by Archie M. Richards, Jr., CFP^®
March 6, 2006

If you're a woman over 50, you may be woefully unprepared for retirement.

Seven-out-of-ten babyboomer women outlive their husbands. Older women are twice as likely as older men to live in poverty and three times more likely to live alone.

Many women stay at home during working years to care for children or elderly relatives, relying on their husbands for financial support. But they outlive men by an average of five years. If the husband dies first, as is likely, Social Security and the husband's pension income drop significantly. It's vital for women to have their own resources to cover many years of retirement.

Here are ways to develop those resources:

• If you can work and don't have a job, obtain one, to participate fully in the employer's retirement arrangements. Take maximum advantage of employer matching. For example, if the employer matches 50 percent of your contributions up to $3,000 a year, jump through hoops to contribute $3,000 a year. Make maximum contributions wherever you can, including extra "catch-up" additions permitted for those 50 and over.

  Even if you're not employed, invest up to $4,000 a year in an IRA ($5,000 if you're over 50). Save additional amounts, if possible, in a taxable account.

  In any event, make additions to all these accounts automatic. Don't decide what you want to spend and contribute checks for the balance. Instead, set up direct electronic deposits and arrange your life to spend what's left. Put pressure on yourself to minimize spending.

• Don't use money-market funds, savings accounts, or CDs for your investments. These are okay for funds you know you're going to need in five years. Otherwise, go for growth with moderate risk, investing 60 percent in U.S. and foreign stocks, 20 percent in real estate investment trusts, and only 20 percent in long-term bonds. Check out the selected columns and the "Suggested Portfolios."

• Do not allow your husband to purchase an annuity with a single-life payout. When he dies, the income comes to a screeching halt, and you're left in the cold. Even though the monthly income is lower while you're both alive, choose a joint-life payout, causing the income to continue for your life as well as his.

• If you and your husband have a mortgage on your house, and his income is used to make the payments, buy insurance on his life for the amount of the balance. But don't use whole life insurance, which would remain in effect for your husband's entire life. Instead, buy inexpensive term insurance. If 15 years remain on the mortgage, for example, acquire 15-year term life.

• Unless you're the family's principal money earner, avoid any life insurance on your own life. Take care of your own needs first. You did your best with the children; let them care for themselves. Put money into your investment portfolio, not into life insurance. Whatever remains in the investments after you die can benefit the children.

• Do not transfer your assets outright to your children to save estate taxes or enable them to "get at" the money when you become incapacitated. Keep control. The chances are, estate taxes will be repealed before long. More importantly, if the child to whom you transfer money has a serious automobile accident and becomes incompetent, you're left high and dry. After you've made a completed gift, the probate court will not allow you to take the money back.

To provide care during your own incapacity, ask an attorney to prepare a durable, general power of appointment. The power is "durable" in that it survives and remains useful even after you become incompetent. It's "general" in that the person to whom you give the power (who need not be an attorney) can do almost anything you could have done with the money had you remained competent. Better yet, write a living trust. (For more information about this, see my website.)

Your resources may be less than your husband's, but your retirement will probably last longer. Start now to redress the imbalance.