Building a Retirement Plan:  Start Now!

by Edi Alvarez, MSc, CFP®


gold watch Recently, I met a woman who thought she had planned her fi­nances well, but over the last five years had found otherwise. As an educated professional, she never imagined growing old alone, facing financial obstacles she couldn’t easily overcome.

The fact that women outlive men is common knowledge – “for every 100 women in the [>]65 group, there are only 69 men” (1). Currently, life expectancy for women and men is 83 and 78 years, respectively (2). Not only do women live longer, but on average those who live longer need to support themselves until much later. At age 65, women can expect to live another 19 years (to age 84), and if they reach 85, they can expect another 7 years (or age 92). For women, the likelihood of living alone dramatically increases as they age. For women between 65 and 75 years, 31% live alone versus 13% of men (2). At 75 years and beyond, 52% of women are likely to live alone as compared to 21% of men (2). Furthermore, a massive 87% of widowed or divorced women older than 60 depend on their children for their livelihood or are on welfare (3).

Combined with longevity, women must also contend with a gender pay gap. Although the pay gap is improving, women still earn about 83 cents for every dollar, leaving them with less mon­ey to save and invest (4). Additionally, women are often called upon to care for children, siblings, and even parents. On aver­age, women report that they delay saving for retirement two years after men begin (4). When taking into account relative in­experience investing and an inclination toward conservative in­vestment choices, women are looking at a meager retirement income.

Considering the stakes, women need to take control and have a strong focus on retirement planning. They also need to take a proactive approach to learning about finance and how deci­sions today will impact retirement tomorrow. Young women should be encouraged to have the discipline to save “until it hurts, then save some more” (4), to have patience, and to use ev­ery financial tool available, starting with their very first earnings.

But how is this relevant to those in lasting relationships? A mar­ried couple age 83 and 85 met with me last month, long after making a decision that they must now live with. When the hus­band retired, they chose not to provide a pension for her, opting instead to live on a slightly higher amount. Understanding lon­gevity statistics for women might have helped them make a dif­ferent decision or at least triggered the purchase of life insur­ance in the likely event that she outlives him. Although much could have been done before he retired, the potential impact on his wife is now clear.

Unfortunately, women don’t generally plan for a financially in­dependent retirement, one that is designed to last beyond their partner’s life. Instead, we find that a majority of women older than 55 depend on their husbands for retirement planning (3).

For some, they or their partner will be among the lucky few (17% of those currently employed) who will have a pension in addi­tion to a 401K and Social Security (5). For the rest of us (83 %), re­tirement will consist of a 401K (or other tax-deferred accounts) and anything else we’ve managed to save, along with Social Se­curity (5). It is my experience that those with an employer-paid pension or an annuity feel that they are covered for retirement because they have guaranteed income, but when they take a closer look, many retirees find that their pensions and annuities are not as they expected, particularly since they seldom are in­flation-protected or provide survivor benefits. On their own, most pensions are not sufficient to support retirement needs. They can, however, be a tool that, when combined with other retirement instruments, results in a financially sound retirement.

Why should women in science be particularly mindful of this? Many women who have planned for retirement have built their retirement nest egg by saving maximally over a long period of time. Combining a strong saving ethic with good investment advice provides the best scenario for retirement. In my experi­ence, most scientists have little time or money in the early years of graduate studies to save or plan adequately. Further delays occur when women spend years under-earning to accommo­date family life and post-doctoral experiences. As a general rule, women scientists must save more and sooner (I can’t emphasize this enough) to benefit from the power of compounding inter­est and to allow time and a diversified portfolio to work its magic.

I’d like to address one specific tool available annually to some in­vestors and this year (2010) to all investors: The Roth-IRA. A Roth-IRA is an account that contains after-tax funds and holds them until retirement, allowing the choice of when to distribute them tax-free. A Roth-IRA account is a tool that when properly used can provide incredible tax savings and flexibility for many retirement goals. Of course, one should make certain that a Roth-IRA is appropriate for one’s financial situation and person­al investment strategy (6), as well as determine one’s eligibility on a yearly basis. Most young working investors qualify and should contribute at least some of their annual income. This year the income limit is $105,000 (for singles) and $166,000 (for married couples) allowing for a maximum post-tax contribution of $5,000 (or $6,000 if over 50) annually (6). Even if one’s income exceeds contribution limits, one can consider executing a con­version of at least a portion of tax deferred funds to a Roth-IRA. The decision to make this conversion should be made based on retirement projections using current tax and expected future tax brackets as well as retirement cash flow.

How else might this account be useful? Consider that tax-de­ferred accounts (such as traditional IRA, SEP-IRA, SIMPLE-IRA, 401K, 403b) provide a tax deduction today but are fully taxable when used. In addition, these accounts have a mandatory distri­bution requirement based on age (starting at 70.5 years) and ac­count balances that will result in taxable income (the mandato­ry required minimum distribution or RMD), whether you want to use that money or not. A Roth-IRA, on the other hand, has no mandatory distribution age, which can add flexibility to retire­ment cash flow, tax-free. It can also be inherited tax-free. If it fits into your retirement plan, 2010 is a perfect year to do such a conversion particularly since tax-deferred accounts may still be depressed. Converting and paying taxes on a depressed portfo­lio allows for the recovery to occur tax-free.

There are situations in which Roth-IRA conversions would be in­appropriate, for example, if one doesn’t have the funds to pay for the additional tax in 2010 and does not wish to extend the income through 2011/12 (since tax rates in future years are still unknown). It may also not be appropriate if projections show a disadvantage either in taxes or in retirement cash flow. Finally, it may not be a good tool if debt planning and emergency funds are not under control.

Women often live longer than their male partners, potentially creating unexpected complications in their waning years. Rela­tionships don’t always last, and most don’t want to depend on family for retirement support. You may have heard of “Bag Lady Syndrome” (the fear that we will someday be left homeless and on our own). Such fears are completely baseless IF we plan wise­ly, regularly, and effectively. Make use of all available tools annu­ally and start your retirement plan today!


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Thanks to everyone who shared their personal experiences. Your continued feedback helps to make the Money Matters column relevant.



1. Gleich, G. (2009 April 7) Geriatrics Inter clerkship. From:

2. Weeks, C. (2010 February 23). Life Expectancy gap closing between men and women. Globe and Mail. From

3. Fisher-French, M. (2010 August 24). The Financial Vulnerability of Women. Johannesburg, South Afri­ca. From:

4. Wiles, R. (2010, September 19). The Arizona Re­public. Some Groups Lag in Money to Retire. From:

5. Collins, M. (2010 June 11). Bloomberg. From:­tirement-income-as-u-s-workers-outlive-savings.html.

6.,,id=137307,00.html – Publication 590 pages 56-58 in


© 2010 Edi Alvarez. All rights reserved.