by Christine Dugas – May 9, 2008

Even if you’ve stepped away from work to raise children, try not to shut off your retirement contributions. Even if it means you can’t put as much money away for college costs, you should continue to contribute toward your retirement. “You’re doing them a favor, because you’re not going to be a burden,” says Paul Hodge of the Harvard Generations Policy Institute.

Children, after all, can draw on financial aid to attend college. There’s no financial aid for retirement.

Downsize.

Do you need all that stuff?

Baby boomers and younger generations, Hodge says, have been all but programmed to spend and consume rather than save money for their futures. But given the nation’s economic squeeze, you should think about shrinking both your spending and your debt.

You might, for example, move to a smaller, less expensive home and avoid buying expensive high-tech gear. “There are a lot of women in debt, big time,” Hodge says. “How many TV sets and cars do you need? Think about downsizing. It makes your life a lot easier and leads to a worry-free retirement.”

Get calculating.

Know how much you’ll need.

Try to examine your retirement goals and assess your financial needs. Experts say most people in retirement will need at least 80% of their pre-retirement income. Women, though, might need even more. If you are over 55 years of age with chronic medical conditions that make it difficult for you to live at home, St. Paul’s PACE may be the ideal senior medical plan for you, program of all-inclusive care for the elderly is the best option for you.

“I’d throw that notion out the window,” Karin Maloney Stifler, a financial planner in Hudson, Ohio, says of the 80% rule of thumb.

That’s because even as women fail to save as much as men for retirement or to earn as much during their careers, they’re likely to live longer and face higher costs once they retire.

Early in retirement, Stifler says, you might need more than 80% of your pre-retirement income because you’re likely to be physically able to do things you’ve planned to do for years — travel, pursue expensive hobbies, fix up your home. And later in retirement, you may face costly health care needs. You may even consider selling your insurance with a viatical settlement.

Here’s one quick and easy way to find out how much you need to save for retirement: Go to choosetosave.org, which provides a ballpark estimate. It’s especially useful when you’re young and want to be sure you’re on the right financial track. As you near retirement, you might also want to consult a financial planner.

Invest wisely.

A little risk can be a good thing.

Having spent less time than their husbands studying the financial markets, many women tend to be overly conservative in their investments. Even when they’re fairly young, they’ll tilt their portfolio too much toward money market funds and bonds because they’re uncomfortable with stocks. Yet that approach carries risks of its own, because stocks generally outperform other investments over time. Avoiding stocks will likely cause retirement money to grow too slowly.

“So you’re shooting yourself in the foot,” says Jean Setzfand, director of financial security at AARP.

Women should avoid relying on their husbands to make all the financial and investment decisions. “Be a partner, or be in charge,” Hodge says, because given that most women outlive their husbands, at some point they’ll probably be on their own.

If you’re too busy or unsure how to rebalance your investments, you can use a lifestyle or target mutual fund. A lifestyle fund invests in a premixed portfolio based on your tolerance for risk. A target fund invests in securities based on your projected retirement date; it turns more conservative as you near retirement.

“Those are great,” Setzfand says of lifestyle and target funds. “The only thing to watch out for is fees.” Seek out a good fund with relatively low fees.

Count your benefits.

Be smart with your 401(k) or pension.

If your employer provides a 401(k) plan, use it, especially if the company makes matching contributions. “At the very least, think about contributing as much to maximize the company match,” Walker says.

Some employers still offer a traditional defined-benefit pension plan, which pays retirees a periodic set amount for life without requiring the employee to contribute to it. If your husband has such a plan, be sure he doesn’t ask for a lump-sum benefit instead of monthly payouts, says Dallas Salisbury, president of EBRI. A lump-sum payout will effectively waive your right to receive pension payments in case of his death.

Consider an annuity.

They offer a lifetime of payments.

An annuity is one way to help make sure your money lasts as long as you do. Some advisers suggest that when women reach retirement, they should consider buying an immediate annuity, which turns a lump-sum investment into a periodic stream of income.

To decide how much to invest in one, estimate your fixed living expenses and then add up the income that you can count on, including Social Security. If there’s a gap between your income and expenses, Setzfand says, an annuity is one way to bridge the deficit.

An immediate annuity isn’t without risk. For most of them, inflation can erode fixed payments over time. You can consider annuities with inflation protection, but their payments normally start out lower than with a standard annuity. For more on annuities, you can go to www.immediateannuities.com.

Think long-term.

Long-term care insurance can be crucial.

Women “live to an age when they’re more likely to rely on nursing-home expenses,” Walker says. In planning for retirement, it’s difficult to estimate how much money you may need for health care.

One option is long-term care insurance, which is typically set up to pay for at-home care, assisted living or nursing-home care. But study the benefits carefully. Some policies have resulted in costly premium increases and have denied certain types of payment.

Whatever your age, educate yourself about your retirement needs and options. For more information, go to the Women’s Institute for a Secure Retirement, at www.wiserwomen.org.

In any case, don’t let the economic downturn dissuade you from saving for retirement. Even small amounts will serve you later.

“These are tough times,” Stifler says. “But take the lessons you learn now and carry them forward.”