A Woman’s Roadmap to Retirement

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Did you know that approximately 50% of women between the ages of 55 and 66 have no personal retirement savings, according to the U.S. Census Bureau?

The truth is, for many women, growing personal retirement savings often falls to the back burner. Time out of the workforce negatively impacts women’s ability to save toward retirement, and women are generally more likely than men to take on childcare and leave the workforce for some time. 

That same U.S. Census Bureau study further shows 38.2% of women with one life partner and children are likely to have no retirement savings at all (compared to 34% of women who have no children). Women are also more likely to reduce their professional obligations to care for aging parents or family members. 

Also critical to remember? On average, women still earn less than men do. Some studies show women earn approximately 30% less than their male counterparts for equal work and experience, and that gap continues to grow as women age. 

This alarming pay gap coupled with time out of the workforce (often spurred by societal expectations of being a caregiver in some capacity throughout life) offers context for why women who are nearing retirement may find themselves without savings. 

However, it also offers motivation. With all of these factors working against women as they try to save for retirement, it’s essential women develop their own unique retirement plan to start moving towards their goals. 

It starts with “putting on your own mask” first. For example, make sure you are not giving money to or supporting your adult children to the detriment of your own financial well-being. I’ve had widowed clients who feel the extra burden of being the only parent left to provide for their children. But when your “child” is 29 and has a job but wants a nicer apartment, you don’t need to be the one to make that happen. Family emergencies aside, make sure you have a solid financial plan yourself before trying to provide for your adult children. They’ll be okay.

So how do you get to where you want to be? By following a clear retirement roadmap that can be implemented whether you’re 5, 10, or 15+ years away from retirement. Today, we’ll cover:

  1. How to define your retirement lifestyle. 
  2. The best way to assess some ballpark savings goals, and how to estimate your retirement spending.
  3. Understanding how to structure your retirement nest egg for longevity.
  4. How health insurance impacts your retirement plan. 
  5. Different “levers” available to you, and how to prioritize your lifestyle goals.

Ready? Let’s explore.

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Defining Your Retirement Lifestyle

How do you want retirement to look for you? Too often, retirement is viewed as an end point. But that’s not necessarily the case. On average, most women retire around age 64, but most women in the United States have a life expectancy of just over 79 years

In other words, your next chapter could be 15 years or longer.

This is why being thoughtful about your ideal retirement lifestyle matters. After all, if you’re going to spend 18% (or more) of your life retired, it’s worth spending it on what you love doing most.

There are often three different ways of viewing retirement:

  1. Traditional retirement. This is what many people picture when they think of retirement. More time spent with family, pursuing hobbies, and enjoying travel. 
  2. Encore career. If you loved your career prior to retiring or have always been passionate about a specific industry, you might consider pursuing an encore career. This might look like starting a new business, consulting in your previous industry or for your pre-retirement company, or joining a board of directors. 
  3. Alternate lifestyle options. You may not be interested in continuing traditional work but you may want something more exciting to fill your time with. If this sounds like you, you might look at some fulfilling alternate lifestyle options. This could be non-profit work, volunteering, or getting involved with a community organization.

Decide what sounds right to you – and know that it can shift and change. You may decide to take a few years “off” to be traditionally retired, then pivot to part-time volunteering or consulting work if the traditional path wasn’t as appealing as you hoped.

With this in mind, you can begin forming some loose goals for your retirement lifestyle. These include where you want to live, how much you’d like to travel, and whether or not you’ll pursue a different career path that will provide more cash flow during retirement. 

How Much Do You Need in Retirement?

With your retirement lifestyle in mind, you can work to “reverse engineer” some numbers. It’s helpful to get a baseline on what you currently spend as you start this process. Here are some initial steps:

Check your current living expenses. It’s important not to “ballpark” or guess at these numbers. Instead, check your bank or credit statements over the past two to five years and see what your average spending is – these records won’t lie! It’s better to get an honest representation of what you currently spend in your day-to-day pre-retirement than to guesstimate how much you spend. 

Cut expenses related to your job. When you retire, some of your current expenses may become obsolete. For example, if each day at the office you eat lunch out, that may stop once you’re home and able to enjoy your own midday cooking. Alternatively, if you have significant transportation costs due to a lengthy commute, you may be able to eliminate those from your retirement spending projections.

Add new expenses. Retirement is a fantastic time to try new things – but these lifestyle changes may come with shifting expenses. Travel, new hobbies, or other purchases (like a home renovation) should be reflected in your retirement spending projections. 

Understanding health insurance needs in retirement. Estimating Medicare or third-party health insurance costs can help you get a true sense of what you should plan on saving in your health savings account (HSA) pre-retirement, and how it will impact your overall spending. Health care needs will differ from person to person, but it’s wise to calculate a few basic expenses: 

  1. Medicare Parts A through D. You will likely need Medicare Part A, B, and D, or a Medicare Advantage plan to meet your basic health care needs. 
  2. Long-term care expenses. Although not everyone will need long-term care in retirement, approximately 70% of people aged 65 and older will need long-term care at some point in their lives. Planning for these costs in advance can be helped by saving through your HSA and/or through obtaining long-term care insurance. 

Determining your cash flow needs. Based on your current lifestyle costs (and future expenses you anticipate), you can start seeing what your cash flow needs will be in retirement. While these projections won’t be perfect, they’re a solid starting point for understanding what you’ll need each year to live comfortably. If you’re uncertain what this means for your overall savings goals, it’s useful to plan for longevity. 

For example, if you estimate you’ll need $70,000 per year to live your preferred lifestyle in retirement, you might plan to be retired from age 67 through 90 (or even 100). This would mean planning for anywhere between 23 to 33 years. Life expectancy is a tricky thing to calculate and is dependent on many factors like your current health and family history. However, planning to live for longer than you expect can help ensure continued financial stability as you age. 

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Where Does Cash Flow Come From in Retirement?

Now that you’ve worked through your ideal retirement lifestyle and what your cash flow needs will be, you can start mapping out a cash flow or savings strategy. Retirement cash flow comes from a few different places:

  1. Social Security benefits
  2. Retirement savings
  3. Pension
  4. Income you generate in retirement (from part time work, consulting, etc.)

To determine how much cash flow you might have in retirement, you can estimate what to expect from each of these income sources. There are several resources available to help you create these numbers. Start with a Social Security benefits calculator and a retirement savings calculator to see how much these two sources will contribute to your expected cash flow. Once you’ve done that, you can estimate pension benefits and alternate income next.

Filling Your Savings “Buckets”

Although many retirees rely on Social Security and/or pension benefits as a large part of their cash flow, the number one thing you can control in the run up to retirement is saving. By saving early and often, you give yourself a better chance of growing a nest egg (and taking advantage of compound interest) that lets you live comfortably in retirement and leave an impactful legacy long after you pass away. 

As you near retirement, it’s helpful to think of your savings in three different buckets:

  1. Short-term (5 years post-retirement)
  2. Mid-term (5 to 10 years post-retirement)
  3. Long-term (10+ years post-retirement)

These buckets are invested differently based on your investment horizon, or when you’ll need the money you’ve set aside for retirement. 

For example, your short-term bucket may include relatively low risk bonds because you want to preserve your nest egg value. Your long-term bucket may be invested in somewhat higher risk mutual funds or exchange-traded funds (ETFs) because you have more time to increase the value of that portfolio section, as well as to “bounce back” from market turbulence since you won’t need those funds right away to support your daily spending.

Save Smart

In the run up to retirement, your job then is to fill these savings “buckets.” When you know what your spending projections are, and whether or not you’ll receive income from other sources (like Social Security or a pension), you can start saving in a way that supports your retirement lifestyle goals. A few questions you might ask yourself are:

  1. How much should I have saved in each of my retirement “buckets”? 
  2. Do I have any anticipated expenses in early retirement that may require a larger “short-term bucket” savings?
  3. Based on how much I’ve saved, when should I take my Social Security benefit to maximize retirement cash flow? 
  4. Will I need to put more money away for long-term savings needs, such as long-term care facility costs? 

Knowing how much you need to save to reach your goals lets you prioritize saving in a systematic way. Automated savings is essential. I’ve had clients say when they ‘set it and forget it’ – meaning using auto-deductions from their paycheck, as well as not changing their long-term investment strategy when the market is going haywire – they can’t believe how quickly their savings add up.

Pulling “Levers” to Create Your Unique Retirement Roadmap

Congratulations. You’ve created clear goals for your retirement lifestyle and have some general ideas of how much you’ll need to save to meet your needs. Now for the real question: Does what you’re currently doing to save (or reduce expenses) match with your savings goals? 

A benefit of doing this level of retirement planning early is that nothing is set in stone yet. If it seems like the gap between what you’ll need in retirement and what you’re projected to have saved is too wide, there’s still plenty of time to make adjustments and foster success. If it looks like your cash flow needs will exceed the types of savings and incoming retirement “salary” (i.e. savings, Social Security benefits, etc.), it may be time to pull some different levers.

It helps some people to think of retirement planning as a gamified process of sorts where you pull different “levers” to move forward. There are many levers at your disposal, and here’s how you can pull them to move closer toward your goals.

Reconsider your living situation. One major expense that may be eating into your retirement cash flow is your mortgage payments and utilities. The bigger the property you have, the more expensive it is to maintain and manage. If you’re looking to free up cash flow, you might:

  1. Prioritize paying off your mortgage prior to retirement. 
  2. Downsize to a smaller, less expensive property. This could also help you prioritize your cash flow to spend on travel or other fulfilling things in this next season of life. 

Cut expenses. Mortgage aside, it may be time to make additional cuts to free up cash flow. Setting expectations early before making the leap to retirement can help. For example, if your travel or eating out budget is too high, you can make intentional lifestyle decisions that still fulfill you daily. This might look like hosting dinner parties to connect with your community in lieu of expensive dinners out. Even small changes can go a long way.

Continuing to work. Whether you love your current job and want to delay retirement, or you want to find another full- or part-time opportunity, this can be a fantastic option. Continuing to work allows you to increase cash flow and boost your savings (or pay down debt prior to making the full transition to retirement).

Save more. Your final “lever” may be simply to increase your rate of savings prior to retirement. If your calculations are coming up short of what you’ll need to live a lifestyle you love, and if the disparity isn’t too big, you can increase contributions to your retirement savings accounts for several years to “bridge the gap.” This could mean maxing out your 401(k) at work, opening an IRA, or even funding a brokerage account.

After You’re Retired

Once you’ve made the transition to retirement, you’ll have two additional considerations added into the planning mix:

  1. Taxes.
  2. Required Minimum Distributions (RMDs).

Taxes. In retirement, all of your income sources (Social Security, savings distributions, pension, etc.) are pooled together to calculate your income tax. However, some savings accounts (like a Roth 401(k) or Roth IRA) have taxes withheld up front when funding the accounts prior to retirement. As a result, withdrawals from these accounts aren’t taxed in retirement. 

Required Minimum Distributions. When you retire, your employer-sponsored retirement savings accounts (think 401(k)s, 403(b)s, 457 plans) all have Required Minimum Distributions (RMDs). RMDs also apply to Traditional IRAs, SEP IRAs, and SIMPLE IRAs. The SECURE Act 2.0 raised the age for RMDs to 73. The amount you must withdraw is based on your age and the sum of your accounts that require a distribution. If you don’t take your RMDs on time, you will face hefty tax penalties on the money you didn’t withdraw.

Mapping Your Future

When you’re clear on your destination, it’s easier to get from Point A to Point B. The same is true for retirement planning. Once you know the type of retirement lifestyle you’d like to have, and once you have clarity around the financial variables involved, you can build a unique retirement roadmap that helps move you toward your goals. 

Once you have these in place, I advise clients to not look at their retirement account statements more than once or twice a year. Clients often come to a meeting apologizing for ‘not paying attention’ to their accounts. If you are making regular, automated deposits, and the funds are getting invested in a healthy mix of stocks and bonds appropriate for your stage in life (meaning no cash or money market funds in a retirement account ever!), most of us are better off not looking at the account values going up and down. 

Why? Because history shows us these values will go up over the long term. But sometimes the bumpy ride along the way causes people to shoot themselves in the foot by putting their money in cash when they become afraid of the volatility. You wouldn’t jump off a rollercoaster on the way down, right? 

Keep your seatbelt on (that is the part where you are auto-saving) and trust in over 100 years of history that your balance will go up over time. As long as you know your contributions are getting auto-invested and not sitting in cash, looking at the account value too often can be a big mistake.

Interested in learning more? Abacus is here for your financial needs. Whether you’re figuring out how to start saving for retirement or you want to amplify your efforts, we’re here to answer any questions you may have. Reach out today and schedule a call.

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