Getting started
Playing catch-up
By Nan Connolly
Special to The Seattle Times
Retirement is an equal-opportunity expense: It costs a fortune for everyone. But women and people of color face particular challenges in funding it. Here are some of the problems — and strategies for tackling them.
The problem
Lower lifetime earnings
On average, women earn just 76 cents for every dollar men earn, a disparity virtually unchanged in 20 years. According to the Older Women's League (OWL), for African-American women it's 65 cents; for Latinas, 52 cents.
Black men earn 25 percent less than white men, and Hispanic men average 65 percent less.
Lower pay means less cash to save, smaller Social Security checks and lower pension payouts.
Four solutions
• Start a retirement savings plan as early as possible, even at the expense of other savings goals. "A little bit over a long time is a lot," says David Giannini, a broker at RBC Dain Rauscher in Seattle. "It all comes down to habit training; $50 to $100 a month is a start."
• Fund retirement, then a child's college account. There are no scholarships for retirement expenses.
• When your child outgrows day care, shift that monthly check into retirement savings.
• Earn more so you can save more. Career counselor Peggy Klaus thinks many women could earn more by asking for it: "If you don't brag or self-promote, you will stall or derail your career. Men do this (self-promotion) routinely."
The problem
Lower savings rates
For women, the average 401(k) account holds just $11,000, less than half what men have saved. Yet women who reach their mid-60s can expect to live an additional 17 years, some longer.
Paul Capeloto, a Smith Barney vice president in Bellevue, worries that low pay hampers retirement savings: "The workforce doesn't reflect the time value of what women do."
For those making less than $30,000 a year — which includes two out of three working women — the reality is that there isn't much left over to save.
Men of color have lower savings rates as well.
How to save more
• Contribute any bonuses, tax refunds, cash gifts, inheritances or divorce settlements to a retirement account. Don't spend even small windfalls.
• Adjust your W-4 statement so you don't get a big tax refund, which brings the temptation to spend. Save your "raise" via direct deposit.
• Save your tax breaks. Federal income-tax rates have been cut this year by 2 percent for most taxpayers with incomes of more than $28,400 for singles or $56,800 for those filing joint returns. Increase your savings accordingly.
The problem
Lower pensions and Social Security benefits
Because of lower earnings and time out of the workplace for family needs, women and people of color receive much lower Social Security payments than white men do. And just half of white women and 40 percent of minorities hold jobs with pensions.
Bear in mind
• Understand what you're sacrificing when you stop working to care for a child or aging relative. On average, women spend 11 years off the job to care for family members, compared with 16 months for men, according to the U.S. Department of Labor.
Some parents who take time away from paid work can continue making tax-advantaged IRA payments, depending on household income. See the IRS Web site: www.irs.gov/retirement/
• Carefully review the pension benefits, if any, when considering a job offer. If the employer has a minimal pension plan or none, fund an IRA. Working in a modestly paid job with no pension plan is a formula for old-age poverty unless you save.
For a reality check, use a retirement calculator (www.retireplan.about.com or www.fidelity.com).
• Job-hopping can be especially harmful to retirement security. In fields such as teaching and government work, vesting in a pension may be the most painless way to secure a retirement. Lateral moves in mid- to low-paid jobs can damage your retirement financial picture if you must start vesting in a pension all over again.
Run the numbers before walking away from 10 years or more vested in a pension plan.
Stay-at-home spouse
If you're a stay-at-home spouse, here are three things you can do for your retirement:
• Take advantage of the Individual Retirement Account for a nonworking spouse. If you file a joint income tax return, you're eligible for this spousal IRA. You may contribute up to $3,000 a year.
"They need to have something on their own," says certified financial planner Bryan Clintsman, a certified financial planner at Clintsman Financial Planning "I see too many examples where one spouse is designated to be the working person in that couple. It puts a lot of risk on the retirement plan."
• Know what happens to your husband's pension when he dies. This will depend on what pension payout he chooses when he retires. This is a crucial decision.
Typically, workers have two options on how they want their pension money paid out:
The single life option gives a worker pension income for the rest of his or her life. It pays a higher monthly income because it's based on a "single life" — the worker's — and payments cease when the worker dies.
The joint and survivorship option pays a lower monthly income, but payments continue until the death of both you and your spouse.
"Overall, the joint and survivor option is typically the safest and most sound option for retirees," says Shashin Shah, a certified financial planner at Financial Design Group in Texas in Addison. "It may provide a smaller payout than a sole option, but the risk is too great for the nonemployee spouse in case of the employee's death."
• Know the rules of Social Security spousal benefits and what you're entitled to. For more information, go to the Social Security Administration Web site at www.ssa.gov/pubs/10127.html
— Dallas Morning News
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