On Mother's Day, children of all ages thank their moms for the many sacrifices made during their childhoods -- and well beyond, considering how many adult children still hit up their moms for a loan or free babysitting.
Unfortunately, for many mothers those sacrifices extend well beyond sleepless nights and attending boring recitals. Women frequently leave the workforce during prime earning years to raise children or care for elderly relatives; consequently, they often fall behind when it comes to pay increases and promotions.
As a result, women's retirement account balances and Social Security benefits are usually much smaller than men's. According to the Social Security Administration, in 2010:
Not to mention, women live about five years longer than men, on average, so their already smaller savings and income must stretch even further.
I'm not trying to bring everyone down, but rather to suggest that perhaps your best Mother's Day gift this year might be to initiate a frank discussion with your mom about her personal finances and how she can better prepare for the future. Here are a few topics you might discuss:
Put retirement savings first. You can always borrow money to pay for college, a house or a car, but you can't get a loan to pay for retirement. If she's below retirement age, make sure your mom is enrolled in a 401(k) plan or an IRA and saving as much as possible. The maximum annual 401(k) contribution is $17,000, plus an additional $5,500 for people over age 50; the maximum for IRAs is $5,000, plus $1,000 if over 50.
Social Security benefits. Even if your mother didn't pay into Social Security through work, she'll be eligible to collect benefits as long as her spouse did. And, if she qualifies under her own work record as well as your dad's, she'll generally receive the higher benefit amount of the two.
The longer your mom waits to draw Social Security, the larger her monthly benefit will grow. Social Security "full retirement age" is 65 for those born before 1938 and increases gradually to 67 for those born after 1959. (Use this calculator to determine her full retirement age.)
If your mom meets eligibility requirements, she can begin drawing reduced benefits beginning the first full month after reaching age 62; however, doing so will cut her benefit amount by up to 30 percent. The percentage reduction gradually lessens as you approach full retirement age.
However, by postponing benefits until after full retirement age, her benefit will increase up to 8 percent per year, up to age 70. Those with longer life expectancies often wait as long as possible to ensure a larger lifetime benefit. In fact, because very few investments, including 401(k) plans, yield a guaranteed 8 percent rate of return, many retirees will tap their 401(k) first and postpone collecting Social Security as long as possible.
Also keep in mind:
Social Security's Website for Women provides information on retirement, disability and other issues -- in English and Spanish. You can order or download their free, informative publication, What Every Woman Should Know, or call toll-free at 800-772-1213 to ask questions. Another good resource is What Women Need to Know About Retirement, a free, downloadable book jointly developed by Heinz Family Philanthropies, the Women's Institute for a Secure Retirement (WISER) and my employer, Visa Inc.
Pensions. Find out if your mom is eligible for pension benefits from former employers. If she's ever widowed, she could also be eligible for spousal death benefits from your father's pension. To track down old pensions, first contact the employer; if that doesn't work, contact the Public Benefit Guaranty Corporation, PensionHelp America, or the Employee Benefits Security Administration.
Crunch the numbers. You can help your mom estimate her retirement needs by using online interactive calculators, including:
Discussing finances isn't as much fun as a picnic in the park, but believe me your mom will appreciate your looking out for her financial future.
This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to you and about your individual financial situation.
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Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney