Women and Retirement
Security; Pensions
and Other Retirement Instruments
by Betty
Soldz
"The reality is that
poverty for women in old age too often begins the first day
they enter the workforce. When they make decisions about the
kind of job they will hold, it appears that the majority of
women fail to factor in the consequences the decisions will
present when they retire."
The State of Older
Women in America, Owl (OWL:
The Voice of Midlife and Older Women)
Money, or the lack
of it, affects us throughout our lives. When we are over sixty,
it plays an even greater role in how and where we live and a whole
spectrum of choices in our daily lives. It is never too late to
start planning as long as one is still employed but the best time
to plan for retirement, so that we are secure in older age, is
when we first start working. It is also the time to become knowledgeable
about pensions and other retirement vehicles.
Rebecca, age 65, is
retiring but she does not have a private pension in addition to
social security. She is one of the 60% of women without a pension.
In fact, the majority of working women remain outside the private
pension system today.
Women who lack private
pensions do so for a variety of reasons. They traditionally move
in and out of the labor force. Even those women who are covered
by a pension plan may never actually qualify to receive pension
benefits because they will leave their job before they are fully
vested in their employer's plan. (Vesting is the term used to
refer to the date at which an employee acquires a non-forfeitable
right to receive benefits from a pension plan.) The majority of
women who are employed still tend to work in jobs that have low
rates of pension coverage or work in part-time jobs that do not
offer benefits.
In 1997 only 15% of
women working part-time and one-half of women with full time jobs
were likely to have pension coverage. This left more than half
of all women without a private pension. These women, like Rebecca,
will have to rely on Social Security in the hope that it will
keep them out of poverty or they will need to use other retirement
vehicles such as 401Ks or IRAs to help toward retirement
security. Although the number of women with pensions has increased
in the last few years, women with low salaries have low rates
of pension coverage.
Women should have a
strategy for their retirement from the time they enter the labor
market but starting now is not too late. Begin by becoming financially
literate. Becoming informed about retirement planning requires
access to appropriate information and understanding available
options. The following paragraphs will cover some of the possible
options
In the past, most workers
were covered by employer sponsored plans known as Defined Benefit
Plans. These plans guaranteed a specific benefit amount based
on factors such as employee's age at retirement, salary and years
of service. The employer funds this type of plan and the payment
of benefits is guaranteed by the Federal
Pension Guarantee Corporation. The employer's pension administrator
controls investments and bears the risk of the investments. This
kind of plan guaranteed a steady stream of income throughout the
years of retirement, though subject to inflation rates, unless
the company has a cost-of-living provision.
Over the past few years
there has been a shift by employers toward Defined Contribution
Plans such as 401 (K) plans or for the employee to
build her own pension by investment vehicles such as IRAs.
This is largely a voluntary system with limited, if any, employer
contribution. The final payout will depend on how much is invested
and the success of the investment. The government does not insure
this type of income.
Defined Contribution
Plans may include employer contributions, employee contributions
or a combination of both. When workers contribute a portion of
their salary to the plan they defer income tax on these contributions
and the interest earned on the account until the money is withdrawn
for retirement income. (Withdrawal must start by age 70 ½ according
to a set formula or there will be a tax penalty). However, many
low-income, part-time workers cannot afford to contribute to these
plans and they generally require employees to contribute before
the employer will contribute anything.
A Defined Contribution
Plan does not offer the security of a defined benefit plan
because it does not guarantee the amount of benefits one will
receive. In other words, defined contribution plans such as 401K
or 403b (defined contribution plans for employees of educational
or non-profits groups) give individuals the opportunity to save
for retirement but they require that one assume more of the risk
of investment decisions. This year the contribution limit to a
401K or 403b plan and some other retirement accounts is $11,000
and people 50 and over will be able to add an additional $1,000
to their account under a new "catch up provision."
You can also open an
Individual Retirement Account (IRA) which is a retirement
savings plan in which individuals can contribute up to $3000 per
year to an eligible plan offered by banks and brokerages, etc.
Under most circumstances the contributions are tax deductible.
However, if you make withdrawals before age 59 ½ there can be
a very stiff financial penalty. (Withdrawals must begin by age
70 ½. ) The Roth IRA is a relatively new type of IRA in
which one can contribute up to $3000 annually but this contribution
is not tax deductible on your tax return. The advantage to this
type of IRA is that you will not owe tax when you begin withdrawing
your funds upon retirement and you are not required to start drawing
down your funds at age 70 ½ .
Another important thing
to know when planning for your financial security is that Social
Security and pension benefits many times are integrated (the employer
subtracts part of an individual's Social Security benefit from
one's pension) so that people only receive one amount. Furthermore,
federal and other private studies have shown that between 13 and
20 percent of all pensions are calculated incorrectly.
You may want to contact
the Administration on Aging Pension
Counseling Project with such questions as: has my pension
been correctly calculated?; my spouse recently died and his employer
told me that there were no survivors benefits—is this correct?
You may have other
pension questions. The phone number for the pension rights center
in Washington D.C. is (202)296-3776 . For more information you
may call the AoA at (202)619-0724.
The center will counsel and assist older individuals with filing
claims and complaints related to pension and retirement benefits.
It can also provide information, counseling, assistance and referral
regarding pensions and other retirement benefits with special
emphasis on women, minority, rural, and low-income retirees.
Pensions are just one
part of financial security in retirement along with social security
and savings. These are sometimes referred to as the 'three legged
stool.' In order to be secure in the later part of your life,
it is important not to neglect any of the legs of the stool. The
earlier you start learning what kind of pension is available to
you and what job and financial changes you can make, the more
options you will have to prepare for a secure retirement.
Editor's
Note: In light of the Enron employee's pensions loss in value
because of the investment in company stock, the Senate
Health, Education, Labor and Pensions Committee will held
hearings studying retirement-plan security. Senators Barbara Boxer
and Jon Corzine have sponsored a bill, S.1838, to protect "working
people from losing their life savings in the course of an individual
company bankruptcy is to make sure that workers are not disproportionately
invested in any one company."
Betty
Soldz is an author, educator and consultant in the field of aging.
She facilitated workshops and discussion groups for the University
of California Berkeley Retirement Center. Betty is one of the co-authors
of Wise
Choices Beyond Midlife: Women Mapping the Journey Ahead.
She is Past-President of OWL/CA (Voices of Mid-life and Older Women)
and is Chairperson of 50+ and Strong: An Alliance for Women's Health. For
the past 11 years, Betty volunteered with the California Health
Insurance Counseling and Advocacy Program (HICAP) of Legal Assistance
for Seniors and is active in the struggle to protect Medicare and
Social Security. She is now Newsletter Editor and a member
of the Coordinating Committee of Greater Boston OWL and volunteers
with the Friendship Circle Program of SHOWA College, helping visiting
Japanese women students experience American life. Betty
can be contacted at:Milbet@aol.com.
