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Planning and saving for retirement may seem like goals
that are far in the future. Yet saving, especially for retirement, should
start early and continue throughout your lifetime. Here are four reasons
why saving matters to women – and especially to you!
Women are more likely to work in
part-time jobs that don't qualify for a retirement plan. And working
women are more likely than men to interrupt their careers to take care
of family members. Therefore, they work fewer years and contribute less toward their retirement, resulting in lower lifetime savings. If you work and if you qualify, join a retirement plan now.
Of the 62 million wage and salaried
women (age 21 to 64) working in the United States, just 45 percent participated in a retirement
plan. Remember, even small amounts can earn interest and add up over
On average, a female retiring at age
65 can expect to live another 19 years, 3 years longer than a man retiring at the same age. Savings can increase a woman's
chances of having enough money to last during her retirement.
By and large, women invest more
conservatively than men. Choose carefully where you put your money and
learn how to make your investments grow.
Here are eight questions to help you think about retirement
and take charge of your financial future:
If your employer offers a retirement plan, join it as soon as
you can and contribute as much as the plan allows. Most employers with a
401(k) plan match a fixed percentage of the employee's contribution. The most common match is
50 percent of the employee's contribution up to a maximum percentage of wages or salary (usually 6 percent). The majority of employers offer 50 percent or more. That's like getting
free money! While all job categories may not be included in your employer’s
plan (those of part-time or temporary workers, for instance), your job may
be one that is.
Remember, by saving early you have time on your side. Your savings will grow
and your earnings will compound over time.
In many companies, you may have to work for 5 years to become eligible
to receive retirement benefits. Some workplaces have a shorter vesting period
(vesting simply means that you have worked long enough to earn the right to
benefits from a savings or pension plan).
Too often employees, especially women, quit work, transfer to another job,
or interrupt their work lives just short of the time required to become
vested. Ask the personnel office, retirement plan administrator, or union
representative about the vesting period and other details of your company’s
In addition to asking questions of company or retirement plan officials,
you should keep copies of the summary plan description (SPD) and any
amendments. The SPD is a document that retirement plan administrators are
required to prepare, and it outlines your benefits and how they are
calculated. The SPD also spells out the financial consequences – usually a
reduction in benefits – if you decide to retire early (earlier than age 65
in many plans). You probably received a copy of the SPD when you joined the
pension or savings plan, but you may request another one from your employer
or plan administrator. Also remember to keep retirement-related records from
all jobs. They provide valuable information about your benefit rights, even
when you no longer work for a company.
You may lose the retirement benefits you have earned if you leave your job
before you are vested. However, once vested, you have the right to receive
benefits even when you leave your job. In such cases, the company may allow,
or in certain cases may insist, that you take your retirement benefits in a lump
sum when you leave. However, other companies may not permit you to receive
your money until retirement. The rules for your plan are spelled out
in the SPD.
A word of caution: If you receive your retirement benefits in a lump sum, you will owe
additional income taxes, and may owe a penalty tax. A better way is to
reinvest your savings in another qualified retirement plan or an Individual
Retirement Account (IRA) within 60 days. You avoid tax penalties and you
keep your long-term retirement goals on track.
If you do want to reinvest the money, it is important that you do not
directly receive it. If you receive the money directly, you will have to pay
a 20 percent withholding tax on the amount you receive and then file for a
refund in the next year, providing proof that you have transferred the funds
to an IRA. Instead, instruct the retirement plan to transfer your money
directly to an IRA you have established or to another qualified retirement
plan. This is easy to do using simple forms supplied by the new plan. If you
want help with the forms, representatives of the plan are generally
available to assist you.
Anyone receiving compensation or married to someone receiving
compensation can contribute to an IRA. In addition, if you are
self-employed, you can start a Simplified Employment Plan
(SEP) or a Savings Incentive Match Plan for Employees of Small Employers
As with other retirement savings plans, there may be tax consequences, and
possibly penalties, if you withdraw your savings early.
More women than ever work, pay Social Security taxes, and earn credit
toward a monthly income at retirement. These earnings can mean some income
for you and your family in the form of monthly benefits if you become
disabled and can no longer work. If you die, your survivors may be eligible
for benefits. In addition, you may be eligible for Social Security benefits
through your husband’s work and can receive benefits when he retires or if
he becomes disabled or dies. Special rules apply if you and your husband
have been employed and both have paid into Social Security. Special rules
also apply if you are divorced or if you have a government retirement plan.
To calculate your benefit estimate, visit the Social
Security Administration’s Web site.
As part of a divorce or legal separation, you may be able to obtain
rights to a portion of your spouse’s retirement benefit (or he may be able to
obtain a portion of yours). In most private-sector plans, this is
done using a qualified domestic relations order (QDRO) issued by the court.
You or your attorney should consult your spouse’s plan
administrator to determine what requirements the QDRO must meet.
The rules are different for defined contribution and defined benefit
If you or your spouse belong to a defined benefit plan (a traditional
pension plan), the surviving spouse may be entitled to receive a survivor
benefit when the enrolled employee dies. This survivor benefit is automatic
unless both spouses agree, in writing, to forfeit the benefit. You will need
to check the SPD or consult with the plan administrator regarding survivor
annuities or other death benefits.
If you are a beneficiary under your spouse’s defined benefit pension plan,
you may want to request a copy of the SPD and other plan documents that
describe your spouse’s vested benefits. You will probably want to make the
request in writing, and you may be charged a fee for the information.
The rules may be different if you or your spouse participate in a defined
contribution plan (such as a 401(k) plan). Consult the plan administrator
for details about spousal rights.
Once you’ve answered these questions, you’re on the road to learning
more about financial freedom. As a resource for women (and men), the
Employee Benefits Security Administration has issued Savings
Fitness: A Guide to Your Money and Your Financial Future and Taking the Mystery Out of Retirement Planning. The booklets
include resources and Web site sections (see the Resources section to get a copy).
U.S. Department of Labor
Employee Benefits Security Administration
Publication request line: 1.866.444.EBSA (3272)
Web site: www.dol.gov/ebsa
View the following booklets on the Web
site. Request copies by calling the publication request line.
Top 10 Ways to Prepare for Retirement [View]
Savings Fitness: A Guide to Your Money and
Your Financial Future [View]
Taking The Mystery Out Of Retirement
What You Should Know about Your Retirement
Filing A Claim For Your Retirement Benefits [View]
QDROs - The Division of Retirement Benefits through Qualified Domestic Relations Orders [View]
In addition, visit the following Web sites for more help: