Posted by Shelly Eweka.
Regardless of whether your employer offers a traditional pension, you can take advantage of many other opportunities to potentially maximize your income in retirement.
As women, we may place relatively little importance on our own financial security, in favor of supporting loved ones. A close family member has even admitted to feeling selfish for prioritizing her retirement savings over other family obligations, such as helping a grandchild with college expenses. She almost feels as if she is taking money away from others by diligently sticking to the savings goals set by her financial advisor.
Whenever I encounter this attitude, my response is unequivocal: Women need to actively find ways to maximize their retirement income rather than minimize it. For example, I often recommend that, if you have more money in your savings account than you need for a rainy day (or six months of expenses), convert any excess cash into long-term investments (your needs may vary).
I also urge women to seek out a financial advisor and really listen to the advice being offered. Your workplace may be a good place to start, since many employers offer one-on-one advice sessions, as well as educational materials to help you better understand your retirement options. Review your guaranteed sources of income with your advisor to see if they will provide enough income to cover your fixed expenses. If not, ask what other income options are available to you from your retirement accounts.
Today’s employees need to be more proactive about saving
I was saddened to read in the New York Times recently that women have an 80% higher likelihood of living in poverty at age 65 and older (“For Many Women, Adequate Pensions Are Still a Far Reach,” June 2016). Given the evaporation of traditional pensions1, most women will not receive one when they retire, and even those who do may need to make some adjustments to their lifestyle.
Some people use the term pension interchangeably with 403(b), but there is a fundamental difference between the two. When our parents were starting out in the workplace, their employers may have offered a company pension, a type of defined benefit plan. Pensions were more prevalent back then, particularly in the healthcare and education fields (though most public-school teachers still have them today1). Employees were all but guaranteed a lifetime income after retirement, based on salary and years of experience. Because the benefit was defined, it was the employer taking on the investment risk; if the pension fund’s underlying investments underperformed, it still had to pay the employee the defined amount when they retired.
As life expectancies increased, companies had a bigger financial burden to fund pension assets for retirees, so there has been a shift towards defined contribution plans—and with it, a shift of responsibility from employer to employee in terms of investment risk. Contributions to 403(b) plans are defined but there is no promise of how much you’ll wind up with in the end. That’s why employees today, especially women, need to take a much more proactive approach to retirement saving, tracking their investments and figuring out how to convert their eventual nest egg into steady income in retirement. Since women spend more years out of the workforce, and are generally paid less than men, they tend to retire on less and need to rely more on Social Security benefits ($1,300 per month is the current average1).
There are inherent risks in investing. Products may be subject to market and other risk factors. It is possible to lose money by investing.
Take control of your financial destiny
Seeking out ways to maximize your retirement income doesn’t have to be boring; it can be social, even fun. Get together with other women in your social network; if you have a book club, choose a popular book on finance and study it together. Popular finance may be less to your taste than popular fiction, but remind yourself that financial literacy is essential for taking control of your own destiny. Our moms may not have discussed finances or investing with us, because to some degree they didn’t have to. Given the reality of retirement today, it’s up to us to get involved and start the conversation with others.