Women and Retirement: Can You Afford Not to Save?

Carrie Schwab-Pomerantz on

Dear Carrie: For the past three years, my 29-year-old daughter has been working for a good company that offers a 401(k), but she still hasn't started to contribute. She says she can't afford it. How can I persuade her to get going? -- A Reader

Dear Reader: I wish I had enough space in this column to share with your daughter the myriad stories I've heard from women about their retirement worries. At 29, your daughter may feel she has lots of time to save, but just talk to someone 65 or 75 who's struggling with limited retirement income and the need to start saving early comes through loud and clear.

In fact, there's been a fair amount of press recently about how women are falling behind in retirement savings. There are lots of explanations: Women put others' needs first, or they believe they can rely on their husbands for retirement, or they're more risk-averse when it comes to investing. But the hard truth is that we need to take care of ourselves.

Statistically, women live longer than men -- and according to a 2012 report by the Department of Health and Human Services, titled "A Profile of Older Americans," almost half of women 75 or older live alone. Yet a 2013 publication by the Department of Labor, titled "Women and Retirement Savings," reports that only 45 percent of American working women participate in a retirement plan. Another hard reality is that women still earn roughly three-fourths of what men earn, which means their Social Security benefits are less.

To me, all this adds up to a clear wake-up call -- one that women would be smart to heed as soon as they start working.

But knowing you need to do it and actually getting started are two different things. You might open your daughter's eyes with this information, but the way to really get her going might be to give her some practical guidance. Here's my advice.



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Help your daughter focus on her 401(k) options. First, does the company offer both a traditional and a Roth 401(k)? Contributions to a traditional 401(k) account are tax-deductible, which would lower her taxable income now; however, she'd pay income taxes on withdrawals come retirement time. With a Roth 401(k), there's no upfront tax deduction, but withdrawals at retirement are tax-free. If it's available, a Roth can be a good choice for a young person who will most likely be in a higher tax bracket come retirement.

Next, have her find out whether her company matches employees' 401(k) contributions and, if so, how much that is. As an example, let's say your daughter's company will contribute 50 cents for every dollar she contributes to her 401(k) plan, up to 6 percent of her salary. At the very least, wouldn't she be able to contribute that 6 percent in order to gain an additional 3 percent?


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