Investing Hurdles: Women Must Jump Higher

While retirement planning can be challenging for anyone, women may have additional hurdles to overcome.

Consider: 50 percent of working women and 80 percent of retired women today have no pensions. Women 65 and older are the fastest-growing group of people in poverty, and 75 percent of the elderly poor are women.

There are many reasons for this, starting with women's work experience. Despite progress, women still earn an average of 76 cents for every $1 a man makes. Women often spend fewer years in the workplace, often leaving to care for children or parents.

And until 1997, a husband and wife could contribute only $2,250 per year into individual retirement accounts (IRAs) when only one spouse worked. It is now $4,000 - a nonworking spouse can tuck away $2,000.

Add the fact that women tend to live five to seven years longer than men, and uncertainty about Social Security, and retirement planning can seem like a bad joke.

But the challenges don't mean you can't reach some level of financial security. You may have to adjust your expectations along the way. But if you are a woman with some planning to do, the following steps will help you reach your goals.

Retirement income generally comes from three sources: Social Security, pensions, and personal savings. For the majority of women retirees today, Social Security is the primary source of income. But Social Security may not be the same for our daughters as it was for our mothers.

Social Security

Make sure you receive all that you are entitled to from Social Security by requesting an "earnings and benefit estimate statement" from the Social Security Administration. If there are errors in recording your contributions, you have up to three years to correct them, so it's a good idea to review the report every three years. The phone number is 800-772-1213. You can also ask about the benefits you may be entitled to based on your husband's or ex-husband's earnings.

Help from your employer

Company pension plans have gone the way of the dinosaur recently, with companies eliminating plans that guaranteed a fixed income, and replacing them with plans that offer no guarantees. Whatever type of plan is offered, take full advantage of it.

First, make sure you understand how the plan works, especially eligibility and vesting rules.

Next, begin saving as soon as you can. If your employer matches your tax-deferred contributions into a 401(k)-type plan, you should contribute at least enough to qualify for the match. It's free money!

In fact, you should contribute the most you can afford, and if you think that is 5 percent of your salary, try saving 6 percent. You probably will not miss the money in your paycheck, but the extra saving really adds up over time. When you get raises, try saving the additional money. Currently, the maximum you can save in a 401(k) plan is $9,500 per year. Once you reach the maximum, consider contributing to an IRA account as well.

Divorcees should see whether or not they are entitled to 50 percent of their ex-husband's retirement plans. This ideally should be dealt with in the divorce settlement, not in a separate suit after the divorce is final.

Save on your own

The third source of income is personal savings. Many retirees living on golf courses in Arizona today reaped big profits when they sold their homes. Unfortunately real estate prices during the 1990s have stagnated, so you will have to actively save and invest more of your income.

Automatic savings make the task easier. You can set up a monthly deduction from your checking account for mutual fund investment.

Many companies, including McDonald's and IBM, offer direct investment in their stock, bypassing broker commissions. After a small initial investment, you can invest monthly from your bank account. And instead of taking dividends or interest in cash, you can reinvest them in additional shares.

Developing a retirement plan is more than saving money, however. You need to set a goal, and create guideposts along the way to make sure you are staying on course. Helpful resources may include books, mutual fund companies, brokers, or your company's human resources department. A more personalized plan can be prepared by a financial planner.

Remember, companies and government probably won't play as big a role in retirement as they have in the past. So start planning and saving now and take control of your financial future.