Are you dreaming of a leisurely retirement enjoying a second cup of morning coffee, or is a sunrise round of golf more your speed? Either way, you’ll need to know the facts so you can guide your retirement dreams with realism.
Historically the road to retirement hasn’t been smooth for many women. In fact, the Social Security Administration (SSA) reports that 17 percent of all elderly, single women live in poverty. With today’s longer life spans, this figure has the potential to rise. By recognizing the following myths for what they are, you can take control of your financial future and help improve this startling statistic.
Myth #1 – Social Security will take care of me in retirement.
The reality is that Social Security income probably won’t be enough. At the start of 2011, the average monthly retirement benefit reported was $1,177. SSA data also shows that women’s benefits are almost a third lower than men’s. Not only do women earn less than men during their working years, they also take more time away from work than their male counterparts (U.S. Department of Labor). Add the uncertain future of Social Security to these statistics, and you can see why it’s more important than ever to plan for additional income sources when determining your retirement income target.
A benefits estimator is available on the Social Security Administration’s website (www.ssa.gov). Use it to get an estimate of future benefits depending on when you plan to retire.
Myth #2 – I won’t need nearly as much to live on when I retire.
The assumption sounds reasonable when you consider the costs associated with raising children and commuting to work each day. On the other hand, if you want to spend your leisure time traveling, it will come with a cost. It’s probably safe to assume that you’ll have higher health care costs—and potentially long-term care costs—in your later years, as well.
A rule of thumb that many financial professionals use is that you’ll need 60 to 80 percent of your current income in retirement (adjusted for inflation) to maintain your current lifestyle. Of course, it depends on how you plan to spend your time once you are no longer working.
It might be a good idea to test your planned budget for a few months before you retire. That way if your income and expenses seem unrealistic, consider postponing retirement or looking for ways to decrease your expenses.
Myth #3 – My 401(k) contributions will fund my retirement without my involvement.
It’s true that a 401(k) is a smart way to save for retirement with before-tax dollars. Since many employers offer a matching feature, you may have an opportunity for instant return on your invested dollars.
The good news is that many women are contributing to their employer-sponsored plans. In fact SSA data suggests that in 2008, 51 percent of women employed full-time participated in their plan through work.
Unfortunately, a common misconception is that you can sit back and the plan will manage itself. Fact is, you might get even more benefit from your plan by taking an active role in your investment selection. If you have several years until retirement, choosing too conservative investments may cause you to fall short of the dollars you need. On the other hand, if retirement is approaching, you may need to move aggressive investments to the more conservative side. The most important thing to remember is to review your choices regularly to make sure your investment selection is still in line with your goals.
If decisions like these seem daunting, you don’t have to make them alone. By establishing a relationship with professionals who can help you at critical times, you can face your unique financial challenges with reality and eager anticipation of your retirement dream.
Kerwyn N.Escayg, CFP® Private Wealth Advisor is licensed/registered to do business with U.S. residents only in the states of AL, AK,CA,CO,KS,LA,NC,NJ,PA,TX,VA&WA.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.
© 2011 Ameriprise Financial, Inc. All rights reserved. File #119119
Kerwyn N. Escayg, CFP® Private Wealth Advisor Certified Financial Planner practitioner
Escayg and Associates, A private wealth advisory practice of Ameriprise Financial Services, Inc.
Chairman’s Advisory Council 2011 www.kerwynescayg.com Direct: 281.212.2739