Why Women Need to Save, Invest More

On average, a woman’s life expectancy is three years longer than a man’s, and 30 percent of women now age 65 can expect to reach age 90. That means women need to save more to fund a longer retirement.

Women are more likely to spend some of their retirement years on their own as they outlive their spouses or because of divorce. This makes retirement more expensive. Almost 40 percent of older women living alone depend on Social Security for almost all their income. If their Social Security benefits were taken away, more than 50 percent of older women living alone would be living in poverty.

Some of the challenges that women face in retirement can be traced back to their working years. Women have less income than men, earning an average of 77 cents for every $1 earned by men. This translates to a loss of more than $300,000 over a lifetime.

Women also spend fewer years working than men. In a 15-year time frame, women spend twice as much time as men outside the work force because they interrupt their careers, says management expert Marcus Buckingham. This leads to lower employer-based retirement plan benefits.

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In fact, 50 percent of women workers hold relatively low paying jobs without pensions. Those who do have pension benefits receive just 50 percent of the average pension benefits received by their male counterparts, the Women’s Institute for a Secure Retirement reported.

Because the odds are stacked against women, WISER recommends the following strategy to help address gender-based retirement risk:

Consider a guaranteed source of retirement income that cannot be outlived, such as lifetime annuities.

Delay claiming Social Security benefits to increase the level of both spousal and widow’s benefits.

Purchase long-term care insurance.

Plan for an income stream that will continue in the event of a spouse’s death, through life insurance and joint and survivor annuities.

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Posted on February 1, 2010 Read More

What Percent of Income Will You Need for a Comfortable Retirement?

An employee with an income of $50,000 at retirement will need to replace 81 percent of that amount each year to maintain his standard of living, according to the 2008 Replacement Ratio Study conducted by Aon Consulting and Georgia State University.

If an employer earns $150,000 at retirement, he will need to replace 84 percent of that income to sustain his standard of living.

But financial planners say that specific situations will dictate the most suitable figure.

The percentage of retirement income depends on such factors as the quality of the retirement lifestyle, length of retirement, final base salary, marital status, number of children in a household, investment returns, federal taxes, inflation rates, medical care expenses and others.

But some say replacement rates above 70 percent to maintain living standards in retirement is “conceptually flawed.” That’s what University of Wisconsin professors John Karl Scholz and Ananth Seshadri write in “What Replace Rates Should Households Use?”

In the 2009 paper, the authors concluded that the optimal replacement rates could be as low as 23 percent for single parents with several children and a negative late-in-career earnings shock (layoff or big salary decrease). For low-income, married households with a few children and a substantial positive late-in-career earnings shock, the rate can be as high as 240 percent. “Large number of factors will affect optimal target replacement rates,” they concluded.

The bottom line: People need to make detailed and accurate estimates of their retirement spending. This can be done on their own or through online retirement income calculators

Posted on January 1, 2010 Read More

Common vs. Preferred Stock – What’s the Difference

But seriously, some investors do think that now is the right time to buy certain stocks. However, there’s more to playing the stock market than knowing which company stocks to purchase and when to sell. Inexperienced investors should take the time to learn the ins and outs of the equity market before beginning.

One thing to consider is whether to purchase common or preferred stock. They are the two classes of stocks that are sold by companies. Each is subject to different financial terms.
Common stocks are securities representing equity ownership in a corporation. Owning them usually gives investors voting rights (voting shares) in influencing the corporation’s objectives and policies, determining stock splits and electing the company’s board of directors. One share of common stock is usually equal to one vote.

Common stock shareholders are entitled to a share of the company’s gains through dividends and capital appreciation. Capital appreciation occurs when a common stock’s value increases and investors make a profit when they sell the stock at its higher market value. Dividends are paid from a company’s retained or current earnings typically on a quarterly basis. This payment is not guaranteed, but rather is linked to the market like the price of common stock.

But if the company tanks and is liquidated, common stock investors can claim rights to its assets only after bondholders, other debt holders and preferred stockholders have been paid. Preferred, like common stocks, represent partial ownership in a company. But preferred stock shareholders do not have any of the voting rights in the business available to common stockholders. Companies that want to separate their investors’ economic interests from the actual governance of the business usually favor preferred stock.

Preferred stocks pay fixed dividends that do not fluctuate with the performance of the company. The downside is that the company is not obligated to pay these dividends if it doesn’t have sufficient financial resources. The main advantage of owning preferred stock over common stock is that investors have a greater claim on the company’s assets in the event the company is liquidated.

Posted on December 21, 2009 Read More

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