How Business Women Can Prepare for Retirement
While retirement may seem like a distant destination, especially when you’re busy building a career or running a business, it’s essential to start planning early.
Men and women may share certain financial goals, but women possess different perspectives and requirements when it comes to saving for their future.
“For businesswomen, retirement planning comes with its unique set of challenges including a longer life expectancy, the caregiver penalty, and higher healthcare costs,” advises David Neuwirth, Senior Vice President of Investments at David Lerner Associates, Inc.
If you’re a businesswoman who is not sure where to start or not where you want to be on your retirement planning journey, don’t fret! This article explores how businesswomen can prepare for retirement and ensure a secure and fulfilling post-career life.
1. Start Early, Stay Committed
Saving enough for retirement can be difficult for anyone, but unfortunately, it can be even more challenging for women. The average lifespan of a 65-year-old woman is around 87 years, implying the possibility of an extended retirement period accompanied by increased expenses.
The earlier you begin saving and investing for retirement, the more time your money has to grow through compound interest.
Even if you’re busy with your business or career, make retirement savings a non-negotiable part of your financial plan.
2. Set Clear Retirement Goals
What do you envision for your retirement?
A crucial step in preparing for retirement involves envisioning your future self as a retiree. Establishing a connection with your future identity can underscore the significance of financial planning and motivate you to care for the person you will become in retirement.
To plan for your future well-being, consider documenting your aspirations for who you wish to be in 10, 20, or 30 years. Imagine your daily life, your activities, and your routines, whether it’s traveling the world, starting a new venture, or simply enjoying leisure time.
By transforming the future into a familiar acquaintance and crafting a vivid portrayal of your retired life, you’ll likely become a stronger advocate for your older self. This, in turn, will inspire you to take the necessary steps to develop a retirement strategy tailored to your needs and aspirations.
3. Explore Retirement Plans
Business women have to save for their own retirement without employer benefits or 401(k) matching programs.
Consider retirement plans specifically designed for self-employed individuals or small business owners, such as Simplified Employee Pension (SEP) IRAs or Solo 401(k) plans.
These plans offer tax advantages and let you save more than traditional IRAs or 401(k)s.
4. Diversify Your Investments
Retirement offers a much-deserved break from a 9-5, but the loss of a regular paycheck can be a tough adjustment.
Diversification is key to managing risk in your retirement portfolio.
Explore a mix of investments, including stocks, bonds, and real estate, to help spread risk and optimize returns.
5. Work with Financial Advisors
If you haven’t yet established a connection with a reliable financial advisor, this is an opportune moment to seek out a professional who can address your queries, explore potential solutions, and serve as your advocate in financial planning.
40 percent of women who collaborate with a financial professional express a strong sense of readiness for retirement, while this figure stands at 27 percent for women who do not work with one.
When you collaborate with someone genuinely dedicated to your financial well-being, you’ll likely make more assured financial choices with enduring effects. It’s vital that you feel comfortable asking any questions you may have, possess a prominent role in shaping your retirement strategy, and understand that as circumstances evolve, you can adapt and refine your plan as necessary.
6. Plan for Healthcare Costs
Healthcare expenses often increase in retirement.
Based on Milliman’s 2023 Retiree Health Cost Index (RHCI), a 65-year-old woman who retires today should anticipate healthcare expenses of approximately $155,000, in contrast to the $134,000 projected for a 65-year-old man.
Ensure you have a comprehensive health insurance plan and consider long-term care (LTC) insurance to protect your assets from potential healthcare costs.
7. Build an Emergency Fund
It’s key for a woman planning for retirement to build a rainy-day fund in case of unforeseen retirement road bumps.
An emergency fund provides a financial safety net in case unexpected expenses or business setbacks occur. Having this cushion allows you to weather financial storms without jeopardizing your retirement savings.
A general rule of thumb is to have 3-6 months of living expenses saved in an interest-earning savings account.
8. Pay Off High-Interest Debt
Over the course of their careers, women lose over $400k in retirement savings because they have approximately 30 percent less saved than men.
High-interest debt can eat into savings. Prioritize paying off high-interest debt such as credit cards or personal loans.
Reducing debt can free up more funds for retirement savings.
9. Continue Learning
Financial literacy encompasses a wide array of topics, but at its heart lies the skill to adeptly and efficiently manage your finances. This includes handling your income from business and managing expenditures.
Studies reveal that, on average, women have been shown to possess a lower level of financial literacy compared to men. This disparity can pose challenges when it comes to preparing for retirement.
The remedy? Seize control of your financial affairs and empower yourself. Stay informed about financial trends, investment strategies, and retirement planning options.
This task may appear easier said than done, but the good news is that a plethora of resources are readily accessible at your fingertips, many of which are available free of charge. The more you know, the better equipped you’ll be to make informed financial decisions.
10. Consider Your Business Exit Strategy
If you’re a business owner, plan your exit strategy (and a backup plan) well in advance.
Your business itself can be a source of retirement value if you establish an ownership transition. Whether you’re selling your business, passing it on to a successor, or winding it down, a well-executed exit plan can fund your retirement.
When approaching retirement, you will also need to start decreasing your role in business operations.
Retirement planning is a critical aspect of financial well-being, and businesswomen have unique opportunities and challenges to consider. By starting early, setting clear goals, and seeking professional guidance, you can embark on your retirement journey with confidence.
Remember, your retirement is a time to enjoy the fruits of your labor and pursue your hobbies, and with careful planning, you can make it a reality.
At David Lerner Associates, our financial advisors specializing in retirement planning can provide valuable guidance. We can help you create a tailored retirement plan, maximize tax benefits, and adjust your investment strategy as you approach retirement.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.