Planning for retirement is difficult for anyone, but particularly for women.
Women today have more priorities in their lives than they’ve ever had — careers, families, friends, health, community and finances. With all those priorities come greater complexities when planning for retirement.
“Women’s life events are unique and generally more complex,” said Lee Anne Davies, head of retirement strategies at RBC.
“Many women begin their careers in the workforce, then leave to raise children, and then go back to work.
As they approach retirement they often have to assume more responsibility for aging parents or relatives, and there is an increased risk of divorce or dissolution of a partnership.
All of these factors make financial planning for women more complex.”
Some other key structural changes in society are putting even more pressure on women.
For one thing, women are living longer than men, can expect to spend more time in retirement and therefore likely will need more money than men.
In 2005, the average life expectancy for both genders was 80.4 years.
By 2031, however, the life expectancy for men is expected to be 82 and 86 for women. The Canadian Society of Actuaries predicts that at age 65, women will have a 50 per cent chance of living to 85 and a 25 per cent chance of living until 92.
As well, women on average retire a year earlier than men and during their working years they make 65.7 cents for every dollar made by their male counterparts.
“This leads to less time to earn income, and while they are earning, it is less than men, which means they need more money to fund their retirement,” said Patricia Lovett Reid, senior vice-president of TD Waterhouse.
According to TD’s ninth annual female investor poll, women are concerned about saving enough for their golden years and only 20 per cent are confident of having a comfortable retirement.
Only 30 per cent have a formal retirement plan and 27 per cent of non-retired women aged 45 to 64 don’t know how much money they need to accumulate before they retire in order to meet their retirement goals.
“In this case, it’s the destination that’s important, not the journey,” said Lovett-Reid.
“Simply having a plan to save for retirement is not specific enough. We need to ask ourselves what kind of life we want to lead in our retirement. Only after we’ve determined out lifestyle goals can we put a plan in place to make those dreams a reality.”
Davies suggests that women start contributing to their RRSPs as soon as possible and use tax savings strategies such as income splitting through spousal RSPs.
“Start early and get these things working for you as soon as possible,” Davies said.
A spousal RRSP is where one spouse makes a contribution to the other spouse’s RRSP.
A spousal RRSP only makes sense when one spouse makes a significantly higher income than the other. The higher income spouse makes a contribution to the plan of the lower-income partner and then claims the tax deduction.
Spousal RRSPs are one of the only practical means of income splitting for such couples. They can help defer taxes right away by shifting income or capital gains to the lower income earner who is taxed at a lower rate and by helping to equalize the income of both partners in retirement and reduce income tax then.
As well, income splitting provides benefits when calculating your old age security (OAS) benefit and any potential clawback.
The OAS program requires a repayment of benefits, or clawback, if your personal income exceeds $53,215.
By keeping each spouse’s income below that threshold, any clawback can be avoided.
The spousal and personal contributions, however, may not exceed the contributor’s overall personal deduction limit. As well, the lower income spouse cannot withdraw money from the plan until two calendar years (Jan. 1 to Dec. 31) after the last contribution is made.
Otherwise, the withdrawal is taxed in the hands of the contributor.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at boggsyourmoney@rogers.com.