A 2018 report from the retirement consulting firm, Aon, indicates that nearly three-quarters of women who expect to retire at age 67 will end up with about two-thirds the income they will need to live comfortably. In other words, retirement experts have calculated that they should have saved an amount equivalent to 11.6 times their last annual salary when, in fact, they are on track to end up with a much lower figure of 7.6 times their salary. This savings shortfall will leave women with two options: start saving more money immediately or delay retirement and continue working. This is where a Self-Directed IRA can help.
Women face different challenges than men
Women are typically at a disadvantage during their working years. First of all, they are still earning approximately 80 percent of what their male counterparts are bringing in. Add to that the breaks from working that many women take to raise children or care for elderly family members. And with a longer life expectancy than men, women must make their savings last longer.
While working past their full retirement age–either full-time or part-time–might appeal to many women who enjoy their jobs, it still makes sense for you to save as much as possible in case working after your retirement age is not an option because of unforeseen circumstances, such as poor health.
A financial plan can be your GPS
Even though saving for retirement is critical for both men and women, the factors mentioned above add an extra element of difficulty for female workers to set aside adequate funds for their later years. These factors make it even more important that women meet with a trusted advisor to create a financial plan that will give them a road map towards a comfortable retirement. And once that plan is in place, it’s imperative to pursue those goals aggressively with a Self-Directed IRA.
Make sure your retirement funds are working as hard as you do
After your financial plan is completed, you will need an investment strategy to reach your savings goals. Workplace retirement plans are a good start, but they are typically limited in the investment choices they offer. Women who want more control of their investments are turning to Self-Directed IRAs to give them that control and to add diversity into their portfolios.
While a traditional brokerage account usually offers mutual funds and money market accounts only, Self-Directed IRAs expand those choices with alternative investments that include:
- Real estate: both commercial and residential
- Private lending
- Precious metals: gold, silver, and platinum
- Private stocks
- Tax liens
- Joint ventures and partnerships
Of course, you may still include investments such as common stocks, bonds, and mutual funds in your portfolio, but the alternative investments available through a Self-Directed IRA put you in the driver’s seat, allowing you to make your own investment decisions.
What difference can a higher return make?
Let’s assume you are a forty-year-old woman, and you are contributing the maximum, which is $6,000 for 2019, into an IRA. Let’s also say that you have accumulated $75,000 in your retirement account up to now. If you continue to save $6,000 each year until you retire at the age of 67, you will have accumulated approximately $630,000 if you average a conservative 5% on your savings.
Now, imagine that same woman earning 7% on her portfolio. Her account would have grown to over $970,000. And what if she could have averaged 10%? She would have retired with almost $2,000,000!
No one can guarantee that any investor will average 10% on her retirement portfolio. But keep this in mind: The S&P 500 stock index, which comprises about 500 of America’s largest publicly traded companies, has historically returned an average of 10% annually.
So, with a combination of financial assets such as stocks and real assets like commercial properties, you are allowing yourself to close or eliminate the gap between the amount you will need at retirement and what you will be able to accumulate.