What, Me Worry?

Karen Williams feared she would never be able to retire. Had it not been for the $21,000 buyout she received from Michigan’s Wayne County Regional Educational Service Agency earlier this year, Karen, who is 60, would still be working. She has been saving for retirement for the last 14 years. Before that, she worked at a local YWCA but left after nine and a half years due to illness, not realizing that she needed to work for 10 years in order to be vested in her company’s retirement plan.

The $21,000 she received this year is the bulk of what Karen has to survive on. She receives a pension payment of $3,150 each month before taxes, but because it is tied to Social Security, the amount she receives will decrease once she reaches age 65. Since she lost a significant amount of money from her 403(b) plan and through an investment club during the recent market downturn, Karen is wary about investing. Afraid of losing her money, she has her windfall in a simple savings account. She hopes that there might be a way to invest so that the money will serve her better over the long term.

Until recently, Karen had $22,000 in debt after completing her Ph.D. from Wayne State University, as well as other expenses after she got divorced 25 years ago. Her son helped her set up a consulting business, and she used the money from this second job to pay down her debt. “I have concerns,” says Karen, “not so much about the next year or two, but beyond that, especially if I stay on this fixed income, which is substantially less than I was making.”

“Most retired women’s primary concern is cash flow,” says Cheryl Creuzot, president and CEO of Wealth Development Strategies L.P., a financial management and planning firm. “They need to ensure that they don’t outlive their income.” According to the Women’s Institute for a Secure Retirement, single, older women, including widows, receive more than half of their income from their Social Security benefits. In fact, Social Security is the only source of income for 40% of African American senior citizens. Most financial advisors say that retirees need about 70% of their pre-retirement earnings to comfortably maintain their standard of living. Social Security will replace about 40% for those with average earnings, which means that almost everyone will need supplemental forms of income such as a pension, savings, or other investments.

The first goal is to reduce expenses. Karen did so by setting up her consulting business, which allowed her to eliminate debt. Creuzot says Karen should continue working in order to save more to supplement her retirement income, especially since her health is a concern and she does not know how much longer she will be able to work. Women should never retire simply because they reach retirement age. They should first calculate how much they should receive from Social Security, then be prepared to work until they have enough put away