Does Your Retirement Plan Add Up?
What Every Woman Needs to Know
When Kemmeth O'Connor, 34, retires, she wants to travel. From her house in London, Ohio, she hopes to visit Europe, particularly Ireland. If all goes as planned, she'll be 54 years old, with 30 years of service to the state.
"Retirement should be a time to kick back, travel, bowl on Monday mornings," says Kem.
The cost of her dream: about 75 percent of her salary before retirement.
Kem is lucky. She has plenty of time to save for retirement. But start too late or save too little and you might find your retirement dream turning into a nightmare.
Retirement security is the number one concern of working men and women, according to a 1996 AFL-CIO study. With baby boomers moving toward retirement, politicians talking about changing Social Security, and rumors flying about swapping government pension plans for private-sector models, it's no wonder.
But men and women do different things with that concern. Over two-thirds of men ages 45 to 64 began saving for retirement by age 40, compared with less than half of women in the same age group, according to a 1993 Merrill Lynch study.
This lack of planning by younger women comes despite the fact that, while union women are doing far better than their non-union counterparts -- thanks to the benefits they've fought for and won -- most of them will earn less and live longer than their union brothers. In other words, when it comes time to retire, today's working women will need larger private savings and will face a greater threat from inflation than men will.
Financial planners advise that, whether you're a man or a woman, there's no time like the present to begin planning your retirement.
To help you do just that, we asked experts to study the finances of three AFSCME members at different stages of planning their retirement. What are they doing right, and what are they doing wrong? What should you be doing today to ensure a comfortable retirement tomorrow?
The Basics
To get started, it's important to understand that your retirement is affected by decisions you start making your first day of work. How long you stay at your job, when and whether you contribute to a retirement savings plan: These and other things add up fast in your Social Security, your pension and your private savings -- the trio of financial supports often called retirement's three-legged stool.
Social Security has been the backbone of Americans' retirement planning for 62 years, something workers could rely upon for a modest retirement income. The government is now working to strengthen the fund as it enters the next century. But Social Security was never intended to provide 100 percent of retirement income. While workers can depend upon it for some of their retirement income, it won't pay all the bills.
Employer pensions, the second leg of the stool, is a reliable old friend that could change. Following the lead of the private sector, some public employers are trying to do away with defined-benefit plans that guarantee a set income upon retirement. They'd like to replace them with defined-contribution plans, which require employers and/or workers to contribute a set amount each pay period to personal investment accounts. Whether called a 401(k), 403(b) or 457, a defined-contribution plan does not promise a set income at the end: Workers' retirement income will depend upon when and how wisely they invest within the plan.
Personal savings, the third leg of the stool, is the part of retirement planning you'll hear the most about in this article. You can increase most pensions and Social Security benefits by working longer at a higher income. Period. But your opportunities to increase your retirement income through personal savings are far more varied -- and so are the pitfalls.
If this sounds overwhelming, it often is. But learning to manage your money for yourself is critical, even -- perhaps particularly -- if you're married.
"Women are going to live longer than men," says financial planner Deborah Thomas. "They need to learn to make financial decisions on their own whether they like it or not."
Armed with a little knowledge, you can learn to make smart choices for yourself, just as the three women who follow have.
