A recent report from the Economic Policy Institute revealed that women and singles of both genders face challenges when it comes to saving for retirement. They also tend to be less prepared than others.
Perhaps even more concerning, many single men and women now on the brink of retirement (age 56 to 61) have failed to save anything all, according to the report.
Entering your golden years without a dime in the bank can be frightening, and one financial expert chalks it up to a variety of issues.
For women (single or otherwise,) it’s a complicated matter tied to such things as the wage gap, and the fact that many women put their careers on hold to take care of children or other family members. Among married women, there can be a tendency to leave retirement preparations to their spouse.
For single men, their decision to forgo building a retirement nest egg may come down to their views on life.
“Some singles have the mindset that they can easily compromise on everything since they only have themselves to care for,” said Joanna Leng, a single mother and financial planner who advocates for financial empowerment among women. “Singles also have the assumption that they can always find simple work in life during their latter years.”
And then there’s single parents, who face still a different set of challenges, simply trying to make ends meet and often neglecting retirement savings in the process.
With all of these folks in mind, we talked to some financial advisers to get their top tips for getting on better financial footing.
Start Saving/Save More
Even if you don’t end up doing anything with the money, it’s much wiser to save for retirement than to forgo it altogether.
“Make it a monthly habit and change your mindset,” said Leng.
If you’re still young, you don’t have to start big if making ends meet is an issue. The point is to be consistent and over time the money will build up.
“Don’t be disheartened because it might not be a lot,” continued Leng. “It’s developing the consistent habit that matters. And 3% to 5% percent is good for a start. Then, as kids grow up, you can probably increase what you’re saving.”
There’s a variety of savings options to choose from, including simple savings accounts, employer-sponsored retirement programs such as a 401K and individual retirement accounts (IRAs).
If you’re getting close to retirement, you’ll want to max out your contributions.
If you have access to a 401K, it’s probably your best bet for making up for lost time. The upshot of using a 401K for retirement savings is that contributions come from pre-tax income and thus lower your taxable earnings and your annual tax bill. In addition, employers often contribute to your retirement savings by kicking in matching funds.
“To also help to counter the lower pay issue, women should be contributing as much as possible to their tax-advantaged, employer-sponsored retirement accounts and taking full advantage of the match,” said Sherrie E. Grabot, founder and CEO of GuidedChoice, an advisory firm focused on helping people retire. “If they’re not contributing enough to get the full match they are leaving money on the table that years later can make a big difference.”
Traditional & Roth IRAs
For those who don’t have access to a 401K, traditional and Roth IRAs are a solid alternative. Both allow you to set aside money for retirement that’s invested in stocks, bonds, mutual funds and other assets. One of the biggest differences between the two IRAs is how and when they’re taxed. With a traditional IRA your contributions are tax deductible at year’s end on both state and federal tax returns. The taxes are paid upon withdrawal in retirement. Contributions to a Roth are already taxed so are not able to be deducted each year, but the money you withdraw during retirement will not be taxed. With both a traditional and Roth IRA accounts, you can contribute up to $5,500 annually, plus an extra $1,000 for those over 50.
A simple savings account is a good place to start the habit of saving, but it typically provides the least growth for your money, as banks offer minimal interest on your deposit. Savings accounts are great for small emergency funds, however, as they’re completely liquid.
Keep in mind, your credit scores can cost more than you’re able to save if they aren’t very good. A mortgage and even an auto loan will end up costing you more if your credit scores are weak. You can keep track of your credit standing using Credit.com’s Credit Report Summary, which provides your free credit scores.
Get a Part-Time Job or Plan to Work Longer
If you’re married and relying on a partner for retirement savings, you may want to consider getting a part-time job. The money can be used both to help the family and to create a retirement nest egg.
What’s more, with the exploding gig economy, there are more options than ever to do work based on your talents and availability. Thanks to sites like TaskRabbit, Postmates, Amazon Flex and Etsy, to name a few, earning additional income without overhauling your lifestyle is possible.
“If for example, your kids are in school and you’re able to do something part-time, that’s a great way to bring in extra money,” said Leng.
If you’re older and don’t have the savings to retire, you may have to look at postponing retirement. It will not only give you the chance to save more but also reduce the retirement time you’ll need to save for.
Develop an Action Plan
One of the most critical steps to help get your retirement on track is developing an action plan and sticking to it.
Creating an action plan begins with establishing a retirement goal, which includes identifying your ideal retirement age and what sort of retirement lifestyle you’d like to have. This exercise will help you come up with a ballpark amount of money you’ll need for retirement.
After that, do the math to figure out how much you must save each week and month to reach your goals, reviewing how much you’re currently setting aside for retirement, and whether you’re on track to achieve your desired end point.
If you’re not already setting aside enough money to reach your retirement goals, part of your action plan will be establishing a new savings budget.
Some experts say it’s also a good idea to create five-year milestones, which serve as markers by which you should have accumulated a certain amount of money to reach your final goal.
And finally, an action plan can also include a debt repayment plan, so you’re not heading off into retirement with sky-high bills.
This can sound a little dizzying for some, so it’s a good idea to consider seeking out a financial professional who can help develop a realistic, manageable path to retirement.
“Having some sort of retirement income planning help and support … can help [people] understand all of the factors and decisions that go into creating a sustainable retirement income and help them make more informed decisions,” said Grabot.
Be Prepared to Make Tradeoffs
Getting serious about retirement will likely involve making some tradeoffs.
When financial experts say this they mean cutting some expenses now so you’re able to save more for retirement. The budget cuts could involve downsizing where you live, going clothes shopping less or eliminating cable television. It doesn’t really matter what you choose, the point is to take a look at your spending and decide what can be eliminated in favor of preparing for your future.
Be Honest With Yourself
Brutal honesty is your best friend when it comes to retirement.
Be truly honest about how much you’re spending to live right now. Sit down and do the math. Then, identify the age you plan to retire and add 20 years to that. Those are all years you’ll need income, so it’s a good idea to come up with a ballpark figure to get you through those years.
“Total up how much you will need to set aside from now until retirement to help you reach that goal,” said Leng. “Life is brutal. So the kindest thing you can do for yourself is be honest.”