What Will I Need to Retire?

by Jerri L. Ledford

Circulating stories tell us that Social Security won¹t even exist when the 30-something crowd hits retirement age. Then we hear stories about having to care for parents, sometimes long-term. Add to that the cost of putting our kids through college, and we're left with a huge question mark when it comes to figuring how much money we'll need to retire.

According to a survey by Merrill Lynch, a single woman earning $50,000 a year needs to have $55,000 in a retirement account by age 35. I sure don't have that, do you?

One of the reasons that women are not meeting their retirement needs is that many work in jobs that do not offer retirement plans. This is either because the employers we work for don't offer them, or we change jobs before we become vested in a retirement account that is offered.

So, how do we make the investments that will carry us through our golden years, and how much do we really need?

The first thing we need to do is invest more. Women invest only about 1.5 percent of their income‹only about half of what men invest. Financial planners suggest investing at least 10 percent of your annual income into a retirement fund or long-term investment of some kind.

When we do make investments, women tend to invest our money much more conservatively than men. Insured savings accounts, certificates of deposit (CDs) and bonds are usually our investments of choice though it has been proven that stocks outperform interest-paying investments in the long term.

Experts recommend that a 35-year-old woman should invest approximately 65 percent of her retirement dollars in stocks of some kind. Mutual funds are an excellent way to accomplish this investing goal. We'll look at mutual funds more closely in the next Mom's Money.

Being a conservative investor is not a bad thing. Not many women are cut out for the high-stress, constant-change of the stock market. Especially when it comes to short-term stock investments.

So, they key to investing wisely is to invest in a plan with a slight to moderate risk, and invest in it for the long term. Then don't sit around watching the stock market and panicking every time it climbs or plunges. Instead, watch your investments, and make decision based on education and understanding.

There are so many great places on the Internet to learn how to make wise investments. If you're not taking advantage of those resources, you're doing yourself, and your future, a great disservice. Here are a few sites where you should begin your financial education:

• Mutual Funds Interactive: Most everything you've ever wanted to know about mutual funds, and then some. This is an excellent resource for learning the ins and outs of mutual funds. Specifically have a look at Funds101.
• MoneyMinded.com: This site offers plenty of great articles to help you make sense of your money life. The current "Money Myths" article is an informative read.
• Vanguard Plain Talk: Women and Investing: This is an excellent site that will walk you, step-by-step, through planning and investing for your future.
• Women Investing Wisely: This is an excellent article the psychology of women's investment choices.

What Will Retirement Cost?

Learning about how to invest should naturally lead to learning how much you will need when you are ready to retire. You'll see all kinds of figures‹one I saw recently said women would need 75 percent of their current income to live through retirement! Don't panic.

Your actual retirement income will probably be considerably less than that. One sure way to determine how much you will need at retirement is to estimate what you could live comfortably on for each year. I estimate about $40,000 a year, if I have no debt to consider.

Now, multiply that figure by the number of years you expect to live after retirement. An average woman's life expectancy is 78.3 years. If you expect to retire at age 65, that means you will need retirement income to support you for approximately 13.3 year. For convenience sake, let's say 14 years.

Now, multiple the amount you will need to support your lifestyle by the number of years you expect to need a retirement income. Using the figures above, I estimate I will need $260,000 to support myself through my retirement years.