retirement planning for baby boomers

What Boomer Women Need to Know About Retirement Planning

Women-walking on the road-baby boomer women and retirement

If you are a baby boomer woman, you have probably spent most of your adult life rushing around and trying to do everything. You try to be a wife and a mother. You try to build a career, take care of your family, and pay the bills on time. Some days it feels like we do not have a life because we have to take care of so many things.

For many women in their 50s and 60s, it was normal to stop working when you started a family and had kids. Many women stayed home for years or worked part-time to help make ends meet. Because they put their family first their career opportunities were limited and resulted in lower wages, limited savings, and smaller Social Security benefits.

I have read many articles discussing why baby boomer’s generation is way behind on saving for retirement and how to help them. Baby boomer women often described as farther behind on retirement planning goals than men.

As women, we tend to let investing, financial and retirement planning responsibility fall on the men in our lives. Traditionally it has been the husband who took care of investments and financial planning, while the wife took care of the family.

“Among women aged 65 and up, the poverty rate remains nearly double that of men in the same age group. And, even though they will statistically live longer than men, many women are less likely to have planned or saved enough for retirement.” From Kiplinger, by Linda Gardner

Article from Kiplinger: Baby Boomer Women Have a Big Retirement Problem

Here are several reasons why baby boomer women need to have their own money in retirement:

Women live longer than men.

On average, we live 5 years longer than men. If we do not have enough savings to cover these years many of us will be at high risk of living in poverty in old age. Another sad truth about old age is that these years are not usually cheap or healthy. This means if we live longer than our men, we need to have more retirement resources than they have.

The truth is many women will likely take the sole responsibility of their finances at some point in their lives. Some women will remain single, but others will be divorced or widowed. If statistics show that we will outlive our husbands, it means that many of us could lose some of our husband’s pension or their Social Security benefits.

Another truth is if we will live longer there is a high chance that the financial burden of caring for our elderly parents or in-laws will fall on our shoulders.

Women earn less money than men.

Women still typically earn 25 percent less than men. The good news for women that we live in a new age where the barriers holding us back for so long seem to be declining. And yet there are still many obstacles to overcome.

Many baby boomer women did not have a steady career. Most of their lives they worked part-time or for small firms and non-profits. In many cases, it means they did not have access to an employer-sponsored retirement plan like 401(k) and they did not save enough money for retirement.

Women take time off to raise a family.

Many baby boomer women took time off to raise kids. Some of us still need to take time off to care for aging parents or a family member. It made harder for us to save as much as men. Unfortunately, a common mistake among boomer women is not to give retirement savings a high enough importance. We care for our families before we take care of ourselves.

If you are in your 50’s or 60’s and have not taken retirement planning seriously there is still time to change it.

Many women in their 50’s and 60’s feel that managing finances are not for them or men could be more qualified to handle their finances. After all, we carry so many responsibilities on our shoulders that there is no time to manage finances.

I am with you. I am making the same excuses and wish life would be easier. However, we cannot just sit here and wait for a happy retirement without taking certain steps.

How to save and invest for retirement for baby boomer women:

Get a clear picture of your financial situation.

woman writing on paper-retirement planning for baby boomer women

Start by creating a personal balance sheet. The first step is to get organized and get your financial numbers on a sheet. If your husband already has these numbers, ask him to share details with you. And if he does not have all financial information on one sheet you should prepare it together.

You do not need to go fancy and use a digital spreadsheet if you do not feel comfortable. Use old-school paper and pencil and start with ballpark numbers.

First, you want to see what you have – what do you own and what do you owe.

What are your assets?

The current value of your home
The current value of your cars (a boat?)
Value of your vacation home or rental property (if you have one)
How much money do you have in retirement accounts including 401(k), IRA, Roth IRA?
How much money do you have in a bank savings account?

What are your liabilities or debt?

Your mortgage balances
Car loan
Student Loan
Credit card debt
Other loans

Create a budget and incorporate your savings goals.

Second, if you do not have a budget, you need to create one now. Budgeting will create a framework for your finances. Thus, it will help you understand where your money is going each month. If you do not know how you spend your money there is not any leftover to save.

The main goal of creating a budget is to incorporate your savings goals.

After creating your personal balance sheet, you will get an idea of how much you have saved for retirement. If it is not enough there is still time to save more.

In our family my husband Roman takes care of budgeting, paying bills, and day-to-day money management. And I take care of retirement accounts and investment account portfolio. Every 3 months we get together and discuss our budget and our savings goals. We both like to use Excel spreadsheets for money management purpose. But for our meetings we put all numbers on the paper, so we can both see our progress.

Prepare a retirement budget and see if you have enough retirement income.

After you set up a budget it will be easier to start working on your retirement budget. The main goal of preparing a retirement budget is to see how to cover your retirement expenses while living on a fixed income.

On average you can live on 70 to 80 percent of your current income in retirement. Preparing a retirement budget will help to see if you have enough money to retire. If you are still working you have time to add to your savings, pay off debt, and change your spending habits.

Save more money.

If you are in your 50s or 60s and still working, it is not too late to save more for retirement. Part of the solution is simple – start saving more by spending less and putting extra cash into retirement accounts.

Start with employer-sponsored plan 401(k).

How much do you contribute to your 401(k) plan?
Are you making a catch-up contribution to your retirement account?

I understand that the idea of contributing a portion of your gross pay to a retirement plan makes sense, but maybe not feasible for many women. I hear you. I struggle with it myself. But with every dollar I do not spend today and contribute extra to my 401(k) I make my retirement more financially secure. My goal is to save up to 20 percent of my income.

For 2020, the IRS allows us to save $19,500 a year to a 401(k). For people age 50 and over the IRS allows an additional $6,500 a year contribution. The total contribution limit is $26,000 a year. Also, you can contribute $6,000 a year to an IRA. Additionally, for age 50 and over you can contribute an extra $1,000 a year to an IRA. The total contribution limit is $7,000 a year to an IRA.

Here is a simple example of how to improve your retirement savings. Maxing-out your 401(k) with a catch-up contribution of $6,500 a year and earning a 6 percent average annual return, will help you to accumulate around $97,300 extra in 10 years.

Learn how to invest your savings.

Learning how to invest is important for women of all ages. I read that many baby boomer women are worried about the nut and bolts of investing and making perfect investment choices. However, many studies have shown that women are confident investors when they learn how to do it.

First, you have to decide how to invest within your retirement accounts, including 401(k), IRA, and Roth IRA. It is recommended to invest in the mixture of stocks, bonds, and cash associated with your retirement goals, age, and risk tolerance. A moderate portfolio should include 60 stocks and 40 bonds. If you do not feel confident to invest in individual stocks and bonds you may find it easier to invest in mutual funds.

Second, within your retirement portfolio money should be diversified more to reduce the risk. For stocks, it is recommended to spread your money between large, mid, and small size companies in addition to the international companies and real estate. With bonds, it is recommended to spread money between long-term, mid-term, and short-term US bonds and international bonds.

Talk to a financial advisor.

people siting at cafe tables - meeting with financial advisor

As a woman, you might take care of the family budget, but your husband always took care of finances and meeting with financial advisors. For years financial planning and investing were your husband’s sole responsibility that is why you never paid enough attention to it. But you need to change it now.

You need to schedule a meeting with your financial advisor and go there with your husband. You need to discuss retirement planning, investment strategies, Social Security strategies, and more. Ask about possible ways to withdraw money from your retirement accounts to minimize taxes and penalties.

You have to be actively engaged in retirement and financial planning meetings with your advisor. Otherwise, if your husband dies you may struggle to understand your financial situation.

Final Thoughts

Many baby boomers are looking forward to a happy and secure retirement. But the process of preparing for retirement is not the same for everyone. Baby boomer women may have some unique challenges on their way to retirement. That is why retirement planning can be quite different for them.

But the time has never been more right for us as women to take control of our finances. We do not want to put our heads in the sand anymore. We want to take our financial security in our hands even it will take time to learn the nuts and bolts of retirement planning.

Do you feel prepared for retirement? Do you have your own money saved for retirement?

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Disclosure: This information is only educational. I am not providing any specific financial advice or recommendations to any of my readers.

How to Prepare a Retirement Budget in 5 Simple Steps

by Maggie 4 Comments

two women with laptop at the table-retirement budget

There is a fear of running out of money in retirement among many baby boomers. As boomer women, we live longer than men, but our savings are not always enough to last long in retirement.

The main goal of retirement planning is to see how to cover your retirement expenses while living on a fixed income. Part of creating a solid retirement plan is to understand your retirement income and expenses. That means you need a retirement budget.

The best advice is to start planning when you are still working and can adjust the numbers. Preparing retirement budget will help to see if you have enough money to retire. If you are still working you have time to add to your savings, pay off debt and change your spending habits.

How do you prepare a retirement budget? I will take you through 5 simple steps.

Step 1. Calculate your retirement income

bees flying over lavender-preparing retirement budget

The more sources of retirement income you have the better off you will be in your golden years. The income in retirement will come from different sources. For many retirees, a Social Security paycheck will be the ONLY income. Other retirees will have an additional income coming from 401(k), IRA, Roth IRA, savings, annuities, dividends, and/or rental properties.

Start with Social Security and find out how much you will get paid once you retire at 62, at full retirement age which 66 or 67 for most of us or delay it until you turn 70.

Social Security website will help you to open an account if you do not have one and find out the size of your guaranteed paycheck.

Social Security website

The next source to consider is pension income. Most Americans do not have pensions anymore. But if you are lucky and have a pension add the estimated paycheck to your Social Security.

Then, look at your retirement accounts including 401(k), IRA and Roth IRA and calculate the balance on all of them.

After you calculated your retirement savings balance, find out how much it will grow in the next 5 or 10 years. For example, you have saved $200,000 on your retirement accounts. If this money grows at 6 percent per year, it will be worth $267,645 in 5 years or $358,170 in 10 years. I like to use an online calculator for estimating my investment portfolio growth:

Smart Asset investment calculator

Using a 4 percent safe withdrawal rule will help to see how much income you can generate from retirement accounts. It would generate around $10,405 or $14,326 a year of income.

Finally, calculate the total of your combined retirement income:

SSB + pension + retirement accounts + bank savings balance + rental income + business income = combined retirement income.

Step 2. Estimate your retirement expenses.

man using notepad and laptop-preparing retirement budget

Step 2 will help to find out how much money you need in retirement by accurately projecting your retirement expenses. It is easier to control your spending than retirement income. And we all know that if we spend less than our monthly income, our retirement funds will last longer.

A simple way to estimate your retirement expenses is to know where and how you spend your money today while still working.

Divide your expenses into 3 main categories:

Essential – need to have
Non-essential – want to have
Unexpected and/or one-time expenses

Label your expenses as either essential or non-essential. It will help to see where your money is going.

Essential expenses – need to have:

Your essential expenses are expenses you cannot live without in retirement:

Mortgage or rent
Utilities
Transportation
Food
Medical

When you retire, you will still have to spend money on these expenses each month. But how it will change in the future when you stop working?

Here are the same budget categories but the cost of it might change when you retire.

Housing – Are you planning to downsize, pay off your mortgage, rent, or relocate to a more affordable place? You have to include the property taxes and maintenance costs if you’re an owner.
Utilities – Cost of utilities might go up or down. If you relocate to a warmer state, include the additional cost of air conditioning.
Internet/ cable/ phone – Are you planning to spend a lot of time at home reading and gardening or some of your hobbies include using the internet? You should include the approximate cost of the internet and cable in your retirement budget. Many people cut costs by switching from cable TV to a streaming service.
Transportation – How your transportation needs will change in retirement? How many cars do you have? Are you planning to downsize your vehicles? Will you buy a new car or a boat? Calculate how much you pay each month for gas, car insurance, and parking and decide how it will change when you stop working.
Food – How much you will spend on food depends on your eating habits. Most retirees start eating out less and prefer to have homemade meals. This budget category expense can be significantly reduced.
Medical – It is hard to calculate medical out-of-pocket expenses, along with premiums for Medicare. Yes, Medicare provides health insurance, but it does not pay for all medical bills and it does not pay for long-term care at all. There is no way to know how much it will cost. But according to Fidelity Investments, a healthy couple can expect to spend on average, a total of $275,000 out of pocket on healthcare expenses in retirement. And a long-term care cost is not included in this number.

Non-essential expenses – want to have:

These expenses are your extras. Make sure to leave room for fun when calculating your future cost of living. You worked hard most of your life while saving and planning for retirement. Traveling, camping, attending a concert, or eating dinner with friends will be part of your fun years. You need to plan for that and include the cost of it into your retirement expenses.

Traveling/ vacations
Hobbies
Entertainment
Gift/ charity

Many of my friends who already retire admitted that every month of their retirement look different than the month before. Some months they spend a lot of time at home. Other months, they are on the road visiting friends and family or traveling abroad.

Unexpected and/or one-time expenses:

Urgent medical expenses
Unexpected car or home repairs
Home improvement
Wedding
Grandkid’s college tuition
Funeral

By including these expenses into your retirement budget, you will minimize the chance to be surprised by these events. You wanted to be sure that you have enough money to cover these expenses. One way to deal with unexpected is to have an emergency fund. Instead of panicking at every unexpected bill, you will have a small pot of money at hand and ready for use.

For our retirement expenses I like to use a worksheet from Vanguard:

Vanguard retirement expenses worksheet.

Step 3. Compare your retirement income and expenses.

architecture - retirement income and expenses

After calculating retirement expenses compare it with your retirement income and see how much you have left over.

Retirement income – retirement expenses = cash flow

Once you stop working you can rely only on the income generated from your savings and Social Security. And if you do not have enough retirement savings, you will have to rely only on one source of income – Social Security. Even Social Security is considered a guaranteed income, but it might be not enough to cover all your expenses.

It is important to have enough income to pay for your monthly essentials. Thus, first look at your Social Security benefits and see how much it will cover. Next, calculate how much money you have to withdraw from retirement savings to cover other expenses.

You can boost your retirement income by downsizing your home or delay retirement for a few years. But those may be not the options for everybody. Most baby boomers will need to reduce their expenses and change spending habits so they can live on their available income.

I calculated that Roman and I will need to have $60,000 a year ($5,000 a month) to cover our expenses for the first 5 years of our retirement. We plan to downsize, sell our house and rent an apartment before we decide if we want to buy a condo. We like to travel and have a long bucket list of places we want to visit. If we do not delay our benefits until age 70, our estimated Social Security paycheck will be $42,000 a year ($3,500 a month).

Thus, we will need to withdraw an additional $18,000 a year ($1,500 a month) from our savings. Many advisors recommend withdrawing 4 percent from savings so your retirement funds last longer. We can withdraw up to $20,000 a year from our savings to follow this rule and feel safe.

If I want to bump that number to 5 percent and withdraw $25,000 a year from our savings, we will spend our retirement funds faster. I would rather adjust our lifestyle and reduce our expenses to fit a safe rule of 4 percent withdrawal than to deplete our funds fast. The goal is to adjust our lifestyle to fit our available income.

Even the whole process looks like a lot of work, remember that calculating these numbers now will make life in retirement much easier.

Step 4. Add inflation and taxes to your retirement budget.

Inflation is real and it will erode the value of today’s dollars over time. Many advisors suggest including 2 or 3 percent inflation to retirement budget. But if you are like me and have no intention of moving your retirement portfolio out of the market, you should expect that keeping money in the market will help to fight inflation.

When you start preparing a retirement budget first thing you want to know is how much income you have available to pay the bills each month. But whatever number you calculated in Step 1 may not be yours to keep in full. Your withdrawals from retirement accounts like 401(k) and IRA will be taxed year after year. And depending on your retirement income so might be a portion of your Social Security paycheck.

Hence, instead of being surprised by taxes, budget for them. Look at your current tax brackets and try to figure out yours in retirement based on estimated income. Then add that money to your retirement budget. You will pay lower taxes in retirement because you will have less income. But you still need to have money to pay taxes every year.

Step 5. Keep updating your retirement budget.

a woman on a suitcase-retirement expenses

I know that my retirement budget is not perfect and needs to be updated. But it is a starting point that allows me to learn how much income Roman and I need to replace when we stop working.

Budgeting for retirement is not a do-it-once-and-forget exercise. Retirement budgets are living things that need periodic checkups. Once you retire you need to keep updating your spending, income, and withdrawal numbers, because spending in retirement could go easy out of hands.

Also, you need to keep an eye on your retirement portfolio growth and make sure that all is going according to your plan. Otherwise, you need to adjust and fit your lifestyle to available income.

Final Thoughts

None of us wants to spend our fun years worrying about money. Everyone wants to enjoy retirement. Follow these 5 simple steps and start preparing your retirement budget. It should help you to stay on track financially so you can enjoy your fun years and avoid stress.

Do you have a retirement budget? Have you thought about preparing a retirement budget? Share your ideas with us in the comments below.

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Disclosure: This information is only educational. The intent if this post is to provide a simple guideline for an extremely complicated matter. I am not providing any specific financial advice or recommendations to any of my readers.