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Get Moving On Your Retirement
Now is the time to maximize your retirement options.
by Ilyce R. Glink
December 1, 2005
S
he's a single mom of three, a full-time pharmacist and part-time medical reporter who
also runs a hot website that tracks media happenings in Atlanta. Her total annual income is around
$112,000, plus the $1,200 per month she receives in child support.
While she knows her pharma and her media, Kemi Olunloyo-Lane, 41, hasn't quite figured out
how she's going to fund her own retirement.
"I used to own a Roth IRA and I had a one-year CD. I cashed out both to help pay for my
brother's funeral," she says. "And that's about it."
No 401(k) plan, no pension plan, no fat brokerage or savings accounts. Like so many
well-paid professional women, Olunloyo-Lane hasn't spent much time on her future. After all, it's
probably more than 25 years away, if she retires at all. Instead, she spends her free moments
working out what will happen to her children in case something happens to her.
"The majority of people haven't sat down to calculate what they need for retirement,"
explains San Francisco-based Carrie Schwab Pomerantz, chief strategist of consumer education for
Charles Schwab & Co. "We're juggling a lot of responsibilities in our lives, and we put our
financial life on the back burner."
According to a series of studies that Schwab commissioned several years ago, women and men
have very different reactions to the idea of investing and retirement. Part of this stems from how
our parents raised us: The studies found that parents typically talk to their sons about estate
planning, wills and the stock market, and to their daughters about saving and budgeting, a gender
gap that Schwab Pomerantz says is slowly changing. Still, far too many women than is acceptable
lack confidence in their investing abilities.
But if you add that lack of confidence and the lack of knowledge to the pace of atypical
family's life, it isn't surprising to find that the vast majority of women aren't saving enough -
or anything- for retirement.
How much is enough? Schwab Pomerantz uses this measuring stick: For every $1,000 in monthly
income you need for retirement, you need to save $300,000. So, someone who requires $75,000 in
annual income will need to have saved $1.9 million by the time she retires.
Or, think about it this way: Mark Gibbs, a financial planner and Certified Public Accountant in Buford, Ga., tells his clients that if they make $100,000 now, thanks to inflation they'll need to earn $281,000 in retirement to maintain the same standard of living.
To get that kind of annual income, you'll need to have saved over $7 million by the time you hit retirement.
Those are scary numbers for some of Helga Cuthbert's clients. The Decatur, Ga.-based financial planner has a number of women clients who are in their 30s. They're single, married, newly divorced, or new moms, and almost every one is carrying an enormous load of debt.
"My single clients who are in their 30s carry more than $10,000 in debt on their credit cards, plus student loans. They come to me because they have a fairly good income of more than $75,000 per year, and they're starting to realize that they aren't paying off their debts and they're not contributing to their retirement," Cuthbert explains.
In other words, they've chosen to sacrifice their future in order to get by in style in the present.
Nancy (her name has been changed), 34, is an attorney who earns $85,000 a year. She's never been married, and at one time carried so much debt that she entered the Consumer Credit Counseling Service (CCCS) of Greater Atlanta's debt management program. Recently, she bought a house and racked up another $3,000 indebt by furnishing it, Cuthbert says, noting that unexpected auto repairs, school debt payments, car payments, and other "necessities" of life have contributed to her client's debt load.
"She set up her credit card on auto pay and then made the mistake of never looking at the bills," Cuthbert notes. "She wasn't aware of how fast her debt was growing."
If you don't pay attention to what you're spending today, it's difficult to accumulate enough wealth to carry you through 30 or even 40 years in retirement.
"What concerns me is the number of women who don't take planning for retirement seriously," says Suzanne Boas, president of CCCS of Greater Atlanta.
Boas points to the number of women who will go into retirement as a single person, either because they have been divorced or widowed. "Too many women expect that Prince Charming will take care of them and this isn't a very realistic way to plan for their future."
But a prince can quickly turn into a pauper. One of Gibbs' clients is a physician who earns more than $150,000 per year. Unfortunately, his wife is on disability and they cover her medical expenses out-of-pocket, plus the $466,000 in debt they're carrying means they're living paycheck to paycheck. The 39-year-old doctor recently cashed in part of his 401(k) to pay down $54,000 in credit card debt.
Taking Charge
The trick to saving for retirement is to start early. Boas says she has contributed the maximum allowed to her retirement plans since she started her first job in her early 20s. While she says she doesn't have a "magic number," she is concerned about knowing that she won't outlive her money.
"My husband and I use a fee-only financial planner and have a good insurance agent. And together we have a 95 percent confidence that we won't out liveour money," she says.
Retirement experts often trot out the example that if you put $2,000 away each year from age 25 to 35, you'll have more in the bank than if you start at 35 and keep putting $2,000 away each year until you're 65.
But what do you do if you're 35, 45 or even 55 and have saved only a few thousand bucks for your golden years?
Well, winning the lottery is one idea. Or, you can bite the bullet and start salting away as much cash as possible. Of course, it would help if you first enrolled in your employer's 401(k) plan. In the 12 years Olunloyo-Lanelived in Boston and worked for CVS, she never enrolled in the company's 401(k) plan. She has just become eligible for her new employer's 401(k). She's planning on filling out the paperwork before the end of the year.
That's one important step. Here are four others: Ilyce Glink is a Chicago-based syndicated columnist who has written many financial books. She hosts"The Ilyce Glink Show" on Sundays on WSB radio.
Painless Tips For Saving
PUT THE MAXIMUM AWAY IN YOUR 401(K), 403(B) OR SELF-EMPLOYED 401(K) PLAN
If your company offers you a match, it's a no-brainer. Not putting in enough cash to take advantage of the match is like leaving free money on the table, Gibbs says. But he takes it a step further. "Even if your company doesn't match your savings at all, you should still save the maxi-mum in your 401(k) account. It grows tax-free and is deducted from your paycheck so you don't pay the tax on it now."
You'll feel less of a pinch than you think: For each $100 you salt away in your 401(k), only $60 comes out of your paycheck because of the tax benefit.
For 2006, employees can put in up to $15,000 into their 401(k) plan. If you're over 50 years old, you can add another $5,000. If you're a self-employed entrepreneur, or if you only employ yourself and your spouse, you can salt away up to $44,000 each in 2006 inside a self-employed 401(k).
The nice thing about the self-employed 401(k) plan is that it gives you the flexibility to put away a different amount each year. You're not locked into a mandatory contribution if your cash flow ebbs.
FIND OUT IF YOU CAN TAKE ADVANTAGE OF THE ROTH 401(K)
Starting January 1, 2006, employers can offer a Roth 401(k). Like a Roth IRA, a Roth 401(k) is funded with after-tax dollars. Even after maxing out a conventional 401(k) retirement plan, any employee (there is no income limit) may invest another $15,000 in after-tax dollars into the Roth 401(k).Since you've already paid taxes on the cash, the remaining dollars will grow tax-free.
While the Roth 401(k) is set to expire in 2010, salting away $15,000 per year that would grow tax-free would help even the biggest retirement procrastinator to do some fast catch-up work with extraordinary tax benefits.
"I'm excited about the Roth 401(k) because I think we're at the lowest tax rate that we're going to be at," Gibbs says. "I expect taxes will go up (eventually) to pay down the national debt."
Ask your company's benefits manager if the company will be adding a Roth 401(k) to your retirement benefits.
ONCE YOU PUT THE CASH IN, DIVERSIFY YOUR INVESTMENTS.
It turns out, if you put all your eggs in one basket, half will probably crack.
"Diversification is key to successful investing," notes Schwab Pomerantz. "You have to be invested in a multitude of large and small companies and international companies as well. If you're 55 or younger, at least 80 percent of your money should be in stocks. And, don't be too conservative. That can be a downfall for women."
If you don't take enough risk with your retirement dollars, you run the risk of not earning enough in your money to support 30 or even 40 years in retirement. You also run the risk that inflation will cut into your quality of life.
KNOW WHAT YOU HAVE, AND WHAT YOUR SPOUSE OR PARTNER HAS DONE WITH IT.
Cuthbert says her clients that are 50 and older, who are married, are not only conservative, but they tend not to have any idea of what they have, or why it is invested the way it is.
"They don't understand investments, but they're aware enough to know they don't want to be sold anything," Cuthbert adds.
To fan their interest, Cuthbert gives her clients recommended reading. She tends to start out with Smart Women Finish Rich, before moving onto other personal finance titles.
But reading won't pay the rent once you're retired. Leading the golden life in your golden years takes action. And the best day to start is now.
Ilyce Glink is a Chicago-based syndicated columnist who has written many financial books. She hosts "The Ilyce Glink Show" on Sundays on WSB radio.
