As an employee benefits attorney, I am troubled by the statistics that show that Americans of all ages are financially ill-prepared for their retirement years. For women, this is caused and compounded by a myriad of factors, including a longer life expectancy than men, income disparities, maternity and other leave time away from the workforce, child and elder care expenses, and conservative or lack of financial planning. For busy working women juggling many responsibilities, it is imperative to carve out the time to purposefully and responsibly plan for retirement.
If your employer provides employee benefits such as a 401(k) plan, it is crucial to participate in the plan. Employers undertake a lot of responsibility and expense making retirement plans available for their employees, and this benefit should not be left on the table. If your employer does not offer retirement benefit plans, it is all the more important to establish your own individual retirement savings program. Follow these tips when setting up an action plan for 2013:
- Enroll and Contribute. If your employer offers a 401(k) plan or similar contribution plan, enroll and contribute as much as you can up to the maximum limit allowed. The elective contribution maximum limit for employees who participate in 401(k), 403(b), and most 457 plans is $17,500 for 2013. If you are age 50 or older, you might also be able to make an additional catch-up contribution to your 401(k), 403(b), and most 457 plans up to $5,500 in 2013. If you contribute to a 401(k) plan on a pre-tax basis, you will be able to lower the income that you pay taxes on in the year of the contribution as well as obtain tax-free earnings on the investments that grow while the money is in the plan. If you contribute to a Roth 401(k), you will not lower your income taxation as a result of the contribution, but your withdrawals in retirement will not be taxed (under current law). Some employers might even provide a matching contribution—such as 50% of your contribution up to 6% of your salary—that you can only obtain if you contribute to the plan. It is important to become familiar with your plan and all of its features, including any vesting requirements for employer contributions. Figure out how to contribute to the plan in an amount that is comfortable for you but also sufficient to contribute to your living expenses in retirement.
- Confirm Automatic Enrollment Status. If you were automatically enrolled in an employer plan, you should consider taking a more active role in the program and adjusting your contribution level and investment selections. You might not even realize what percentage of your salary is being contributed to the plan or what it is invested in. If you are able to contribute more than the default amount of your salary that was chosen for you in an automatic enrollment, increase your contribution level and select investment options that make sense for you.
- Review Plan Investment Information. Become familiar with your plan investment information, fee, and expense disclosures. Make sure that you understand the investment options under the plan and are making informed choices and actively managing your account. Seek out resources of information that may be available from your employer, plan service provider, online educational tools, or other plan literature and documents, including your summary plan description and investment prospectuses.
- Save in an IRA. If you do not have access to an employer-sponsored retirement plan, consider establishing your own individual retirement account. IRS Publication 590provides valuable information regarding individual retirement accounts and how they may fit into your overall financial plan. If you do contribute to an employer sponsored plan, or if your income exceeds the limits for the different types of IRAs available, consider making a non-tax-deductible contribution a traditional IRA. You can still benefit from tax-free growth on your investment earnings. You can even make an IRA contribution for 2012 by April 15, 2013. The limit for 2012 contributions was $5,000, increased to $5,500 for 2013.
- Educate Yourself. There are plenty of books, manuals, and articles available on retirement and financial planning. Start at the Women And Retirement Savings Web page, created by the U.S. Department of Labor’s Employee Benefits Security Administration. This page provides resources for assistance with retirement planning, such as the publications titled Savings Fitness: A Guide to Your Money and Your Financial Futureand Taking the Mystery Out of Retirement Planning. Explore all the options available to you, as well as consider other issues, such as health insurance and life insurance. If you already know the basics and want help getting to the next level and managing investments, consider seeking professional assistance with a financial planner.
There is no guarantee that these retirement savings programs will always be available. Employers can amend or terminate plans, and the laws can change. While you have access to retirement savings vehicles, take advantage of them. Get a game plan together and figure out what you can save for retirement. When retirement day arrives, you will be glad that you took these actions.