, so they'll need more money for retirement.


Determining needs

Most retirement planning advice starts with "Determine how much you need to retire," but that's not as simple as it sounds.

"How much you need depends on a lot of things," Wall says, "including how much you plan on spending and other sources of income you may have, like Social Security or a teacher's pension."

It's also not only about money. As Rappaport puts it, "You have a money portfolio and a life portfolio."

"I think it's a really important thing for people to have something they're passionate about. That can come from a lot of different sources," Rappaport says. Whether your retirement activities involve travel, family, community service, or pursuing lifelong interests, the root question, she says, is what would make you proud at the end of the year?

Enjoying what you love in retirement doesn't always require money, Rappaport notes. Individuals who want to travel, but lack funds, might find jobs in resorts or national parks or with organizations sponsoring work in targeted areas.
Women receive smaller pensions and have less in Social Security.

"You have to use some creativity," Rappaport says. But she concedes, "Most of the process of figuring out what you need for retirement involves money."

The four basic methods used to determine financial retirement needs are:

Replacement ratios. Often used by businesses establishing employee retirement plans, this method projects the percentage of annual income—frequently 75% to 80%-needed for retirement.
Budget-based method. This detailed approach involves forecasting expenses and budget needs. Rappaport says it is, theoretically, particularly effective for personal planning, although it requires extensive information.
Lifetime consumption smoothing. While used infrequently, this method helps individuals prepare for retirement by balancing spending and saving needs and activities over the course of their lives.
Elder economic sufficiency index. This index, which varies by state, determines the financial resources older adults need to meet minimum standards for food, housing, and other basic needs. Rappaport says it can provide a wake-up call for people who think they'll save lots of money once they stop working.

Tips for retirement planning

How should women prepare for retirement? "Save, save, save," says Wall, adding the sobering note that, "If you're getting a late start, $5,000 a year is not enough."

If you have input in how your retirement funds are invested, Wall suggests considering a more aggressive approach. "Women tend to be too conservative with money," she explains.
Save, save, save.

"You can also find jobs where you can work longer, that are not as physically taxing," Wall points out. "Ideally, it's a job you love, so you wouldn't dream of retiring." Deciding when to take Social Security is the biggest retirement decision many people face. Rappaport recommends doing so in light of your other retirement plans, employment, and marital status. Generally, the longer you wait to take Social Security, the larger your annual payment.

As with many challenges, identifying the issues involved with retirement planning is half the battle. Finding help, at your credit union to start, to address these issues gives you a good start on the other half. Two other promising resources are the Women's Institute for Financial Education, the longest running nonprofit dedicated to financial independence for women, and the Society of Actuaries Decision Briefs, offering insight into your retirement choices.

Then you can slip into your heels, and start dancing backwards.

Published July 19, 2013

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