Mothers would probably do just about anything for their families. That’s among the character traits praised in millions of households onMother’s Day.
But if you are a caretaker-type of mom, make sure you also realize there’s a cost beyond the obvious.
Besides the sacrifices you make daily for your family, you are likely to be making a significant dent in your financial security. Studies show women sacrifice lifelong earnings, pension benefits and Social Security because they quit jobs or work part time to care for children, parents or other family members.
A 1999 study produced for the MetLife Mature Market Institute estimated that Americans lost an average of more than $600,000, including pension contributions, over a lifetime to provide care for elderly relatives and friends. The study focused on caregivers older than 45, three-quarters of whom were women.
Boston College found women who work part time earn 21 percent less per hour than people working full time. The General Accounting Office reported that half of women take unpaid leave after a pregnancy, and that a quarter quit jobs.
There’s debate about the numbers but not the concept: If you are a caretaker, you probably are giving up thousands of dollars, because each raise you get is based on your previous base pay, Social Security benefits are affected by a person’s job history, and pension benefits also are related to your job and pay.
I am not suggesting you change your lifestyle, but knowing the consequences might help you plan and mitigate the impact.
“Women are always behind because of caretaking,” said Tatjana Meschede, researcher for the Institute on Assets and Social Policy. “It’s a real problem.”
The Social Security Administration reports that, in 2010, women age 65 and older received average annual Social Security income of $11,794, compared with $15,231 for men. As women outlive men, they often have inadequate retirement savings after losing husbands.
“Almost half of single women over the age of 65 face the real crisis of outliving their financial resources,” Meschede said.
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What can you do?
If working, save aggressively every year so that if you take time away later, you have money growing in a 401(k) or IRA. Do not take loans from a 401(k), and realize that investing about $25 a week at age 20 can get you close to $1 million by retirement time. But with no savings at 45, you’ll need to invest about $300 weekly to accumulate about $1 million.
As a rule of thumb, you and a spouse should save 10 percent of pay each year. If you have an employer match for a 401(k), the combination of your pay and the match can equal 10 percent of your pay.
If you aren’t working and a spouse is working, your spouse can open an IRA or Roth IRA for you, depositing as much as $5,000 a year, or $6,000 if you are 50 or over. He may be allowed to open an IRA or Roth IRA for himself too. Find the contribution and deduction rules at tinyurl.com/iracontributionrules.
Rather than simply hoping for the best, run a calculation to see if you are on course to have enough saved by retirement. Try the easy “ballpark estimate” calculator at choosetosave.org.
Running a budget helps you identify savings. Visit tinyurl.com/runabudget. A budget will show you your expenses clearly so you make sure, before retiring, that your savings cover them.
A rule of thumb for retirement spending says to remove only 4 percent of your savings the first year of retirement and increase it each year for inflation. If you remove more, you risk running out of money. Also, the rule assumes you invest in a combination of stocks and bonds and earn about 6 percent on your money. Try this calculator: tinyurl.com/planningcalculator.
Invest rather than just save. Money in a savings account won’t grow enough to cover retirement needs. If you don’t know how to invest, consider a “target date fund” or a “balanced fund” that blend stocks and bonds together. If your husband invests for you, know what he’s doing so you aren’t lost if he dies.
To increase the amount of money you will have in retirement, delay taking Social Security. This is especially important for a working spouse. Every year that a person delays retirement up to age 70 increases Social Security by about 8 percent.
Consider buying long-term care insurance in your 50s, so you can get care at home as a widow. Men tend to rely on spouses. Widows won’t have that help.