Women and Retirement Savings

By: Marta V. Plampin

Women and men are Venus and Mars not only when it comes to communication styles. They’re often worlds apart in the challenges they face to build their retirement nest egg. Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, women now have more opportunities to save for a more comfortable and secure financial future. First let’s look at the unique challenges many women face:

– Women tend to earn less than men in the workplace – on average about 76 cents for every dollar earned by men.

– Further curtailing earnings, women often spend long periods out of the workforce to raise children or care for elderly relatives.

– Lower pay and less time in the workforce often result in smaller retirement portfolios and lower company pension benefits for women. For the same reasons, women’s Social Security benefits may also be lower than those of men.

– Even though women typically receive lower pay and benefits, they most likely will need a larger retirement nest egg than men require. That’s because women generally live longer than men and must finance more years in retirement.

– Although married women may share their husbands’ savings, those assets may be quickly depleted if he becomes ill and dies first – which, considering life expectancy, is often the case.

Despite the challenges, women can have the retirement of their dreams. One of the best ways to help ensure a financially healthy retirement is to invest regularly in an IRA. An IRA is a way to save for retirement that offers certain tax benefits.

Higher IRA contribution limits

Under the new tax laws, you can invest more in an IRA than before. Annual contribution limits for both traditional and Roth IRAs increased from $2,000 to $3,000 for 2002, allowing you to take advantage of the opportunity to begin saving more for retirement right away. The limits will continue rising from $3,000 in 2002 to $5,000 in 2008 – and after that they will be indexed to inflation and raised in $500 increments.

Catch-up provisions

The new tax laws help older workers „catch up” on contributions to their retirement savings. This is good news for women whose saving plans may have fallen behind because of time out of the workforce raising children or providing other caregiving. People 50 years and older are now able to contribute an additional $500 per year to their IRA beginning this tax year through 2005, and up to $1,000 for 2006 and later.

Greater portability of retirement savings

The recent tax law changes have also increased the portability of retirement savings. This is particularly important for women who have changed jobs, taken time off to raise a family or inherited retirement accounts from a husband or parents. Portability means you can move or roll over your assets or a deceased spouse’s assets from former employer retirement plans into an IRA and consolidate them into one account. By consolidating your retirement savings into one account, investing, monitoring and rebalancing your retirement funds should be quicker and easier. And if you consolidate your funds at a financial services firm, you may also have a wider choice of retirement investments and a relationship with a financial advisor who can provide planning and support.

Other benefits of a consolidated IRA include potential cost savings, since you may save money by having one account and paying a single IRA fee, and less paperwork, because you receive one consolidated statement that includes all your IRA assets. You may also benefit from simpler asset allocation, as one account makes it easier to review and reallocate your IRA funds so they remain aligned with your goals, and ease of distribution, since taking required minimum distributions from a single account is easier than from multiple accounts.

How to get started

Whether you’re just starting to think about retirement or are well on your way toward your goal, now’s a great time to check into the new IRA opportunities available. A knowledgeable financial advisor can provide details on the new tax law – and can help you create a financial plan, choose investments for your objectives and update your plan as your finances evolve over time.

U.S. Department of Labor, Bureau of Labor Statistics, August 2001

Marta V. Plampin
Personal Financial Advisor
American Express Financial Advisors Inc. (847) 993-1534


American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer.

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