Saving independently for retirement is crucial, because without money of your own, you risk struggling to pay the bills once your career comes to a close and your paycheck from work ceases to exist. And if you're thinking you'll fall back on Social Security to compensate for a lack of savings, think again. Those benefits will only replace about 40% of your former wages if you're an average earner, and most seniors need roughly twice that amount to maintain a comfortable lifestyle. As such, you absolutely need savings of your own.
Unfortunately, new data from Transamerica reveals that women are sorely lacking in this regard. The median retirement savings balance among women is an astoundingly low $23,000. Given that female workers anticipate needing a median retirement savings balance of $500,000 to feel financially secure during their golden years, that's an extremely large gap to fill.
Now among women in their 20s and 30s, this news isn't as alarming. Younger women have decades to build savings and set themselves up for the future. It's older women, rather, who need to take serious action if they're staring at a $23,000 IRA or 401(k) balance and don't have much time left in the workforce. If that's the scenario you're facing, here a few key moves to make immediately.
1. Cut back on expenses in a very big way
You'll often hear that buying fewer lattes or dining out less frequently is a good way to build retirement savings. Well, that may be somewhat true if you have 40 years or more to establish your nest egg, but if you're in your 50s without much savings, you'll need to do better than that. Specifically, you'll need to make drastic changes to boost your cash reserves while you can. That could mean downsizing to a smaller home, or moving to a less expensive part of the country if your work is such that you can do so while retaining a higher salary.
Imagine you cut back on living expenses to the tune of $300 a month by making modest changes. If you're only 15 years away from your desired retirement date, you'll boost your nest egg by about $90,000 if your investments generate an average annual 7% during that decade and a half (that 7% is a few percentage points below the stock market's average). That's not great progress if you're only sitting on $23,000 in savings at present. On the other hand, if you make more substantial changes to your spending habits that free up $1,000 a month for your IRA or 401(k), investing that money at an average annual 7% return over 15 years will result in a $301,000 boost to your nest egg. And that paints a much more favorable picture.
2. Get a second job
There may come a point when you can only cut back on so many expenses and still maintain a decent quality of life. If slashing your living costs doesn't do the trick in helping you catch up on retirement savings, then it pays to look at getting yourself a second job, whether that means consulting in your current field or doing something completely different, like caring for other people's pets or designing jewelry you can sell. Not only can a second source of income make it possible to aggressively fund your retirement savings, but it'll also mean having a potential gig to continue doing once your full-time career comes to a close. And if you're nearing retirement with little savings, that's an option you want to have.
3. Extend your career
You may want to retire in your early to-mid 60s, but that doesn't necessarily mean you have to. Many people these days are working well into their 70s, and if you're short on savings, it pays to consider doing the same. In the above example, we saw that saving $1,000 a month over 15 years would result in an extra $301,000 in retirement savings with an average annual 7% return applied. If you were to work an extra five years on top of that and continue saving at the same level during that time, you'd boost your nest egg by $492,000, assuming that same 7% return. And that effectively brings your savings to the median target women associate with long-term financial security.
Working longer can help from a Social Security standpoint, too. For each you hold off on claiming your benefits past your full retirement age (which is 67 if you were born in 1960 or later), you accrue delayed retirement credits that boost those payments by 8% a year, up until age 70. And if you're holding down a job until 70, it stands to reason that you won't be rushing to take your benefits immediately.
The fact that women statistically earn less than men is no doubt a contributing factor to their lack of retirement savings. But if you're staring at a paltry IRA or 401(k) balance, consider this your wakeup call to start doing better. Even if you aren't close to retiring, it never hurts to boost your savings rate earlier in life so that you give your money a solid opportunity to grow over time. Women have a tendency to outlive their male counterparts, so the more money you enter retirement with, the more financial flexibility you'll buy yourself.