Retirement can stir up ideas of freedom, relaxation, and travel, or of uncertainty, penny-pinching, and helplessness. Men and women may struggle to save enough for retirement, but the latter scenario is much more common among women as they still earn less than men on average and must have larger nest eggs due to their longer average life expectancies.
When asked how confident they are about retiring comfortably, approximately 45% of women said they were not confident, according to a recent Transamerica survey, compared to just 29% of men. Only 12% of women reported feeling very confident, while nearly 23% of men felt this way.
The good news is, it's not too late to change that. Women who are still a little ways off from retirement can make moves today to secure a more comfortable future. Start with these five strategies.
1. Create a retirement plan
It's difficult to feel confident about your retirement when you're uncertain about how much money you're going to need. This is always going to be somewhat of a guess, but having a target to shoot for keeps you on track, or at least lets you know what you must do to get on track for the retirement you want.
Start by estimating the length of your retirement. Subtract your preferred retirement age from your estimated life expectancy. Plan to live to at least 90 if you're a healthy person. Next, total up your estimated annual retirement expenses and multiply them by the number of years of your retirement, adding 3% annually for inflation. Use a retirement calculator for this and to calculate your investment growth over time. Use a 5% or 6% annual rate of return to be conservative. Finally, subtract money you expect from a pension, a 401(k) match, or Social Security to estimate what you must save on your own.
Try to raise your retirement contributions to at least as much as your retirement calculator recommends. You might need to reduce your discretionary spending and look for other ways to cut costs in order to free up the cash for retirement savings.
2. Don't put your career on the back burner
Women are more likely than men to leave the workforce or transition to part-time to care for children or aging or sick relatives. In fact, the Transamerica survey found that 31% of women are serving or have served as caregivers in the past, compared to just 25% of men. This is noble, but it can make it more difficult for women to save for retirement because they might have less or no money coming in while they're caring for someone. Working less or not at all can also reduce women's Social Security benefits, forcing them to rely even more on their personal savings in retirement.
Women who want to retire comfortably should try to make their career and retirement savings a priority. Remain in the workforce if you're able to, and consider taking professional development courses or going back to school. This could help you develop new skills that make you more valuable to employers, and it might help you climb the corporate ladder more quickly. Don't be afraid to seek out new employers, too, if you think you can be better paid elsewhere.
3. Save as much as you can while you're young
Your early retirement contributions are usually your most valuable because that money has the longest time to grow before you need to begin drawing upon it. A $1,000 contribution might only be worth about $1,403 after five years with a 7% annual rate of return. But if that money sat in your account for 40 years, it would be worth nearly $15,000 with the same rate of return.
Even if you can only afford to set aside $50 per month, that's still something. It can get you into the habit of saving for retirement, and then as your income rises, or you're able to cut back your spending, you can raise your retirement contribution rate as well.
4. Take advantage of 401(k) matching
Don't leave any 401(k) match your employer offers you on the table unless you absolutely cannot afford to put any money toward your retirement. If your boss offered you a raise, you wouldn't pass that up, so there's no good reason to ignore this chance to earn more money for the work you do. An employer match also eases the burden on you, enabling you to build up your retirement savings more quickly.
However, watch out for your company's vesting schedule, especially if you plan to leave the job in the near future. This determines when you get to keep your employer-matched funds if you leave the company. Depending on the type of schedule your company uses, you could forfeit some or all of your 401(k) match if you leave the company before you're fully vested.
5. Have a backup plan
Divorce, an illness, or a family or job crisis might force you to abandon your original retirement plan. You probably can't predict how this will affect your existing plan when it hasn't happened yet, but you should know what to do if one of these things does arise. You'll need to take stock of your situation, develop a new retirement plan, and possibly rethink your work arrangements. If you're no longer able to work full time due to caregiving duties, you might have to find part-time work to keep some money coming in. Women who end up getting divorced should attempt to negotiate some of their ex-spouse's retirement benefits if their spouse was primarily saving for retirement for both of them.
You'll never be able to be certain that you have enough for retirement; there are simply too many variables involved. But if you follow the steps above, you can hopefully begin to feel reasonably confident about your financial security in retirement.