If you’re about to turn 50 and haven’t squirreled away money for retirement, don’t risk trying to compensate by putting all excess funds into high-growth stocks. But you also shouldn’t place the cash into low-yielding certificates of deposit.
And if you are a woman you shouldn’t leave decision-making up to your spouse or significant other. Eighty to 90 percent of all females eventually will be responsible for their finances. “It’s not a question of if you’ll be in charge, but when, and it’s never too soon to take charge,” says Chicago financial planner Kay Kamin.
The big 5-0 is a good checkpoint on your journey toward a secure retirement. It should stop and warn you that if you haven’t yet started to plan or have one so minimally, you need to develop a roadmap fast. Your degree of conscientiousness will help determine how easy or hard your trip will be.
Jude Fogarty, 49, expects a smooth course. She religiously has put money into 401(k) plans and soon will receive stock at the private company where she sells medical equipment. Fogarty hopes to retire in six years and pursue her love of sailing. This summer she will skipper an all-woman crew for the Chicago-Mackinac race.
At age 47, Lynn Pierce, isn’t as confident. An employee in the public-information office at MiraCosta College in Oceanside, Calif., Pierce is concerned that she hasn’t planned sufficiently. “I’ve danced around the subject. I don’t feel I live extravagantly, but I love to travel. I spoke to an adviser about where I should be, and it freaked me out. It seems impossible to amass enough money.”
Colette Dowling agrees. Much further along at age 60, Dowling, author of “The Cinderella Complex” and “Red Hot Mamas: Coming Into Our Own at Fifty,” has found herself in a giant financial hole. Overspending on home projects landed her there.
She lives in a rented house in Woodstock, N.Y., is a member of Debtors Anonymous, is slowly paying back $20,000 in federal taxes, saving funds through an investment group and spending cautiously. “I never paid attention to how much I spent. Now I use a software program. I don’t feel deprived, but in control,” she said. Dowling also hopes her latest book, “Maxing Out: Why Women Sabotage Their Financial Security” (Little Brown, $23.95), will help dig her out and keep others on firm ground.
And that’s not an impossibility. Regardless of marital status or children, women can save enough for a comfortable retirement if they start early and invest aggressively, says Judy Phillips, senior vice president and head of Harris Bank’s Investor Center in Chicago.
How much you should save and how you should invest it are impossible to generalize about, Phillips says, because of a number of decisions:
– When you’re going to retire, which determines how many more years you have before you’re dependent on savings.
– Where you’re going to retire, which will dictate expenses and greatly affects lifestyle.
– What your retirement plans will entail monetarily: volunteer work, annual trips abroad, a month’s stay in Florida, frequent dinners out, annual gifts to children as permitted by the IRS.
Once you’ve made these decisions, you need to check whether your plans are realistic or if you’ll have to take a part-time job. Phillips advises estimating an income you will need after retirement. Instead of basing the estimate on 60 to 80 percent of your working income, as some financial counselors advise, pick a figure closer to 100 percent, says Cindy Hounsell, executive director of the Women’s Institute for a Secure Retirement in Washington.
“Women outlive men by five years, earn less money so their retirement benefits in pension and Social Security payments are less, often leave jobs before they qualify for a pension and often leave work to care for aging parents or children,” Hounsell says.
Women also tend to be more optimistic than men in their outlook and think they’ll be taken care of, says Nancy Coutu, president of Money Managers Advisory in Oak Brook.
With your estimate in mind, prepare a budget. Add together your pension, a 10 percent annual return on your investments, Social Security benefits, miscellaneous income such as the sale of a business or an inheritance and an inflation factor of between 2 and 4 percent.
Deduct funds for additional expenses you may not previously have had, such as health coverage, because you’re no longer working. Add working expenses that you will no longer have, such as commuting and clothing.
Once a year or every time you face a life change, re-evaluate your plan. The best ones involve a mix of the following.
– Curtail spending. You needn’t become a Scrooge, but cut back creatively. “Rent a movie periodically rather than go to the movies, and bank the difference,” suggests Bambi Holzer, senior vice president/investments, at Paine Webber in Los Angeles and author of “Retire Rich: the Baby Boomer’s Guide to a Secure Future” (John Wiley, $22.95).
– Get rid of debt. Because inflation is low and interest is no longer tax deductible, you should alter your spending habits and cut your debt fast.
– Start saving. Use any and all options at work or on your own, such as 401(k) plans, IRAs or the new Roth IRAs. Be sure that you can take any vested retirement benefits with you if you switch jobs. If you’re not disciplined enough to save a percentage of your income, some mutual funds will automatically debit your checking account monthly, even with a minimum of $25.
– Diversify your portfolio. Plan for the long haul to maximize earnings even if you started planning late, says Phillips. If you don’t have time to become an active investor, find a good adviser. You can find one by calling 1-888-CFPMark or using www.cfp@board.org.
– Protect your well-being. Be sure you’re covered for worst case scenarios with health, disability and long-term care insurance. Medicare doesn’t pay for prescription drugs, warns Emily Card, editor and publisher of Emily Card’s MoneyLetter for Women.
