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Are you facing a retirement income gap? Have you ever heard the saying what you don't know can't hurt you? "There is no shame in not knowing, the shame lies in not finding out" ~ Russian Proverb. It is never too soon to start planning your retirement income strategy. I can help, please read on, your retirement may depend on it.
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Dolf Dunn Wealth Management, LLCDolf Dunn, CPA/PFS,CFP®,CPWA®,CDFA
Private Wealth Manager11330 Vanstory Drive
Suite 101Huntersville, NC 28078
The Retirement Income Gender Gap--Dealing with a Shortfall
April 01, 2013
When you determine your retirement income needs,you make your projections based on the type oflifestyle you plan to have and the desired timing ofyour retirement. However, you may find that reality isnot in sync with your projections, and it looks like yourretirement income will be insufficient to meet yourestimated expenses during retirement. This is called aprojected income shortfall.
There are many reasons why women, on average,are more likely than men to face a retirement incomeshortfall. Because women's careers are ofteninterrupted to care for children or elderly parents, theymay spend less time in the workforce. When they'reworking, women tend to earn less than men in similarjobs, and they're more likely to work part-time. As aresult, their retirement plan balances and SocialSecurity benefits are often smaller. Compounding theproblem is the fact that women often start savinglater, save less, and invest more conservatively thanmen, which decreases their chances of havingenough income in retirement.1 And because womentend to live longer than men, retirement assets mayneed to last longer.
If you (or you and your spouse) find yourself facing ashortfall, the best solution will depend on severalfactors, including the severity of your projected deficit,the length of time remaining before retirement, andhow long you need your retirement income to last. Ingeneral, you have five options--save more now, delayretirement, find new sources of retirement income,spend less during retirement, and/or seek to increasethe earnings on your retirement assets (but by doingso you could also increase your risk of loss).
Save more, spend less nowSave as much as you can. Take advantage of IRAs,employer plans like 401(k)s, and annuities, whereinvestment earnings can potentially grow tax deferred(or, in the case of Roth accounts, tax free). Utilizespecial "catch-up" rules that let you makecontributions over and above the normal limits once
you've reached age 50 (you can contribute an extra$1,000 to IRAs, and an extra $5,500 to 401(k) plansin 2013). If your employer matches your contributions,try to contribute at least as much as necessary to getthe maximum company match--it's free money.
If you don't have enough discretionary income to savemore for retirement, try adjusting your spendinghabits to free up more cash. Depending on how manyyears you have before retirement, you may be able toget by with only minor changes to your spendinghabits. However, if retirement is only a few yearsaway, or you expect to fall far short of your retirementincome needs, you may need to change yourspending patterns drastically to save enough to coverthe shortfall. You should create a written budget soyou can easily see where your money goes andwhere you can reduce your spending.
Delay retirementOne way of dealing with a projected income shortfallis for you (or your spouse, or both of you) to stay inthe workforce longer than you had planned. This mayallow you to continue supporting yourself with a salaryrather than dipping into your retirement savings.
Delaying retirement might allow you to delay takingSocial Security benefits (which may increase yourbenefit) and/or delay taking distributions from yourretirement accounts. The longer you can delaytapping into your retirement accounts, the longer themoney will last when you do begin drawing downthose funds. Plus, the longer you delay retirement,the longer you may be able to contribute to anemployer-sponsored retirement plan, or earnadditional pension benefits.
While you might hesitate to start on a new career pathlate in life, there may actually be certain uniqueopportunities that would not have been available toyou earlier in life. For example, you might considerentering the consulting field, based on the expertiseyou have gained through a lifetime of employment.
If you (or you and yourspouse) find yourselffacing a shortfall, thebest solution will dependon several factors,including the severity ofyour projected deficit, thelength of time remainingbefore retirement, andhow long you need yourretirement income to last.
Page 1 of 2, see disclaimer on final page
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for anyindividual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performancereferenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with aqualified tax advisor.
Securities offered through LPL Financial, Member FINRA/SIPC
Consider investing moreaggressivelyIf you are facing a projected income shortfall, youmay want to revisit your investment choices,particularly if you're still at least 10-15 years fromretirement. If you're willing to accept more risk, youmay be able to increase your potential return.However, there are no guarantees; as you take onmore risk, your potential for loss (including the risk ofloss of principal) grows as well.
It's not uncommon for individuals to make the mistakeof investing too conservatively for their retirementgoals. For example, if a large portion of yourretirement dollars is in low interest earningfixed-income investments, be aware that the return onsuch investments may not outpace the rate ofinflation. By contrast, equity investments--i.e., stocksand stock mutual funds2 --generally expose you togreater investment risk, but may have the potential toprovide greater returns.
Your investment portfolio will likely be one of yourmajor sources of retirement income. As such, it isimportant to make sure that your level of risk, yourchoice of investment vehicles, and your assetallocation are appropriate considering your long-termobjectives. While you don't want to lose yourinvestment principal, you also don't want to lose out toinflation. A review of your investment portfolio isessential in determining whether your current returnsare adequate to help you meet your goals.
Use your homeThere are a number of ways you can use your hometo help you spend less, and free up cash to savemore. Consider using home equity financing toconsolidate outstanding loans and reduce yourinterest costs or monthly payment (but becareful--increasing your debt could put you at risk oflosing your home if you can't make the increasedpayments). If you're still paying off your homemortgage, consider refinancing your mortgage ifinterest rates have dropped since you took the loan.
You may also be able to use your home as a sourceof income during retirement. If you're willing to move,you may be able to free up a large amount of cash byselling your home. How much you'll realize dependson the amount of equity you have and where you'lllive when the "sold" sign appears in front of yourhouse. You could rent, live with your children, buy a
smaller home or a condominium, or move into aretirement community. If you don't want to sell yourhome, and you have extra space, you might considerrenting out a room.
Reevaluate your expectationsIf your projected income shortfall is severe enough orif time is too tight, you may realize that no matter whatmeasures you take, you will not be able to afford thelifestyle you want during your retirement years. Youmay simply have to accept the fact that yourretirement will not be the jet-setting, luxurious,permanent vacation you had envisioned. In otherwords, you will have to lower your expectations andaccept a more realistic standard of living. Recognizethe difference between the things you want and thethings you need, and you'll have an easier timedeciding where you can make adjustments. Here area few suggestions:
• Reduce your housing expectations. Perhapsyou've always planned to live out retirement in aluxury beachfront community. If you are facing asignificant income shortfall, you might have toshop around for a more affordable housing optionin a less exclusive location.
• Cut down on travel plans. If you'd always plannedan extended tour of Europe or a cruise around theworld to celebrate your retirement, you may haveto downgrade these plans to a driving trip to visitrelatives or a train trip across the Rockies. Simpletrips can be just as much fun as extravagantvacations, and they don't put as big a dent in yourretirement funds.
• Consider a less expensive automobile. You maydream of driving a shiny new car off the dealer's lotright after you collect your retirement gift from youremployer, but shiny new cars come with big, thickpayment books. Consider purchasing a used car ofthe type you want. If you must have a new car,think about buying a less expensive model.
• Lower household expenses. There are numerousways to decrease your everyday expenses. Youmight find that simply cutting back on yourspending (for example, eating out less often) willhelp stretch your retirement dollars.
As a woman, you face special retirement planningchallenges, but with careful planning you'll hopefullybe on track to a secure, fulfilling retirement.
Sources:1 U.S. Department ofLabor, "Women andRetirement Savings,"(October 2008); U.S.Government AccountabilityOffice, "RetirementSecurity," (October 2007).2 Before investing in amutual fund, carefullyconsider the investmentobjectives, risks, charges,and expenses of the fund.This information can befound in the prospectus,which can be obtained fromthe fund. Read it carefullybefore investing.
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