A Woman’s Guide to Retirement Planning: Strategies for Saving and Investing

It’s easy to be tempted to push off preparing for retirement until tomorrow. However, starting as early as possible is critical for women to maximize their savings.

When saving, women typically face unique challenges that require additional planning. By taking a strategic and long-term approach to your retirement savings, you can set yourself up for financial success, and your future self will thank you.

What Challenges Do Women Face During Retirement Planning?

Although men and women can have similar expenses and needs during retirement, women are more likely to encounter challenges during planning. This can be due to:

• Earning less than men
• Taking breaks from the workforce to raise families
• Getting divorced if the spouse was the primary earner

In addition, women may feel pressure to put their families’ needs ahead of their retirement savings. They may provide more support to their children, which detracts from their own financial well-being. That’s why women need to protect their futures by paying into their retirement first and then allocating leftover funds accordingly.

The Limitations Of Social Security

Social Security was initially designed to be a safety net for people in retirement. However, Social Security payments may barely scratch the surface of what you need to maintain your lifestyle.

Social Security uses the highest 35 years of earnings and adjusts them for inflation to calculate your Average Indexed Monthly Earnings (AIME). Your Social Security benefit is just a small fraction of your AIME. Based on the current formula, someone who starts taking their benefits at full retirement age will receive:

• 90% of the first $1,226 of their AIME
• 32% of their AIME from $1,226 to $7,391
• 15% of their AIME from $7,391 to a maximum of $14,675

This means that social security payments can be low for even higher-earning individuals. That’s why it’s up to you to take control of your retirement by creating an additional nest egg to support your future lifestyle.

How Much Should I Save?

The exact amount you should save depends on how much you earn and the projected cost of your ideal retirement lifestyle. It’s always great to save as much as possible. Because of compounding interest, you can accrue hundreds of thousands of extra dollars by starting to save at 25 instead of 30. However, you’ll be able to save more at certain times in your life.

Early in your career, aim to save around 10 to 15% of your income to start building your savings. As you progress in your career and get access to more disposable income, aim for 15 to 20%.

As you save, ensure you’re never leaving money on the table, as this is critical when employers match your 401(k) or other retirement accounts. If your employer matches your retirement savings up to a certain amount, contribute at least that much.

For example, if your employer will match retirement contributions up to 5% of your paycheck and you only contribute 3%, you’re forfeiting an extra 2% of your salary every year. With compounding interest, that extra unclaimed 2% can quickly add up to tens or hundreds of thousands of dollars.

How Should I Invest My Savings?

Setting aside monthly retirement money is just the first step of your financial planning. If you only put the funds in a standard savings account, it won’t be able to keep up with inflation, let alone grow enough to provide you with extra cushioning for retirement.

You can maximize your returns by choosing the correct type of retirement account and being strategic about your investments.

Choosing The Right Retirement Account

Many workplaces offer retirement accounts to their employees in the form of 401(k)s (or 403(bs) if you work at a non-profit or government organization). You can also open an individual retirement account, or IRA, to start saving without employer support. Both 401(k)s and IRAs typically fall into one of two categories:

• Traditional: With a traditional 401(k), you contribute pre-tax money, then pay taxes later when you withdraw funds from the account. Contributing to a traditional 401(k) can lower your taxable income, and you won’t have to pay taxes on any earnings until you withdraw.
• Roth: You contribute to Roth retirement accounts using after-tax dollars. Although you must pay taxes upfront, your account can grow tax-free, and you won’t have to pay additional taxes when you withdraw.

While traditional and Roth accounts often provide similar results, it can be helpful to focus on Roth accounts when your income and tax burden are both low. Then, shift to traditional accounts as your income increases, as conventional accounts will help you reduce your tax burden. If you’re self-employed, you can also look into SEP IRAs and solo 401(k)s for sole proprietors.

Diversifying Your Portfolio

Diversification is the key to maximizing the return on your investment while minimizing risk. It involves building a portfolio with many types of investments and securities, so all of your wealth isn’t tied to the success of a single business or industry. Some ways to diversify include:

• Investing in a mix of stocks and bonds
• Including companies from multiple sectors in your portfolio
• Investing in businesses from different countries

How To Develop An Investment Strategy

Your investment strategy is based on the level of risk you’re willing to take. Riskier strategies could give you higher returns and open the doors to larger losses. The amount of risk you should take depends on your personal goals and where you are in your retirement.

Understand Your Investment Time Horizon

The time you have left until retirement should be one of your most significant considerations when deciding how much risk you can manage. Most people work for about 45 years and should expect to spend 25 to 30 years in retirement. The earlier you start saving, the more aggressive a stance you can take with your investments. This is because you have more time to weather the ups and downs of the market. As you retire, you’ll want to take a more conservative approach.

Choose Your Stocks-To-Bonds Ratio

As a general rule of thumb, stocks are risky, high-return investments, while bonds are less dangerous, with lower returns. Many start with an 80/20 ratio of stocks to bonds, then shift towards a more conservative ratio, such as 60/40, as they get closer to retirement.

Stay Consistent In Volatile Markets

It’s important to remember that trying to time the market is a perilous move. Even professionals have trouble predicting the best time to invest or withdraw money based on the state of the market. You can avoid unnecessary losses by staying consistent over time and not making rash decisions based on market fluctuations.

Extra Retirement Savings Tips For Women

Alongside building a healthy retirement account, use these tips to get even more out of your retirement savings:

• Leverage Your HSA: If you have an HSA-eligible high-deductible health plan, you can use it as an additional vehicle for retirement savings.
• Open an IRA as a Spouse: Even if you aren’t the primary earner, your spouse can still contribute to an IRA to help you build savings.
• Convert College Funds for Retirement: In some cases, you can roll over college savings from a 529 account to a Roth IRA for the beneficiary
• Create a Vision for Your Business: If you’re a business owner, consider your plan for selling or operating your business as you shift into retirement.

Build Yourself A Secure Financial Future

Creating a retirement plan now is the best way to secure your financial health decades later. The earlier you start, the better — but it’s never too late to begin your investment journey. Take control of your financial future. Connect with the team at Twelve Points Center for Women today.

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