A Retirement Income Roadmap for Women

More women are working and taking charge of their own retirement planning than ever before. What does retirement mean to you? Do you dream of traveling? Pursuing a hobby?
Volunteering your time, or starting a new career or business? Simply enjoying more time with your grandchildren? Whatever your goal, you’ll need a retirement income plan that’s designed to support the retirement lifestyle you envision and help reduce the risk that you’ll outlive your savings.

When will you retire?

Establishing a target age is
important, because when you retire will significantly affect how much you need
to save. For example, if you retire early, you’ll shorten the time you have to accumulate funds, and you’ll
increase the number of years that you’ll be living off of your retirement
savings.
Also consider:

• The longer you delay
  retirement, the longer you can build up tax-deferred funds in your IRAs and
  employer-sponsored plans such as 401(k)s, or accrue benefits in a traditional pension plan if you’re lucky enough to be covered by one.
• Medicare generally
  doesn’t start until you’re 65. Does your employer provide post-retirement
  medical benefits? Are you eligible for the coverage if you retire early? Do you have health insurance coverage through your spouse’s employer? If
  not, you may have to look into COBRA or a private individual policy, which
  could be expensive.
• You can begin receiving your
  Social Security retirement benefit as early as age 62. However, your benefit
  may be 25% to 30% less than if you waited until full retirement age. Conversely, if
  you delay retirement past full retirement age, you may be able to increase your Social Security retirement benefit.
• If you work part-time during retirement, you’ll be earning money and relying less on your retirement savings,
  leaving more of your savings to potentially grow for the future (and you may also have access to affordable health care).
• If you’re married, and you and your spouse are both employed and nearing
  retirement age, think about staggering your retirements. If one spouse is earning significantly more than the
  other, then it usually makes sense for the higher-earning spouse to continue working in order
  to maximize current income and ease the financial transition into retirement.

How long will retirement last?

We all hope to live to an old age, but a longer life means that
you’ll have even more years of retirement to fund. The problem is particularly acute for women, who generally live longer than men. To guard against the risk of
outliving your savings,
you’ll need to estimate your life expectancy. You can use government
statistics, life insurance tables, or life expectancy calculators to get a
reasonable estimate of how long you’ll live. Experts base these estimates on
your age, gender, race, health, lifestyle, occupation, and family history. But
remember, these are just estimates. There’s no way to predict how long you’ll
actually live; but with life expectancies on the rise, it’s probably best to
assume you’ll live longer than you expect.

Project your retirement expenses

Once you know when your retirement will likely start, how long it
may last, and the type of retirement lifestyle you want, it’s time to estimate
the amount of money you’ll need to make it all happen. One of the biggest retirement planning mistakes you can make
is to underestimate the amount you’ll need to save by the time you
retire. It’s often repeated that you’ll need 70% to 80% of your pre-retirement
income after you retire. However, the problem with this approach is that it doesn’t account
for your specific situation.

Focus on your actual expenses today and think
about whether they’ll stay the same, increase, decrease, or even disappear by
the time you retire. While some expenses may disappear, like a mortgage or
costs for commuting to and from work, other
expenses, such as health care and insurance, may increase as you age. If travel or hobby activities are going to
be part of your retirement, be sure to factor in these costs as well. And don’t forget to take into account the potential impact of inflation and taxes.

Identify your sources of income

Your
next step is to assess how prepared you (or you and your spouse, if you’re married) are. What sources of income will be available to you? Does your
employer offer a traditional pension? You can likely count on Social Security to provide a portion of your
retirement income. Other sources may include a 401(k) or
other retirement plan, IRAs, annuities, and other investments. The amount of
income you receive from those sources will depend on the amount you invest, the
investment rate of return, and other factors. Finally, if you plan to work
during retirement, your earnings will be another source of income.

When you compare your projected expenses to your anticipated sources of retirement income, you may find that you won’t have enough income to meet your needs and goals. Closing this difference, or gap, is an important part of your retirement income plan. In general, if you face a shortfall, you’ll have five options: save more now, delay retirement or work during retirement, try to increase the earnings on your retirement assets, find new sources of retirement income, or plan to spend less during retirement.

Transitioning into retirement

Even after that special day comes, you’ll still have work to do. You’ll need to carefully manage your
assets so that your retirement savings will last as long as you need them to.

• Review your portfolio regularly.
  Traditional wisdom holds that retirees should value the
  safety of their principal above all else. For this reason, some people shift
  their investment portfolio to fixed-income investments, such as bonds and money
  market accounts, as they enter retirement. The problem with this approach is
  that you’ll effectively lose purchasing power if the return on your investments
  doesn’t keep up with inflation.
  While it generally makes sense for your portfolio to become
  progressively more conservative as you grow older, it may be wise to consider
  maintaining at least a portion in growth investments.
• Spend wisely. You want to be careful not to spend too much too soon. This
  can be a great temptation, particularly early in retirement.
  A good guideline is to make sure your annual withdrawal rate
  isn’t greater than 4% to 6% of your portfolio. (The appropriate percentage for
  you will depend on a number of factors, including the length of your payout
  period and your portfolio’s asset allocation.) Remember that if you whittle
  away your principal too quickly, you may not be able to earn enough on the
  remaining principal to carry you through the later years.
• Understand your retirement plan distribution options.
  Most pension plans pay benefits in the form of an annuity.
  If you’re married, you generally must choose between a higher retirement benefit
  that ends when your spouse dies, or a smaller benefit that continues in whole or in part to the surviving spouse. A financial professional can help you with this difficult,
  but important, decision.
• Consider which assets to use first. For many retirees, the answer is simple in theory: withdraw money from taxable
  accounts first, then tax-deferred accounts, and lastly tax-free accounts. By
  using your tax-favored accounts last and avoiding taxes as long as possible,
  you’ll keep more of your retirement dollars working for you.
  However, this approach isn’t right for everyone. And don’t forget to
  plan for required distributions.
  You must generally begin taking minimum
  distributions from employer retirement plans and traditional IRAs when you
  reach age 73 (75 for those who reach age 73 after December 31, 2032), whether you need them or not. Plan to spend these dollars first
  in retirement.
• Consider purchasing an immediate annuity. Annuities are able to offer something unique — a guaranteed income
  stream for the rest of your life or for the combined lives of you and your
  spouse (although that guarantee is subject to the claims-paying ability and financial strength of the
  issuer). The obvious advantage in the context of retirement income planning is
  that you can use an annuity to lock in a predictable annual income stream, not
  subject to investment risk, that you can’t outlive.*

Unfortunately, there’s no one-size-fits-all when it comes to retirement income planning. A financial professional can review your circumstances, help you sort through your options, and help develop a plan that’s right for you.