PLANNING FOR RETIREMENT, PART I:WHAT WORKING WOMEN NEED TO KNOW

October 29, 2013

PRESENTERS:

AMY MATSUINATIONAL WOMEN’S LAW CENTER

JOAN ENTMACHERNATIONAL WOMEN’S LAW CENTER

SPEAKERS FOR THIS SESSION

Amy MatsuiSenior CounselNational Women’s Law Centeramatsui@nwlc.org

Joan EntmacherVice President, Family Economic Security National Women’s Law Centerjentmacher@nwlc.org

BASIC RETIREE NEEDS

IncomeMedical coverage & prescription drugs

Long-term care coverage

TRADITIONAL SOURCES OF RETIREMENT INCOME

The “3-legged stool” – now more like 5• Social Security • Pensions• Savings/investments

• Earnings from work• SSI (Supplemental Security

Income)

The original three

WOMEN NEED MORE RETIREMENT INCOMEWomen:• Live longer • More likely to have chronic

illness and need long-term institutional care

• More likely to be single and not remarry

DID YOU KNOW ?Nearly 1 out of 5 women 65+ living alone are poor.

BUT WOMEN HAVE LESS RETIREMENT INCOME

Stretch savings over longer life

Earn less than men

More likely to be low wage workers

More likely to be caregivers

Part-time work

Economic impact of divorce

SO FOR WOMEN, IT’S ALWAYS THE RIGHT TIME…

…TO START PLANNING FOR RETIREMENT.

TODAY’S WEBINARToday, we’re going to give you the information you need to prepare for retirement.We’ll cover:1. Basics of retirement savings and Social Security2. Helpful tips about what you can be doing throughout

your career to get ready for retirement

Stay tuned: in January, we will host another webinar with more detailed information for those approaching retirement age about when to claim Social Security.

RETIREMENT SAVINGS VEHICLES• Traditional pensions (defined benefit plans)• Employment-based individual account

plans (401(k)-type plans)• Individual Retirement Accounts (IRAs)

TRADITIONAL (DB) PENSIONS• Pays a specific monthly benefit for life.• Benefit based on a formula.• No investment risk to workers and

workers don’t have to make investment decisions

EMPLOYMENT-BASED INDIVIDUAL ACCOUNT PLANS• Employees contribute part of their salary, there

is often an employer match• Maximum contribution limits for 2013:

• $17,500• Additional $5,500 if over age 50

• Benefits = the accumulation of employee and employer contributions plus or minus gains, losses, earnings and expenses.

• Types of plans include 401(k)s, Employee Stock Ownership Plans (ESOPs), 403(b)s and Simplified Employee Pensions (SEP)

INDIVIDUAL RETIREMENT ACCOUNT (IRA)• Account set up by an individual with a

financial service provider.• Maximum contribution limit for 2013 is

the lesser of:• $5,500 plus a $1,000 catch-up if over age

50• 100 percent of income.

• Roth or Traditional

SAVER’S TAX CREDIT• Non-refundable tax credit up to $1,000 ($2,000

for married couples filing jointly) for contributing to 401(k)s, IRAs, or other retirement savings accounts.

• Available to low- and moderate-income workers (up to $27,750 for singles, $55,500 for married couples).

• Depending on how much you make, the credit is 10 to 50 percent of each $1 contributed.

HOW DO YOU GET STARTED?1. Find out if your job is covered by a

pension or retirement savings plan.2. Find out if you are eligible to participate

in the plan.• It may have age and years of service requirements

3. Find out how to enroll in individual account plan.

• Open Enrollment• Automatic Enrollment: Employees are notified that

they may opt out

GETTING STARTED, CONTINUED• For traditional (DB) pensions, no

employee contribution• For individual account plans:

• Start at a percentage of salary or total amount (up to max)

• You can start small, and increase over time

• Auto-escalation• Find out what contribution level is

required to get your employer match

IMPORTANT DOCUMENTS• Summary Plan Description (SPD)

• Booklet provided to employees when they enroll in the plan.• The SPD explains eligibility requirements, how the benefit is

earned and paid, and how to file a claim for benefits.

• Benefit Statements• Total benefits earned• Vested accrued benefit, or the earliest date the benefit will be

non-forfeitable• An explanation if Social Security or other payments will be

subtracted when the benefits are calculated. • Remember, this is only an estimate.

WHILE YOU’RE WORKINGWhat if I need access to the money in my

retirement account?• Generally, you cannot take money out of a traditional

pension plan while working.• You may be able to take a loan or hardship distribution

from an individual account.• Check with your plan to determine available options• Pre-retirement withdrawals subject you to tax penalties, and

taxation on withdrawn amounts.• You may have to pay back loans if you change jobs.• If you withdraw funds, you may be shortchanging yourself in

the long run.

WHAT IF I WORK PART-TIME?Check with your plan:• Some pension and retirement savings plans do not cover

part-time workers.

• If you are covered, try to stay above the minimum contribution required if a match is offered!

Think about IRAs:• You can contribute to an IRA (individual or spousal) even if

you are not participating in a pension or retirement savings plan at work.

IF YOU LEAVE YOUR JOBTraditional pensions:• Find out if your benefits have vested

• A vested benefit is a benefit that cannot be forfeited even if you permanently stop working.

• Breaks in service can lead to forfeiture of benefits

Individual account plans:• Employee contributions are always vested! But check

vesting schedule for matches.• Rollover into an IRA or another employer’s plan (amounts

over $1,000) – avoid tax penalty

Helpful Tip:Keep track of your former employer and let them know how to contact you!

WHAT IF I DECIDE TO STAY HOME FOR AWHILE – OR CAN’T FIND WORK?

• Remember that if your “break” in service is too long, you may lose your traditional pension benefits.

• What to do with retirement savings:• If you have more than $1,000 in benefits, you can stay in

the plan – you just can’t contribute anything.• You can also roll your benefits into an IRA.• If you spend the money, remember that there is a tax

penalty.

• Even if you’re not working, keep saving in an IRA if you can.

SPOUSAL ISSUES• Marriage and Divorce

• Pensions are one of the biggest assets in a marriage.

• Legal representation will ensure the pension is properly valued and divided through a Qualified Domestic Relations Order (QDRO).

• Pre-retirement survivor protection• Survivor benefits• Loans

• Spousal consent is required for loans from individual accounts.

SOCIAL SECURITYSocial Security provides retirement security – and more:• Gives workers a secure, basic retirement income for

as long as they live

• Over $400,000 worth of life insurance• Over $400,000 worth of inflation-protected disability

insurance• Family benefits

SOCIAL SECURITY IS THE FOUNDATION OF WOMEN’S RETIREMENT SECURITY• Over 46 million retired workers and their

family members receive Social Security benefits

• Women 65+ receive over 60% of their income from Social Security

• Virtually the only source of income for nearly 3 in 10 older women

• Absent Social Security, about ½ of older women would fall into poverty

SOCIAL SECURITY IS AMERICA’S PENSION PLAN

• Universal and portable• Lifetime benefits that are adjusted for inflation

• Stable benefits that don’t fluctuate with the stock market

• Progressive--workers with lower lifetime earnings receive a higher percentage of their pre-retirement earnings

• Automatic benefits for eligible spouses, surviving spouses, and divorced spouses

Ida May Fuller, the very first recipient of Social Security benefits.

HOW DO YOU QUALIFY FOR SOCIAL SECURITY AS A RETIRED WORKER?• Earn 40 “credits” (10 years worth) (young

workers need fewer for disability, life insurance benefits)

• In 2013, $1,160 = 1 credit, $4,640 = 4 credits• Can only earn 4 credits per year (but higher

earnings will raise your benefits)• Work in a job covered by Social Security

SOCIAL SECURITY WHILE WORKING• If you are working in a job covered by Social

Security, those benefits will accrue automatically from contributions taken out of your paycheck and matched by your employer. You don’t have to do anything!

• Keep track of your estimated retirement benefits so you can plan for your other savings needs.

• Plan ahead so you can maximize your benefits.

WHAT IF I WORK PART-TIME?As long as you earn enough in a year ($1,160 per credit up to $4,640/4), you can work part-time or part-year and earn credits toward Social Security

WHAT IF I TAKE TIME OUT OF THE WORKFORCE?

If you have at least 40 credits by the end of your career, your “zero” earnings years won’t count against you for eligibility—but could affect your benefit amount.

HOW DOES SOCIAL SECURITY CALCULATE YOUR BENEFIT AS A WORKER?

• Highest 35 years of wages• Progressive formula• Benefits recalculated every year to

take account of additional earnings, even if you’re already receiving benefits

• Can replace zero or low earning years

HOW MUCH ARE SOCIAL SECURITY RETIREMENT BENEFITS, ON AVERAGE?In 2012, the average annual Social Security

benefit received by women 65 years and older was about $12,700, compared to $16,700 for men.

But you can increase your benefit:• with higher earnings, or • by waiting to claim your benefits until your Full

Retirement Age—or even longer.

WHAT’S YOUR FULL RETIREMENT AGE (FRA)?

• Your FRA is the age at which you are first eligible to receive unreduced benefits.

• If you wait to claim benefits until after your FRA, you can increase your monthly benefit.

• Your FRA depends on the year you were born:• 1943-1954, FRA is 66• 1955-1959, FRA gradually increases to 66 years, 10

months for those born in 1959• 1960 or later, FRA is 67

HOW MUCH CAN YOU BOOST BENEFITS BY WAITING TO CLAIM?Example: Your benefit at 66 is $1,000.• Age 62 benefit = $750/month (- 25%

reduction)• Age 68 benefit = $1,160 (+8% for 2 years)• Age 70 benefit = $1,320 (+8% for 4 years)

Benefit claimed at age 70 ($1,320) is 76% higher than a benefit claimed at age 62 ($750).

HOW CAN YOU FIND OUT YOUR ESTIMATED BENEFIT?• Go online to www.ssa.gov to see your estimated

retirement benefit.• Sadly, mailing the annual statement was

suspended because of budget cuts.

SPOUSAL BENEFITSWhen you retire, you can receive:• Up to 50% of your spouse’s benefit if you

claim at FRA or your own worker benefit, whichever is higher.

• If you wait until your FRA to claim benefits, you can choose to receive just a spousal benefit and let your own worker benefit grow.

WHAT BENEFITS ARE YOU ENTITLED TO AS A WIDOW(ER)?• Up to 100% of your deceased spouse’s benefit

or your own worker benefit, whichever is higher.

• You can claim benefits as a widow(er) at age 60, or age 50 if you are disabled.

• If you or your deceased spouse claim before FRA, the widow(er)’s benefit is reduced.

• By waiting to claim benefits, a higher earning spouse can provide an increased benefit for the surviving spouse.

WHAT IF YOU GET DIVORCED?• If your marriage lasted for 10 years, you will be

able to get the same benefits as a current spouse or widow when you retire.

• You don’t have to do anything when you get divorced. When you apply for Social Security, bring documentation of the marriage and divorce.

• Your receiving benefits as a divorced spouse won’t affect benefits for your ex-spouse or the ex’s current spouse.

• Unlike someone who is currently married, you don’t have to wait for your ex-husband to apply to receive a benefit as a divorced spouse. You can get benefits if you are both at least age 62, and have been divorced for at least 2 years.

WILL SOCIAL SECURITY BE THERE FOR ME WHEN I RETIRE?The short answer: YES• $2.7 Trillion Surplus• Surplus invested in interest-bearing Treasury Bonds backed by Full

Faith and Credit of the United States• Can pay full benefits until 2033, 77% of benefits post-2033, even with

no changes, from payroll taxes • Can close the financing cap by modest changes, such as requiring

high earners to pay payroll tax on all their earnings

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PLANNING FOR RETIREMENT CHECKLISTSIn your 20s:

Find out if you have a retirement plan at work. • If you do, sign up! Save as much as you can, but at least

save enough to qualify if your employer offers a match.• If you don’t, start an IRA.• Check to see if you are eligible for the Saver’s Credit when

you file your taxes.Make sure your job is covered by Social SecuritySign up with SSA.gov to keep track of your Social

Security benefits.Manage consumer and student loan debt.

PLANNING FOR RETIREMENT CHECKLISTSIn your 30s:

Participate in your retirement plan at work! • Contribute enough for the match, and bump up

when you get a raise.• If you change jobs, keep track of your retirement

benefits.• If you can’t save at work, start an IRA.• Saver’s Credit!

Keep track of your estimated Social Security benefits.

Keep debt under control.

PLANNING FOR RETIREMENT CHECKLISTSIn your 40s: Continue saving at work or in an IRA

• Bump up as pay increases• Try not to take money out!• Saver’s Credit!

Keep track of retirement benefits from other jobs and estimated SS benefits

Ask for professional help• Set a specific retirement savings goal• Look at your investment strategy

Pay down debt and don’t forget retirement as you adjust for major life changes (like marriage, divorce)

PLANNING FOR RETIREMENT CHECKLISTSIn your 50s: Continue to save

• Take advantage of higher contribution limits• Don’t touch the money!• Saver’s Credit

Keep track of all retirement accounts and estimated SS benefits

Ask for professional help• Adjust your investment strategy• Revisit your retirement savings goal

Pay down debt and don’t forget retirement as you adjust for major life changes (like marriage, divorce, kids in college)

RESOURCES FOR YOU• Sign up for alerts on Social Security and

retirement at www.nwlc.org • Become a fan of NWLC on Facebook or follow

us on Twitter (@nwlc) for graphics and links.• Check out resources on our Social Security and

retirement webpage: www.nwlc.org/retirement • Stay tuned for our second webinar in a few

months. It will provide more detailed information for those approaching retirement age about when to claim Social Security.

MORE RESOURCES• Pension Rights Center Fact sheets:

http://www.pensionrights.org/get-facts• WISER: http://www.wiserwomen.org/ • U.S. Department of Labor, Employee Benefits

Security Administration: http://www.dol.gov/ebsa/publications/wyskapr.html

• National Committee to Preserve Social Security and Medicare: www.ncpssm.org

• Ask Mary Jane• Social Security Administration for women:

www.ssa.gov/women

• NASI:http://www.nasi.org/discuss/2012/04/world%E2%80%99s-best-investment-delaying-social-security