Keep your retirement savings on track

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Q: What strategies can women use to save for retirement, especially if they’ve taken time out of the workforce to care for family?

A: First, make saving for your future a top priority, agree all the Merrill leaders. “What we’ve found is that women are often more focused on near-term financial goals like paying off credit cards, or saving for their children’s future, and less focused on retirement,1” says Stacy Bucchere, head of business enablement and client management, Merrill Wealth Solutions. One tip that can help: “A lot of people save whatever is left after they pay bills and spend. We recommend you flip that on its head,” says Nancy Fahmy, head of Alternative Investments and Specialty Asset Management, Bank of America. “Put a little away for yourself first. Then pay your bills. Spending any disposable income should come last.”

“Make use of all available retirement savings vehicles,” adds McGregor. If you’re taking a career break and you’re married, ask your spouse to open a spousal Roth IRA. Once you return to work, consider opening a traditional IRA in addition to your employer’s 401(k) and take advantage of any 401(k) match your employer may offer. If you’re 50 or older, be aware of the higher “catch-up” contribution limits the IRS allows. And here’s another tip to simplify your life, she says: “Set up automatic contributions from each paycheck and consider automatically increasing the amount you contribute to your retirement accounts each year. The last thing any of us need is another decision to make!”

 

Q: How can women investors balance the need for growth and income in retirement?

A: “Pursuing growth a little more aggressively could help women investors be better prepared for retirement,” says Fahmy. “Taking some risk is essential to growing the value of your investments and keeping up with inflation.”

A financial advisor can help you determine an asset allocation that takes into account your risk tolerance, the time you have until retirement, and your cash, or liquidity, needs, adds Ninon Marapachi, head of Asset Manager Relationships, Investment Solutions Group, Bank of America. “Having someone to talk to when markets get volatile may also help you stick to your plan, upping the odds you’ll stay on track to meet your retirement goals,” she says.

 

Q: What should women consider as they begin to withdraw their assets in retirement?

A: “By the time women reach the age of 85, they outnumber men who’ve reached that age by two to one,” says McGregor. So women need to be planning on making their savings last for more years than men, on average. Rather than targeting a specific amount or percentage you’ll withdraw every year, work with your advisor to determine a rate that’s based on factors specific to your situation, she suggests. What’s your age and your family’s health history, for instance? Then look at your potential sources of retirement income.

Bucchere tells clients to start by taking an inventory of all their income sources, which might include Social Security, 401(k) and IRA withdrawals and even a pension. “Add up your essential expenses and weigh them against your sources of guaranteed income,” she says. “Then work with your advisor to figure out how the assets in your retirement accounts can help you fill in the gaps.”

Just keep in mind that as women age, “we spend more on healthcare, and medical costs have risen much faster than regular inflation recently — closer to 7% than 2%. You have to factor that into your planning,” says Amanda Lasher-Ross, head of Wealth Management Retirement Sales Support at Bank of America. You might look into opening a health savings account (HSA), she suggests. When used along with a high-deductible health insurance plan, “it’s a tax-efficient way to help you save for medical expenses.” And looking at long-term care insurance might also be prudent, she suggests. “Medicare doesn’t cover most long-term care expenses, so you’ll want to have a plan for how to pay for them should you need care later in life. Your advisor can help you figure out what’s most appropriate for you.”

Q: Are there any solutions that can help to create a retirement income stream? 

A: You could look into annuities, suggests Lasher-Ross. Insurance contracts that can offer guaranteed monthly income, “annuities are a useful tool to help protect against the risk of outliving your retirement savings,” she notes. “You invest today and use the income they produce later to fill any gaps you have between your essential expenses and your other sources of guaranteed income.”

There are many types of annuities, some of which can also offer potential income growth or downside protection. “Choosing an annuity isn’t just about the rate of return you might get. It’s about the need the annuity is solving for. Are you looking for guaranteed income? Tax deferral? Or downside protection against the market — a safety net? Answer those questions first, and then you can discuss various options, as well as their risks and benefits, with your advisor,” Lasher-Ross says.

 

Q: What is the best age for women to claim Social Security?

A: “Get educated early on the strategies to optimize your Social Security benefits,” says Lasher- Ross. “It’s one of the few sources out there of guaranteed income.” While you may be eligible to claim benefits as early as age 60, depending on your work and marital status, it may make sense to wait for several more years, or even a decade.

Marapachi echoes this: “To the greatest extent possible, women should avoid leaving money on the table,” she says. “You may be able to increase the amount you receive by 8% each year you delay benefits beyond your full retirement age, which is 66 or 67, depending on the year you were born. However, age 70 is the maximum age for boosting benefits. At that point, go ahead and claim!”

Longevity can work to your advantage, say all the women leaders. The longer you have to invest, the more time your assets have to potentially grow. Discussing all of the strategies above with your financial advisor can help you be better prepared to make the most of a long and fulfilling retirement.