to retire in the style they wish. For more information on Social Security, log on to www.ssa.gov.
Financial advisor Kathleen Williams says women should put money into savings plans that offer a tax break such as a 401(k) or an IRA. Women over 50 can contribute “catch-up” amounts to each. For 2003, an additional $2,000 can be contributed to 401(k) plans, and an additional $500 may be contributed to IRAs.
In terms of asset allocation, Creuzot says, “Retired women need to structure a portfolio that allows them to replace their earned income and, at the same time, provides some growth because they could live another 20 to 30 years.” She recommends an asset allocation of income with moderate growth. The focus is on safer investments, such as low-risk bonds, but 40% of the portfolio is invested in stocks, which offers the best potential for fighting inflation over the long term. This is a conservative strategy that provides a lower overall rate of return in exchange for increased stability. It is most suitable for retired women, as they need to continue generating income yet also need capital appreciation to counter their loss of purchasing power.
Kathleen suggests that Karen invest 10% of her pension as well as $16,000 of her $21,000 into this new portfolio mix. The remaining $5,000 should be used to establish an emergency fund. “The goal is to grow that money as much as possible between now and age 65, at which time her income level will go down,” says Kathleen. “If she can eventually accumulate another $50,000 to $60,000, she will have $325 in additional income each month over [many] years.”
Another option available to increase retired women’s cash flow is a reverse mortgage—a loan against your home that you do not have to pay back until you die, sell your home, or move out. This allows for either a lump-sum or a monthly withdrawal. To be eligible for most reverse mortgages, you must own your home and be at least 62 years old. There is no minimum income required to qualify, and you do not have to make monthly repayments.
PRESERVE YOUR ASSETS
“Assuming that women get past the first concern and don’t consume all their money, the next question is how to preserve it,” says Creuzot. All retired people should consider a long-term care policy to ensure that their funds are not eroded by unforeseen medical expenses, such as living in a nursing home. Women should also have enough life insurance to pay off their debts after death and to leave an ample sum for survivors. Older women who have had previous illnesses and find it more difficult to purchase life insurance should look into getting guarantee-issue insurance (which requires no health exam) for as much coverage as they can afford.
Estate planning is key for a retired woman. Needless to say, Karen should have a will. Kathleen suggests setting up a Transfer on Death (TOD) on mutual funds that will allow the money to be transferred to a