Don’t let your retirement be the price of your caregiving

by Suba

There have been multiple articles recently discussing the fact that women are at an ascendency in the workplace.  Women now make up more that 50% of the general workforce.  They are also rising higher up the ladder.  A significant number of women however, continue to take time off from their careers to looks after young children and in general sacrifice their careers for family.  This post is not about whether this is the right thing to do or not.  What I am trying to address in this post is how women who do decide to take time away from their careers to attend to their families need not get the short end of the stick as far as retirement savings goes.

 Mothers & Daughters

Save more from the beginning

Women in general live longer than men.  That alone requires them to put aside more money even if they never take time off from their jobs.  As a quick example, assume that a person thinks they can live off $5000 per month.  Since US women live approximately 5 years longer than US men, this means that women would need $100,000 more than a man at the beginning of their retirement.  This boils down to the need for women to start saving early and steadily so that they don’t run into monetary trouble during their golden years.  Do calculation of how much you need early and start saving towards that.

Spousal IRA

If you take a break from your career you cannot contribute to an employer sponsored 401k plan.  If you are married however, your spouse can contribute up to $5000 per year into a spousal IRA.  This increases to $6000 for those over 50.  Use that to keep funding your own retirement account and thus improve your financial security even in the event of a divorce (something to definitely consider, given the high rate of divorce).

Be involved in financial decisions

This is one of the biggest mistakes women make. They always assume that their partner will do everything possible to make sure they have a secure future. Even if your partner takes the lead in financial decisions, stay involved.  Keep track of investments and savings.  Ensure that you are the beneficiary on all retirement accounts, Social security, pension and insurance policies.  You don’t want to be blindsided when your partner passes away or if you decide to go separate ways.  Dealing with the grief will be hard enough.

Remember that depending on the way the account is setup, pension amounts can be reduced by a third or even half while both spouses are alive.  Additionally, the surviving spouse only receives the greater of either their own Social Security benefit or the surviving spouse’s benefit, not both.

Be savvy

There is possibly no worse feeling that feeling powerless to control what happens to you.  Don’t let that happen to your financial situation.  Even if finances and numbers make you go all glassy eyed try to take small steps.  Get involved in financial investment clubs with like-minded individuals, read a few laid back introductory finance books, etc.  You don’t have to be an expert to protect yourself during retirement.  Follow the Pareto principle.  Doing a few things can get you a long way.

At the end of the day, quite a few women end up in a bad financial situation not because they were spendthrifts or something, but more because of the decisions they make or they trusted someone blindly to be better with finances.

Always be informed on what the consequences of your choices are and always be involved in every financial decision for your family.   

This post is a part of Women’s Money Week 2012. For more posts about saving, see womensmoneyweek.com.

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{ 12 comments… read them below or add one }

PawPrint March 7, 2012 at 10:56 am

I believe IRA contribution limits are $5,000 ($6,000 for 50+).

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Suba March 7, 2012 at 11:17 am

Yes, it is. I have fixed it now. Thanks for pointing it out.

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Chuck March 7, 2012 at 6:53 pm

If a man can live to be older then all the other old boys he can have his pick of all the old ladies with fat wallets. Time to eat better and start sleeping more…

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Maggie@SquarePennies March 7, 2012 at 7:20 pm

Good post, Suba! Yes, a woman has many decisions to make regarding finances, but planning for her retirement years should be a big priority. Being involved in all aspects of a couple’s finances is important. Don’t just assume your partner knows everything. Two heads are better than one & all that.

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Tie the Money Knot March 7, 2012 at 7:58 pm

Excellent post. It’s a great idea for women – and men, actually – to understand the impact that taking time away from the workforce can have on eventual retirement savings.

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Jackie March 8, 2012 at 10:59 am

So many people don’t even realize that a spousal IRA is an option, or else they think it’s fine to “just” put all the retirement money in one account. It’s smart to have two accounts, and of course it also means you can contribute more total.

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Alex | Perfecting Parenthood March 8, 2012 at 2:52 pm

If the woman is married then the financial decisions ought to be all made as a family unit, for the family unit, covering everyone’s retirement, everyone’s potential death, everyone’s schooling, lifestyle etc. There are also optimizations that could happen at the family unit level – like the spousal retirement contributions. It’s not just the woman who should worry (although she must) but all involved. Yes, it might be the woman who has to kick the man in the butt to consider some of these things.

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Marissa @ Thirty Six Months March 8, 2012 at 10:31 pm

Great article! I have quite a friends having kids right now, and its scary to see how many of them don’t think about retirement.

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Jai Catalano March 9, 2012 at 3:53 am

Thanks for the reminder. My wife and I are in the process of starting to specifically budget and balance our money and where the future is with said money.

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SB @ One Cent At A Time March 11, 2012 at 8:00 am

We are trying to have baby now. We need do a lot of planning for this and the retirement. This was a great reminder.

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Karunesh @ chase-a-dream.com March 15, 2012 at 2:32 am

Planning for retirement should be started at the earliest. The magic of compounding needs time and regular savings 🙂

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Karunesh @ chase-a-dream.com March 17, 2012 at 2:45 pm

I found your post very helpful. I have linked your post at my website weekly roundup

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