Your Financial Future: Women should pay special attention to finances
March is Women蘑菇视频 History Month.
Women often face bigger retirement planning issues than men. There are several reasons for this. Unfortunately, many women have had to deal with glass ceilings that unfairly limited their opportunities for job promotion. There has also been much written about woman getting paid less than men for the same job.
These two factors mean lifetime earnings are often lower for women. And, since women more often serve as the caregiver to their children or parents, they may have fewer years of earnings.
Women often marry men a couple of years older than them. This, combined with longer average life expectancies of four to six years means that they may live in a single-income household for more years than men. This means that they will probably spend more on health care expenses than men and are more likely to need long-term care than their husbands. When a husband needs this assistance, often, their wife is available to help. When the women need the help, they are often widowed.
Upon the first death of a spouse, household income almost always goes down. One Social Security check will disappear and maybe half of the pension. Expenses do not go down very much, only the food and personal expenditures of the deceased. Property taxes, utility costs and home repairs stay the same whether there is one person or two living in the home.
One thing that goes up dramatically is income taxes. A middle income couple both over 65 and earning $60,000 per year could see the tax bill go up as much as 442%. In this example, we are assuming that half of the income is coming from Social Security and the other half is coming from 401(k) withdrawals. If one spouse was receiving $20,000 per year and the other $10,000, upon the first death the $10,000 check would disappear. Social Security is gender neutral so it would be the same no matter which spouse died.
The surviving spouse would need to take an extra $10,000 out of qualified funds to make up for the lost Social Security check since expenses went down so little. The federal tax due would increase from $988 to $5,357 鈥� an increase of 442%.
This is known as the widow蘑菇视频 penalty. This same thing happens anytime someone moves from married filing jointly to filing single. This would include changing marital status due to a divorce. This is a result of getting less free money from personal deductions, and reaching higher tax rates sooner because each one is almost half the size. Talk to your tax adviser about this situation.
Everyone needs a written financial plan to maximize their enjoyment during retirement. It all starts with income planning. Reduce your debts, increase emergency money and truly understand your financial condition. Live within your means. Be prepared and start saving earlier. These are the basic steps to retirement planning. Remember, for many women and others this may last 20 years or longer.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.