Women and retirement

With increased longevity and economic power come both advantages and obstacles. Here are some key steps to consider as you plan for your future.

First, some facts: According to the U.S. Census Bureau, the current life expectancy for a woman is 80.5 years; it's 75.5 years for a man. While longevity continues to increase for both sexes, the U.S. government projects that the longevity gap between men and women will exist for the foreseeable future.

That means that women may need more income than men do to last through their retirement years. Unfortunately, women tend to accumulate less than men in retirement savings, despite the fact that women now enjoy more financial power than ever. Today, 36% of all businesses in the U.S. are women-owned or women-led, according to the National Women's Business Council. And The World Bank predicts that women's earnings globally will reach $18 trillion by 2014.

Despite their growing economic might, women still have a more difficult road to a secure retirement than men, notes Debra Greenberg, director of IRA product management at Bank of America Merrill Lynch. She points out that women still make 80 cents for every dollar earned by men and are much more likely to interrupt their careers to care for a child or a parent, which can result in a reduction in both wages and Social Security benefits lost.

They also face even more retirement hurdles. Divorce, for example, tends to have a bigger financial impact on women than on men. A study titled "Losers and Winners: The Financial Consequences of Separation and Divorce for Men," by researchers from Columbia University and Indiana University, showed that in the wake of a divorce, women's households experienced an income drop of 26%, compared with 15% for men.

The good news is that, armed with an understanding of both your retirement needs and present opportunities to invest and save, there are a number of steps you can take to overcome these retirement challenges. You can begin by thinking about what your two to three decades in retirement will look like - and what you want them to look like. Then, work with your financial advisor to translate that picture into a realistic saving and investing approach, suggests Andrea Nierenberg, an executive coach and consultant.

When to start?

For younger women at the start of their careers, beginning to save early is a great way to hedge against future events. For example, if you think there's a possibility that you may temporarily downscale or step away from the work force at some point, it may make sense to prepare for that well in advance. If possible, make the maximum contribution to your workplace retirement plan. If you are eligible, funnel additional funds into a traditional or Roth IRA.

If you can't contribute to a deductible IRA because of your income level or coverage by an employer-provided retirement plan, consider a nondeductible IRA. You'll have to fund it with after-tax dollars and potentially pay taxes on withdrawals in retirement. "Thanks to compounded growth, spending a little less while you're younger can help to significantly boost your retirement stash," Greenberg says. "Go through your monthly bills and identify places where you can cut back. Almost everybody can find that extra $50 a month somewhere."

Women who start a business or work part time during their caregiving years can take advantage of the opportunity to add pre-tax earnings to one of several kinds of small-business retirement plans, such as Simplified Employee Pension (SEP) IRAs, SIMPLE IRAs or Individual 401(k)s. Though similar to employer-sponsored and individual options, these plans for small businesses have their own rules and contribution limits.

Finding ways to continue saving during nonworking years can also help bridge the gap. Women with working spouses can make tax-deductible (or nondeductible) contributions of up to $5,500 in 2013 ($6,500 for those age 50 and over) to a spousal IRA as long as their husbands make enough to cover the contribution and the couple files jointly.

How conservative is too conservative?

Saving is an important first step in planning your retirement, but it's just as important to see to it that your wealth is growing. The good news for women is that, in this regard, they may just have an edge over their male peers. According to a University of California study called "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment," women's portfolios on average outperform men's because men tend to trade stocks more frequently, generating fees, and to hold more volatile portfolios. On the other hand, because women tend to be more risk-averse, they sometimes sacrifice growth opportunities for safety.

"Being risk-averse is understandable, especially given the market turbulence of recent years, but working with a financial advisor, you can identify your personal tolerance for risk and make investments that you are comfortable with," Greenberg notes. You should consider numerous options when you seek to create a reliable stream of retirement income. One is to purchase an income annuity; this "turns a lump sum of money into a stream of payments for life," Greenberg explains. Additionally, you can help increase your Social Security income if you defer taking payments as long as possible. Another way to create a retirement income stream is to invest in dividend growth stocks - shares in companies that may potentially increase their dividends.

Preparing for health and long-term care costs

It's important for all future retirees to factor the cost of a longer life into their financial strategy. Living longer often means more medical bills: The Employee Benefit Research Institute has found that a female retiree of 65 may need an average of $242,000 in savings for health care, insurance and other health expenses (if she has no company, military or union plan). Many people assume that health insurance and Medicare will pay for assisted living or a nursing home, but that's usually not the case. For that reason, it's usually smart to consider purchasing long-term care insurance.

Reassessing and readjusting

Life happens. Monitoring your progress and making adjustments on a regular basis can be crucial when preparing for the unexpected. Life events such as divorce, the death of a spouse or a change in employment often require financial action, Greenberg says. Newly divorced women who are still single, for example, often don't realize they may be able to claim Social Security benefits based on their former spouse's earnings. Even if a woman remarries and is then divorced or widowed, she can claim benefits based on a first husband, if his benefit is higher than her own or that of her most recent spouse, Greenberg notes. But the marriage has to have lasted at least 10 years. Regular conversations with your financial advisor can help you monitor your progress and make any adjustments based on life events - anticipated or not.

Ultimately, it's the basics - saving more, investing wisely, looking at the big picture and understanding your options - that will help ensure that your savings last. Yet those basics are easily lost in the shuffle of everyday life. "Often people put retirement planning off, whether it's because they think someone else will take care of them, they're busy, or they find it overwhelming," says Nierenberg, who urges women to take an active role in planning. "We all want security, safety and balance and it's up to us to provide those for ourselves."

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