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Retirement Planning Tips for Women in 2023

Women often face special challenges when planning for retirement.

For example, if they are the primary caregivers in their families, their careers may be interrupted to care for children or elderly parents, which means they may spend less time in the workforce and earn less money than men in the same age group. And even if they remain in the workforce, women still tend to earn less than men, on average. As a result, their retirement plan balances, Social Security benefits, and pension benefits are often lower.

High inflation rates have led many women to lose confidence in their retirement trajectory, with 62% of women planning to retire later than they had planned1. These added challenges are taking a toll on many women's financial confidence.

To help yourself or the women in your life manage these financial challenges, consider the following.

SECURE Act 2.0 has improved the retirement savings landscape for women

In December of 2022, the SECURE Act 2.0 was signed into law. The Act contains many provisions, some of which are especially important to women’s retirement savings.

  • Delayed Required Minimum Distributions (RMDs): In addition to earning less, women generally live longer than men, which means having to stretch potentially limited retirement savings and benefits over many years. In 2023, the required age for taking an RMD increases to 73. In 2033, it will increase further to age 75. This change provides women with the option to leave savings in a qualified retirement plan to continue to grow before being required to begin withdrawals.
  • 529 Roth rollovers: Saving for college through a 529 plan is a valuable option as it allows savings to grow tax-free and be withdrawn without incurring a tax liability. Under the SECURE Act 2.0, excess or unused 529 plan savings can be converted to a Roth IRA for retirement savings. In doing so, the account earnings are no longer subject to income tax in retirement. (Note that there is a $35,000 maximum for conversion to a Roth IRA and the 529 plan must have been in place for at least 15 years). This potential additional savings is another reason to start saving for your children’s education early.
  • New benefits for part-time workers: Under SECURE 2.0, part-time workers will now become eligible to save in the plan after working 500 hours for two consecutive years. This can be a very valuable savings tool for those juggling part-time work and child care/elder care, as many women often do.
  • Increased retirement income alternatives: Contributing to an annuity option during savings years can help provide a guaranteed income stream for life in retirement. SECURE 2.0 expands on the original SECURE Act’s Safe Harbor provisions for the inclusion of annuity products in 401(k) plans. Unlike “retail” annuity products traditionally available to 401(k) participants outside of their retirement plans, in-plan annuities are expected to be less expensive and will be fully vetted by Plan Sponsors prior to being offered in the plan.
  • Student loan payment matching: According to the Pew Research Center2, American women now outnumber men in the college-educated labor force. Under SECURE 2.0, employers can offer a “matching” contribution into retirement plans based on employee’s student loan debt repayments. This can help some begin saving for retirement at an earlier age who would otherwise be unable to save as a result of a heavy student loan debt burden .
  • Provisions for domestic abuse survivors: According to a study completed by the U.S. Department of Justice3, 85% of intimate partner domestic abuse victims are women. The SECURE Act 2.0 will allow penalty-free withdrawals of up to $10,000 (or 50% of the account balance) to help victim of domestic violence escape an unsafe situation. Unles the withdrawal is from a Roth account, it will still be subject to ordinary income tax, but the normal 10% penalty will not apply. However, the withdrawal may be paid back to the plan within three years in order to recover taxes paid.

If you haven't already done so, begin saving now

Start with a realistic assessment of how much you'll need to save. An online retirement savings goal-setting calculator can help. If the figure is substantial, don't be discouraged — the most important thing is to begin saving now. The chart below shows how just $2,000 invested annually at a 6% rate of return might grow over time:

Age you begin saving for retirement:Amount you could save by age 65:

Note: This is a hypothetical example of mathematical principles, is used for illustrative purposes only, and does not reflect the performance of any specific investment. Results assume reinvestment of all earnings. Fees, expenses, and taxes are not considered and would reduce the performance shown if they were included. Actual results will vary.

Save as much as you can – you have many options

If you work outside of the home and your employer offers a retirement savings plan, such as a 401(k) or a 403(b), consider enrolling as soon as possible and contribute as much as you can. These plans make saving easier because your contributions are deducted directly from your pay, and some employers will even match a portion of your contribution.

If your employer offers a pension plan, find out how many years you'll need to work for the company before you are "vested in," or own, your pension benefits. Understanding this information can help you make an informed decision if you think you might need to leave your job at some point to care for family members. Keep in mind, too, that because your pension benefits will be based on your earnings and years of service, the longer you stay with one employer, the higher your pension is likely to be.

Most employer-sponsored plans allow you to choose from several investment options (typically mutual funds). If you have many years to invest or you're trying to make up for lost time, you may want to consider growth-oriented investments such as stocks and stock funds. Historically, stocks have outperformed bonds and short-term instruments over the long term, although past performance is no guarantee of future results. However, along with potentially higher returns, stocks carry more risk than less volatile investments.

A good way to get detailed information about a mutual fund you're considering is to read the fund's prospectus, which can be obtained from the fund company. It includes information about the fund's objectives, expenses, risks, and past returns. A financial professional can also help you evaluate your retirement plan options.*
Health Savings Accounts (HSAs) have been a hot topic of discussion in the financial planning space for the past few years. Why are these accounts gaining in popularity? Because they are built to be used in many different ways with tax advantages. HSAs are tools to help people save on health care expenses in a similar way to Flexible Spending Accounts. Money goes into these accounts from an individual’s pay check pre-taxed and can be used to submit claims or pay directly for eligible health care expenses.

What’s great about these accounts is that once your savings have accumulated beyond a certain threshold, you can invest the money into mutual funds like a retirement plan and you can continue to accumulate those funds for future health care expenses or expenses you’ve incurred at any time during the time you’ve had the account. The investment options may vary and all investments carry market risk so it’s good to consult a financial planner if you have questions about what an appropriate investment strategy would be for you.

Since health care expenses are one of the biggest unforeseen costs in retirement, accumulating another nest egg specifically for future higher health care costs can be a smart strategy for managing retirement expenses. As long as you use the funds for eligible health care expenses, you never have to pay taxes on that money including any growth the account has generated in its investments.

At age 65, you can even begin to use that money for other things, you would just have to pay ordinary income taxes on those distributions. It’s important to remember that you can only open one of these accounts if you have a qualified high deductible health insurance plan. For 2022 the maximum limit you can put into an HSA is $3,650 for an individual or $7,300 if you are on a family plan.

Plan for income in retirement

Do you worry about outliving your retirement income? Unfortunately, that's a realistic concern. At age 65, women can expect to live, on average, an additional 20.8 years. In fact, many women will live into their 90s. This means that women should generally plan for a retirement that will last at least 20 to 30 years.

Women should also consider the possibility of spending some of those years alone. According to recent statistics, 31% of women age 65 and older are widowed, 17% are divorced, and 34% live alone. For married women, the loss of a spouse can mean a significant decrease in retirement income from Social Security or pension benefits.

So what can you do to help ensure you'll have enough income to last throughout retirement? Here are some tips:

  • Estimate how much income you'll need. Use your current expenses as a starting point, but note that your expenses may change by the time you retire. Work-based retirement plans often provide helpful tools to estimate your income.

  • Find out how much you can expect to receive from Social Security, pension plans, and other sources. What benefits will you receive should you become widowed or divorced?

  • Set a retirement savings goal that you can work toward, and keep track of your progress.

  • Save regularly, save as much as you can, and then look for ways to save more — dedicate a portion of every raise, bonus, cash gift, or tax refund to your retirement savings.

  • Consider how you can help protect yourself and your family from potentially substantial long-term care expenses. By planning ahead, you could help preserve your choices for care and may avoid becoming a burden on your family.

Understand what you shouldn't do

  1. Don't avoid the planning process Perhaps you're so wrapped up in balancing your responsibilities that you haven't given retirement planning much thought. That's understandable, but if you don't put retirement planning at the top of your to-do list, you risk shortchanging yourself later on. Staying focused on your goal of saving for a comfortable retirement is difficult, but if you put yourself first, it could pay off in the end.

  2. Don't rely on your spouse Married or not, it's critical for women to take an active role in planning for retirement. Consider that you may be forced to make important financial decisions quickly during a period of crisis. Preparing for retirement — or any financial goal — with your spouse could help ensure that you're both well-informed when the time comes to make the critical choices.

  3. Don't prioritize your children's education over your retirement Many well-intentioned parents put their own retirement savings on hold while they save for their children's college education. But if you do so, you're potentially sacrificing your own financial well-being. Your children have many options when it comes to financing college — loans, grants, and scholarships, for example — but there's no such thing as a retirement loan.

  4. Don't neglect to learn the basics of investing If you're unfamiliar with common investment terms such as diversification, asset allocation, and compounding, you can broaden your knowledge in as little as a few minutes each day. A simple web search can reveal hundreds of educational articles and videos. And remember, you don't have to do it by yourself — a financial professional will be happy to work with you to set retirement goals and help you choose appropriate investments.

*Financial planning and investment advice are offered through Sentinel Pension Advisors, Inc. Sentinel Pension Advisors, Inc. is a SEC-registered investment advisor.

Employee Benefit News: (link)

Pew Research Center: (link)

3 U.S. Department of Justice, Bureau of Justice Statistics: (link)

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