You’ve Barely Started Saving for Retirement: Now What?

It’s not as hard as you think.

It’s tax season — and while some of you may be internally cringing at the mention — it’s the perfect time to stash a bit more into your retirement account.

You can make contributions to your 2016 IRA account until the tax deadline of April 18 — and often those contributions are tax-deductible.

Women now live longer than men, so they need more money for retirement. At the same time, they’re more likely to opt out of the workforce or have interruptions to their careers, meaning they earn less over their lifetimes. So it’s no surprise that women often fall behind on saving for retirement.

“They need more money, but they’re in a situation where they’ll save less,” says Cindy Hounsell, president of the Women’s Institute For A Secure Retirement, a nonprofit focusing on the long-term financial health of women. If you’ve fallen behind on savings for retirement — or just need to get started — here’s how to make up for lost time:

Get Started Today (Yes, Today)

Many women are intimidated by the retirement savings process and delay starting until they’re on better financial ground. But the better option is get started immediately.

There is no perfect day to put aside a portion of your income each month for retirement. “If you’re waiting for that day, it’s not going to happen,” Hounsell says.

Plus, the options for retirement can be overwhelming. An individual retirement account (IRA) is a popular option, although you have to choose whether to open a traditional IRA or a Roth IRA, which have different tax advantages. If you have a 401(k) offered through an employer, it’s a great idea to take advantage of it, especially if the employer matches a percentage of your contributions.

But looking for the perfect plan can also waste more time, so do a quick search for a low-fee, low-minimum plan and start tucking money away today. In general, Hounsell says a Roth IRA is a good place to start.

“Fees are important, but starting is more important than fees,” she explains.

Once you’ve started and are more comfortable with saving, you can change to a plan that better suits your particular needs if need be. Put away whatever you can afford, working toward the goal of saving the recommended percentages based on your age and when you’d like to retire.

Hounsell puts it simply.

“This stuff is not as hard as people think,” she says. “All you have to know is put some away and don’t pay a lot in fees.”

Be Realistic, but Make Big Changes

If you’re starting to save for retirement in your forties or fifties, you’re going to need to be extra disciplined and aggressive in order to save an adequate amount.

“You can pretty much always fix it,” Hounsell says, “but it may mean drastic cuts [to] what you’re doing.”

Here’s a comparison to get you started: If you start saving for retirement in your twenties, you need to put aside 10 to 15 percent of your gross income to retire comfortably. But if you wait until you’re in your 40s, that number jumps to 25 to 40 percent; and if you are 45 or older, it’s 40 to 60 percent.

One woman that Hounsell worked with sold her car and used public transportation in order to save more each month for her retirement. Others downsize their house or stop eating out. Although these changes can be painful, the reality is that people who are making up for lost time need to contribute extra to their retirement accounts in order to live comfortably in retirement.

“People think they can catch up, but it’s hard to [do so] unless you’re doing something drastic or changing your lifestyle,” Hounsell says.

There are also two factors that can dramatically affect your retirement savings: compound interest, which helps grow your retirement savings more quickly; and inflation, currently at about 2.5 percent, which means that your money will actually be worth less 20 or 30 years from now when you retire.

Keep in mind that the IRS allows those who are “catching up” to contribute more to their retirement plans. For example, if you’re over 50 you can contribute up to $6,500 a year to your IRA, $1,000 more than people under 50.

“That’s your goal,” Hounsell says. “You have to reach for that.”

Prioritize Yourself and Ask Tough Questions

Women too often fall into the trap of taking care of other people’s needs before their own. If you’re helping out adult children or paying bills for your parents before contributing to your retirement, that’s got to change.

“You always have to focus on yourself first,” says Joanna Leng, a financial advisor in Singapore who recently left her position as a Senior Estate Planner at Rockwills to begin her own practice working specifically with single parents.

Just as you’re told to apply your oxygen mask before assisting others on a plane, you must get your own financial house in order before supporting your loved ones. “If you cannot take care of yourselves you cannot take care of [others],” Leng explains.

In the same vein, important to talk openly about whether your partner is contributing to a retirement plan. Often, partners will split household bills based on take-home pay, and you may not realize your partner is saving 15 percent while you aren’t saving at all, Hounsell says.

“You need to know that,” Hounsell says. If you’re splitting expenses, may sure you are both taking equal opportunity to save for the future.

With single parents, there can be a temptation to put their children’s needs first.

“[It can be] very emotional,” Leng says, pointing out that parents often feel guilty for having to work, or for raising their child without a second parent, and try to overcompensate by spending on the child.

But for single parents there is an even greater need to have sound financial planning, since they’re unable to fall back on a partner’s retirement savings, Leng says.

“Ultimately it’s even more pressure on them,” Leng says. “They need to know where the money is going to come from.”

While starting retirement savings early is really your best bet, Hounsell stresses that it’s never too late to start.

“You definitely have time,” she says. “You better decide to save and stick to it.”

Join the Discussion

2 Responses to “You’ve Barely Started Saving for Retirement: Now What?”

  1. Hillary

    I think you mean to say that women will “earn less over their lifetimes”. I doubt our propensity to change careers or interrupt work patterns results in our learning less :).

  2. mcspencer

    As someone who didn’t even start an IRA till I was 47, and have barely contributed anything to it, I know this topic all too well! I wanted to bring up a couple of issues.

    First, for most of my working life I’ve been a freelance consultant, and my income varies quite a bit month to month and year to year. And I’m a writer, mostly for the nonprofit world, which is a relatively low-income profession. In the past, there were times when I could barely afford monthly expenses, much less set anything aside. If one is in this position, it would seem to make more sense to focus on creating income stability, such that one can eventually afford to set aside a certain sum for retirement, no matter what. I myself was only able to do this by paying off all of my debt first. Now I focus on saving, albeit playing catch-up in a major way.

    Second, that $6,500 annual limit for IRA contributions for those over 50 means you can save more if you want, but you won’t be able to stick it into your IRA that year. It’ll just go into a savings account or CD and you’ll have to pay tax on the interest. It’s still worth doing, of course.

    I happen to be lucky in that I’m married and my husband has a 403(b), which has a much higher annual contribution limit. Thus he’s able to sock alot of money away that we’ll be able to share in retirement, and which I’ll inherit if he predeceases me. However, getting married is never the answer to a women’s financial challenges! It just creates some options you might not otherwise have.