05/09/2012 09:42 am ET Updated Jul 09, 2012

For Mother's Day, Discuss Mom's Financial Future

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:
  • The annual median income for full-time working women was $36,000, compared to $48,000 for men.
  • Average annual Social Security income for women over 65 was $11,794, vs. $15,231 for men.
  • For unmarried women over 65 (including widows), Social Security benefits comprise 49 percent of total income on average, compared to 37 percent for unmarried men and 32 percent for couples. In fact, Social Security accounts for more than 90 percent of total income for nearly half of all elderly unmarried women.

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:
  • 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 is at least 62.
  • Although many states don't tax Social Security benefits, the federal government counts them as taxable income. So, depending on your mom's overall retirement income, she could owe federal tax on a portion of her benefit. IRS Publication 915 has full details.
  • If your mom begins drawing benefits while still working, they could be significantly reduced depending on her income. Read How Work Affects Your Benefits for details. (Note: The reductions aren't truly lost since benefits will be recalculated upward at full retirement age.)

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:
  • 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's Retirement Nest Egg Calculator helps calculate how much she'll need to create a secure retirement.

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.

Follow Jason Alderman on Twitter: