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Planning and saving for retirement may seem like a goal
that’s far in the future. Yet saving, especially for retirement, should
start early and continue throughout your lifetime. Here are four reasons
why saving matters for women — and especially for you!
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Of the 59 million wage and salaried
women working in the United States as of June 2000, less than half —
just 47 percent — participate in a pension plan.
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Women’s employment patterns are
different. They are more likely to work in part-time jobs that don’t
qualify for pension coverage, or to work fewer years in pension-covered
employment because of interruptions in their careers to take care of
family members.
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On average, a female retiring at age
55 can expect to live another 27 years, four years longer than a male
retiring at the same age, and needs to save for these extra years.
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Studies indicate that women tend to
invest more conservatively than men, receiving lower rates of return
from their investment over time, thus reducing the amount of savings
they have at retirement.
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Here are eight questions to help you think about retirement and take charge
of your financial future:
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Do you work for an employer that offers a pension plan? -
If your employer offers a pension or retirement savings plan, join it as
soon as you can and contribute as much as the plan allows. Most employers
providing a 401(k) plan also match a percentage of the employee
contribution. This match is usually 25 - 50 percent of the investment, a
much higher rate than that which can be found in an alternative investment.
While all job categories may not be included in your employer plan (those of
part-time or temporary workers, for instance), your job may be one of those
included in your employer's plan. Remember, by saving early you have time on
your side. Your savings will grow and your earnings will compound over time.
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Have you worked at the job long enough to earn a pension?
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In many companies, you may have to work for five years to become eligible
to receive pension benefits. Some workplaces have a shorter vesting period.
(Vesting simply means that you have worked long enough to earn the right to
benefits from a saving or pension plan.) Too often employees, especially women, quit work, transfer to another job
or interrupt their work lives just short of the time required to become
vested. Ask the personnel office, pension plan administrator or union
representative about the vesting period and other details of your company
pension plan.
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Do you keep copies of the documents that define the provisions of your
pension plan? -
In addition to asking questions of company or pension plan officials, you
should keep copies of the summary plan description (SPD) and any amendments.
The SPD is a document that pension plan administrators are required to
prepare, and it outlines your benefits and how they are calculated. The SPD
also spells out the financial consequences — usually a reduction in
benefits — if you decide to retire early (earlier than age 65 in many
plans). You probably received a copy of the SPD when you joined the pension
or savings plan, but you may request another one from your employer or plan
administrator. Also remember to keep pension-related records from all jobs. They provide
valuable information about your benefit rights, even when you no longer work
for a company.
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What happens to your pension if you change jobs? -
You may lose the pension benefits you have earned if you leave your job
before you have worked long enough to be "vested." However, once
vested you have the right to receive benefits even when you leave your job.
In such cases, the company may allow, or in certain cases may insist, that
you take your pension money in a lump sum when you leave. However, some
companies may not permit you to receive your pension money until retirement.
The time when you can receive your pension money is spelled out in the SPD.
A word of caution: If you receive your pension in a lump sum, you will
owe additional income taxes, and may owe a penalty tax. A better way is to
reinvest your savings in another qualified pension plan or an Individual
Retirement Account (IRA) within 60 days. You avoid tax penalties and you
keep your long-term retirement goals on track. If you do want to reinvest the money, it is important that you do not
directly receive it. If you receive the money directly, you will have to pay
a 20 percent withholding tax on the amount you receive and then file for a
refund in the next year, providing proof that you have transferred the funds
to an IRA. Instead, you should instruct the pension plan to transfer your
pension money directly to an IRA or other qualified pension fund you have
established. This is easy to do using simple forms supplied by the new plan.
If you want help with the forms, representatives of the plan are generally
available to assist you.
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Do you know how you can save for retirement even if you don't belong to an
employer-sponsored pension plan? -
Anyone receiving compensation, or married to someone receiving
compensation, can contribute to an IRA. In addition, if you are
self-employed, you can start a Keogh plan, a Simplified Employment Plan
(SEP) or a Savings Incentive Match Plan for Employees of Small Employers
(SIMPLE). As with other retirement savings plans, there may be tax
consequences, and possibly penalties, if you withdraw your savings early.
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Are you tracking your Social Security earnings?
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More women than ever work, pay Social Security taxes, and earn credit
toward a monthly income for their retirement. These earnings can mean some
income for you and your family in the form of monthly benefits if you become
disabled and can no longer work. If you die, your survivors may be eligible
for benefits. In addition, you may be eligible for Social Security benefits through you
husband's work and can receive benefits when he retires or if he becomes
disabled or dies. Special rules apply if you and your husband have been
employed and both have paid into Social Security. Special rules apply also
if you are divorced, or if you have a government pension. To calculate your
benefit estimate, visit the Social Security Administration's Web site.
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Are you entitled to a portion of your spouse pension benefit if you and
your husband divorce? -
As part of a divorce or legal separation, you may be able to obtain rights
to a portion of your spouse’s pension benefit (or he may be able to obtain
a portion of yours). In most private-sector pension plans, this is done
using a qualified domestic relations order (QDRO) issued by the court. You
or your attorney should consult your spouse's pension plan administrator to
determine what requirements the QDRO must meet.
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Are you aware of the rules that govern your pension plan and the pension
plan of your spouse if either of you dies? -
The rules are different for defined contribution and defined benefit
plans. If you or your spouse belong to a defined benefit plan, the surviving
spouse may be entitled to receive a survivor benefit when the enrolled
employee dies. This survivor benefit is automatic unless both spouses agree,
in writing, to forfeit the benefit. You will need to check the SPD or
consult with the plan administrator regarding survivor annuities or other
death benefits. If you are a beneficiary under your spouse's defined benefit pension
plan, you may want to request a copy of the SPD and other plan documents
that describe your spouse's vested benefits. You will probably want to make
the request in writing, and you may be charged a fee for the information.
The rules may be different if you or your spouse participate in a defined
contribution plan. Consult the plan administrator for details about spousal
rights.
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Once you've answered these questions, you're on the road to learning more
about financial freedom. As a resource for women (and men), the Employee Benefits Security Administration
has issued Savings Fitness: A Guide to Your Money and Your Financial Future. The booklet
includes a resource and Web site section.
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Select from the brochures below or request copies of any publications from
EBSA's Employee & Employer Hotline number, 1.866.444.EBSA (3272):
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