Mother's Day provides the perfect opportunity to celebrate your love and appreciation for the moms in your life. So buy flowers and make dinner reservations, or whatever your custom is. But before too many days pass, schedule a "reality check" conversation about personal finances to make sure your mother is covering all her financial bases.
On average, women live about seven years longer than men and earn only about two-thirds as much. Plus, women often spend far fewer years in the workforce because of time taken off to raise children or care for elderly family members. So it's not surprising that many women have less income at retirement and need to make it last longer.
Here are a few topics you may want to cover in your discussion:
Retirement savings come first. Although you can borrow money to pay for your children's college, a house or a car, you can't get a loan to pay for retirement. Make sure your mom has an IRA or 401(k) plan and is socking away as much as possible. The IRS even allows catch-up contributions for people over age 50.
Pension annuities. By law, the default pension payout option for married couples is a qualified joint and survivor annuity, where the surviving spouse continues to draw pension benefits after the pension holder's death. Some couples (with written permission only) instead choose a single life annuity because it pays a higher monthly benefit. However, once the pension holder dies, the spouse no longer receives benefits.
If your mother will likely depend on your father's pension during her retirement, make sure they fully understand the financial implications before opting for a single life annuity. Also note that in some cases, she may qualify for a pension benefit from an ex-spouse's pension after divorce. If this wasn't spelled out in the divorce settlement, consult an attorney.
To track down an old pension, try contacting that employer first; if that doesn't work, contact the Public Benefit Guaranty Corporation, which protects and guarantees most pension plans, including those that closed or went bankrupt, PensionHelp America, or the Department of Labor's Employee Benefits Security Administration.
Social Security benefits. Because of their lower average earnings and longer life expectancy, a higher percentage of women than men depend on Social Security for the lion's share of their retirement income. Even if your mother didn't pay into Social Security through work, she's eligible for benefits as long as her spouse did. And, if your mom qualifies under her own work record as well as your dad's, she generally will receive the higher benefit amount.
Widows can tap Social Security benefits as early as age 60 (50, if disabled). And spousal benefits are available if she's divorced, provided the marriage lasted at least 10 years, she remains unmarried and she is at least 62. But remember, the earlier your mom starts receiving Social Security, the lower her monthly benefit will be.
The Social Security Administration created a special website for women that provides information on retirement, disability and other issues -- in English and Spanish. You can also order or download their informative, free publication, "What Every Woman Should Know." Take some time to review these materials with your mom. You can also call toll-free at 800-772-1213 to ask questions.
Another good resource is the Women's Saving Initiative, a program jointly developed by Heinz Family Philanthropies, the Women's Institute for a Secure Retirement (WISER) and my employer, Visa Inc. This free program features a book called "What Women Need to Know About Retirement," which includes a detailed chapter on Social Security. It can be downloaded as a PDF file or ordered on a CD, which also contains an audio file that can be played online, in the car or on an iPod.
Crunch the numbers. You can help your mom estimate her retirement needs by using online interactive calculators, including:
- Social Security's Retirement Estimator, which automatically enters her earnings information from its records to estimate her projected Social Security benefits under different scenarios, such as age at retirement, future earnings projections, etc. They also have a more detailed calculator you can download to make more precise estimates
- AARP has a Retirement Nest Egg Calculator that helps calculate how much she'll need to create a secure retirement.
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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