Women take on many roles throughout their lives – daughters, wives, mothers, and, increasingly, entrepreneurs. According to American Express, the number of U.S. businesses owned by women continues to rise and exceeds 12 million. The growth is not fueled by female millennials; two-thirds of women business owners are 45 or older.
Women business owners need to diligent and disciplined about planning for retirement. Whatever your timeline, there are many unknowns—where and how long you will live, how much money you will need for day-to-day expenses, the state of your health. Many women find the retirement planning process intimidating. However, it is important to start thinking about the unknowns and variables now, regardless of your age.
Make a Plan
As we are living longer, we need to plan for a longer retirement, especially since women tend to outlive men. According to the Social Security Administration, a 65-year-old woman on average will live to 87 years, compared to 84 years for a 65-year-old male.
Saving enough for retirement is the biggest concern for many of us. Just as you do projections for your business, you need to run the numbers for your retirement. Here are a few suggestions:
- Analyze your spending. Begin with an analysis of your current spending habits. This analysis helps you determine a realistic estimate for your annual spending in retirement. Go to your bank and credit card websites and view all activity for a period. Assign each expense to one of these categories:
- Essentials: rent or mortgage, transportation, groceries, utilities, insurance.
- Nonessentials: dining out, entertainment, shopping, vacations.
- Compare a few retirement calculators. For each tool, try different variables and scenarios. You will likely get a range of outcomes. It is important that you use a reasonable assumption for annual investment returns. Many in the media highlight the fact that the stock market has risen more than 10% per year over the past forty years. While that may be true, market returns for a blended portfolio of stocks and bonds have not been as high in more recent periods. Over the past twenty-to-twenty-five years, compound annual returns have been in the 6% to 8% range.
- Consider the multiple approach. Build a retirement fund that is equal to a multiple of your income. Some experts suggest striving for a multiple from eight to fifteen times your income. If you plan to retire before age 65, or if you have a high income and a high standard of living, aim for the upper end of the range.
- Chart your progress over time. Compare your current nest egg to your current income to determine if you are on track or need to ramp up your savings rate. You can also multiply your current nest egg by a 3% or 4% withdrawal rate to determine how close you are to your retirement spending estimate.
Most women-owned businesses are small or sole proprietorships. American Express found that almost 90% of women-owned businesses generate revenue of less than $100,000. These smaller firms also represent less than 4% of all employees of women-owned businesses. If you are a sole practitioner, one easy way to save for retirement is a Simplified Employee Pension, or SEP. According to the IRS, you can contribute as much as 25% of your pre-tax earnings up to $56,000 for 2019. This reduces your taxable income and builds your retirement nest egg. Ask your accountant if this is right for you. You can also visit IRS.gov to learn more.
Make Yourself a Priority
Most women are caregivers. We often put the needs of others—our parents, our spouse, our children—before our own. We all have heard the advice that we cannot help others without taking care of our own needs first. This is also true for our finances.
To achieve your retirement goals, you must be consistent. Make a commitment to save and invest every year. Moreover, it is imperative that you never borrow from your retirement account. Some women may be tempted to borrow to help children with college tuition or a down payment. If you do so for any reason, you will miss the growth opportunity for that money and your retirement planning calculations are no longer valid. Paying yourself back could also take longer than expected.
Women business owners have a lot to juggle. Being thoughtful and organized in terms of planning for your retirement helps reduce stress and allows you to focus on your business and, more important, on your future.
