Your Financial Future:
5 Money Myths That Get Smart Women In Trouble
Myth #1: The majority of women are now part of the paid labor force so they will be better off in retirement than current women retirees.
Facts: Elderly women are twice as likely to live in poverty as men and experts do not predict much change in the future because: women earn less money than men and have less to save; caregiving responsibilities make women more likely to leave jobs or work part-time and forfeit pension benefits as a result, and women are more likely to work in occupational sectors, such as the service industry, where pension benefits are less common.
To overcome these challenges, women need to: make a retirement savings plan early in life and stick to it; stay at jobs long enough to earn retirement benefits; and seek out jobs with better benefits when possible.
Myth #2: You need to have a lot of money before you can start investing.
Facts: Many investment companies offer low-cost mutual fund accounts that can be opened with small deposits, some as low as only $50.00. The federal government makes it very simple to buy I bonds, which pay interest rates based on inflation, on-line and with automatic deductions from your checking or savings accounts.
Money invested early in life will reap a greater reward than waiting until later when you have more money. Why? Compound interest—your interest will earn interest over your lifetime and accumulate a larger nest egg than if you wait and invest greater sums of money later in life. A woman who invests $500 each year from age 22 to 30 and then invests nothing until age 65 will have $68,418 available at age 65 from a total investment of $4,500. A woman who waits until age 40, and invests $500 each year until age 65, or a total investment of $13,000, will only have $36,742 available at age 65.
Myth #3: If your spouse has health and pension plans you don’t need to worry about your own health and pension plans.
Facts: Women who rely on a spouse’s retirement or health plan can end up in trouble if they divorce or if the spouse dies. Remember that 80% of men die married and 80% of women die single. Women have a very high chance of spending some part of their later years living alone. Also, relying on just one benefit is not likely to produce enough income to maintain your standard of living after retirement. Couples with two retirement plans have a cushion if one plan loses money or performs poorly over time. Finally, companies can change retirement plans at any time. While you can’t lose benefits you already earned, future benefits can change dramatically. Counting on a spouse’s retirement plan can be devastating if changes are made to that plan to reduce benefits.
Myth #4: If your company has a pension plan, you will automatically receive a benefit.
Facts: Employers do not have to cover every employee in the pension plan. Check to see if your job category is covered in the plan and that you are a member of the plan. Also, plans require that you work for a specified amount of time before you earn benefits. Some plans require as little as 3 years, many require 5 years and there are some that require 10 years of service. Be sure you know how your plan works.
Myth #5: The Medicare program will take care of my long-term care needs.
Facts: Many women are surprised to find out that Medicare doesn’t cover long-term care costs—nursing home or home health care costs if they become disabled and unable to care for themselves. Medicaid pays for nursing home care in many cases, but usually you must “spend down” all of your resources and be impoverished before you are eligible. Women should make a retirement plan that includes a plan for paying for long-term care through a combination of assets and insurance.