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Oct. 22, 2016, 10:42 a.m. EDT

Retirement planning for women

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By Andrea Coombes, MarketWatch


Trying to plan for your retirement? If you’re a woman, the bad news is that you face some specific challenges that men don’t. The good news? Women tend to invest and save in a way that bodes well for their retirement success.

There’s more good news: retirement planning is not rocket science. By following the key strategies detailed below, women can go a long way in preparing for a financially stable future. And that future is helped by general characteristics that women tend to exhibit more than men.

Specifically, women’s tendency to stick with a long-term investment plan — rather than trading in and out of investments the way men are likelier to do — leads to higher returns over time. Plus, men are often more confident than women of their own investing skills. While confidence isn’t a bad thing in and of itself, when it comes to investing, confidence can lead to problems, such as buying into companies or mutual funds without doing enough research. Women tend to ask more questions before investing, financial advisers say, and then once they decide on the investment plan that’s right for them, they stick with it.

Of course, women comprise a lot of different types of people, living in many different financial situations. Whether you’re single or married, wealthy or not: these and other factors will affect how you plan and save for retirement. But the strategies below are a good place to start for people in just about any situation.

Step 1. Start saving, and then save more

By now, just about everyone knows it’s important to save for retirement. Currently, the average Social Security payment is about $1,320 a month. That’s just $15,840 a year. Most Americans would like to be able to spend more than that in retirement. If you’re among them, it’s never too late to ramp up your savings and invest so your money can grow. (Keep in mind that if you’re five years or less out from retirement, it’s important to review carefully how much money you have invested in the stock market. Any money you’re going to need in five years should be in a safer investment, because you may not have time to recover from stock-market losses in such a short time period.)

For women, the directive to save is even more important than for men. Why? On average, women live at least a couple of years longer than men. Plus, women are likelier to take time off from the workforce — generally to care for children or elders — and that can lead to lower lifetime savings.

So, next question: How much should you be saving each month? If you’re too busy with life to get down to specifics, then one rule of thumb is to save 20% of your income. If you’re not there yet, that’s OK; just set 20% as your goal and ramp up your savings rate each year, plus every time you get a raise or an unexpected windfall.

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If you’re ready to get into the details of how much you need to save for retirement, then consider this: focus on your spending. Estimating how much you will spend in retirement helps clarify what you need to save. The easiest way to start is to track current spending — use Excel or try an online tool like Mint — and then figure out which of your current expenses will remain a part of your lifestyle when you’re retired. And don’t forget to add in any projected retirement expenses, such as health-care costs.

Looking at your spending now can yield myriad benefits. For one, it may help you identify ways to cut costs now, while you’re working. That has two benefits: it increases the amount of money you can stash away now, and it helps you prepare now to live on less in retirement. If you can resist that pricey tech toy that you want but don’t need, or start cooking more at home, your future retirement could be a lot more relaxing.

To figure out how much in total you need for retirement savings, consider the 4% rule. That rule says you can withdraw 4% of your money in the first year of retirement — assuming it’s invested in a diversified investment portfolio — and the same amount, adjusted for inflation, each year after that. Your portfolio will survive as long as you do. (Now, given ultralow bond rates and lower expected stock-market returns, some financial experts say a 3% rule makes more sense.)

The 4% rule makes it easy to figure out how much you need to save. Just multiply your annual spending amount by 25 to get the total dollar amount of savings you need to have on hand before you retire. For example, if you expect to spend $30,000 a year from retirement savings (not counting Social Security or other sources of income), then you need to save $750,000 before you retire.

Step 2. Invest your savings

So, you’re on board and you’re either saving 20% of your salary or you’re on track to do so. Well done! Now what? You want to invest that savings so you can enjoy long-term gains. Here are some tips on investing.

First, stash some reserves.

Investing is important. But don’t put all of your money in illiquid (read: hard to cash out) accounts. When the car breaks down, you want to have money set aside, available, to pay for that bill. Whatever you do, you don’t want to rack up credit-card debt to pay for emergencies. To clarify: it does make sense to pay with your credit card for reward points and cash, but only if you’re able to pay off the full bill, not just the minimum payment, each and every month.

Where your emergency reserves should sit is the question. You don’t want that money in your 401(k) or other retirement account, because these so-called “qualified” accounts, aka “tax-advantaged,” will charge you a hefty penalty, plus taxes, if you withdraw money early. (The exception is Roth IRAs, from which you can, in some cases, withdraw your contributions, not your earnings, without taxes or penalty. But be sure to read the rules carefully before thinking of your Roth as an emergency savings account.)

One idea: Store your emergency savings in an online savings account. While banks aren’t paying much interest on savings these days, online bank accounts generally pay more than do banks that have actual branches you can walk into. Consider setting up an automatic transfer so that a small amount goes from your checking account into that savings account every month. When you’re hit with an unexpected expense — and it will happen — use your credit card to pay (and earn rewards) and then transfer the necessary funds from the online bank to the bank account from which you pay your credit-card bills.

Another question is how much to set aside in emergency reserves: financial planners these days often advocate six months to one years’ worth of salary. If that seems overwhelming to you, start small and build from there. You’ll feel better having even a couple hundred dollars stashed away.

Next, invest your retirement savings

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