Thrifty Thinking: Retirement Savings for Moms

Jerry is president of Golden Retirement Advisors and developer of Savings2Income, a website that offers info and tools to create a plan for worry-free retirement. I had a chance to interview him about how moms can save for retirement.

1. How can stay-at-home moms save for retirement? The most important “savings” a stay-at-home mom can contribute is “paying-it-forward” by educating herself on the smart ways to save and invest. These include the value of starting saving early, the magic of compound interest, the importance of Social Security (and the options), the benefits of diversification, low fees and deferred taxes, and finally the value of her savings if/when she joins/rejoins the work force when the kids are grown. A smart plan may be worth as much as the amount of money set aside. She should also participate in the process with her husband.
2. What do new parents need to consider with retirement planning?   There are three major areas of long term savings for new parents: down payment on a house, the kids’ education, and retirement. It’s critical to have a plan for each, whether it be all personal savings, help from parents, loans, etc.  Regarding retirement, take full advantage of any employer-sponsored plans by “maxing out” on any employer contributions. With their first paycheck, they’re beginning to accumulate credits toward Social Security benefits.  Similarly, treat their 401(k) contributions as automatic deductions which they won’t spend until retirement. 
3. What will the average person need to have saved for retirement? While many would- be “experts” promote a magic “number” someone would have to have saved by retirement, instead, individuals should focus on (a) the income needed to support a lifestyle, and (b) the sources of that income, Social Security and any pension or part-time work, and the income gap that must be filled from saving/investments to sustain a retirement lifestyle that lasts a lifetime. This “picture” comes more into focus the closer you get to that magic date. The key to success will be to maximize the after tax income from those savings, and more efficient strategies that incorporate low cost investing/saving and tax-deferral can be twice or more as effective – the earlier the start, the greater that effectiveness.
4. What are some common mistakes people make when planning for retirement?  When it comes to saving and investing, too many people think that small contributions won’t make a difference, but they will, and the magic of compound interest, can make it a huge difference. For anyone who may be afraid of investing, low cost, diversified investments is what they need. The same is true for almost everyone as they get closer to that planned retirement date. In the last analysis, it all boils down to a lack of a retirement income plan. Here’s how having such a plan helps the management of your retirement funds:

a.      Identify all of the assets you consider to be retirement savings. Include assets held outside a rollover IRA or 401(k) that you believe will be necessary to support your retirement lifestyle. If you previously worked and were part of an employer sponsored retirement plan, keep track of those benefits, or better yet, if it is in a 401(k) plan, see if you can make a trustee to trustee transfer to a low cost tax-deferred Rollover IRA plan that you can control.

b.     Get an honest assessment of how much retirement income these savings, together with Social Security, any pension, and wages post-retirement, will produce. If there’s a gap, consider increasing your savings rate.

c.     Get most of your savings into tax deferred accounts. That may mean investing in a no load variable annuity with your after tax savings.

d.     With your savings identified, your gap measured and your accounts in the right place, decide whether or not you need professional help in designing an investment portfolio, including diversifying among types of investments, and selecting individual mutual funds or ETFs. You may need that help in particular as you begin making the transition from savings to income. 

e.     When selecting an advisor, make sure you agree with the plan that’s developed and the fees being charged. In this case, the long-term strategy is yours, but let the advisor make the “tactical decisions”, reserving your right to review the plan as often as you feel is necessary. If you go it alone, take the long term view and stay diversified.