Many women face a lethal combo when it comes to saving for the future: On average, they have about $50,000 less in their 401(k) account compared to men and they live about six years longer. It’s no surprise that many women are stressed out about reaching their savings goals. But there is hope!
At the end of last year, lawmakers signed a series of retirement changes into law, known as Secure Act 2.0. Although these provisions include dozens of important changes for all retirement plans, there are six changes that can be especially beneficial to women.
- Extended Required Minimum Distributions
Anyone with a tax-deferred retirement account, like a 401(k) or SEP IRA, is subject to required minimum distributions (RMDs). Secure Act 2.0 pushed back RMDs to start at age 73 beginning in 2023 and age 75 starting in 2025. Extending RMDs gives your retirement accounts more time to grow before having to withdraw funds, which also increases your options for planning strategies. This is especially beneficial for women, who tend to live longer and may need to make their retirement savings stretch over a longer period of time. Plus, RMDs boost your taxable income, so delaying RMDs can potentially protect you from being bumped into a higher tax bracket.
- Increased Access to Savings Plans
Women are often the primary caretakers for their children and aging parents. As a result, nearly two-thirds of part-time workers are women! Many part-time employees have struggled to qualify for company-sponsored retirement plans, but Secure Act 2.0 makes it easier. Beginning in 2025, part-time workers with at least two consecutive years of service (totaling 500 hours each) can participate in employer-sponsored 401(k) or 403(b) plans.
- Penalty-Free Emergency Withdrawals
One in four women experience abuse from their partner, and when survivors escape a toxic situation, they may lose their jobs, be forced to leave their homes or face other significant expenses, like medical bills. Starting in 2024, individuals who have experienced domestic or sexual violence are allowed to take distributions from their retirement account without incuring the usual 10% early-withdrawl penalty, so long as the funds are used to address the financial consequences of abuse. This emergency withdrawal allowance can provide women with much-needed financial support to help overcome some of the challenges they face while creating a fresh start.
- Automatic Enrollment in 401(k) Plans
Previously, employees had to opt in to participate in a company 401(k) plan but Secure Act 2.0 encourages employers to auto-enroll their workers and include an automatic escalation to their contributions over time. A recent study found only 17% of women are taking advantage of an employer-sponsored retirement account, but automatic enrollment could increase the number of women who participate in retirement savings plans and help increase their overall savings rate.
- Student Loan Repayment Assistance
Starting in 2024, employers can match contributions to retirement accounts for employees making student loan payments. Americans hold $1.7 trillion in student loan debt, and two-thirds of that debt belongs to women! By providing a boost to your retirement account, this provision allows women with student debt to work towards becoming debt-free while also prioritizing their future retirement.
- Financial Literacy Support
When Secure Act 2.0 passed legislation, it showed that lawmakers care about financial education, and the new provisions encourage both businesses and individuals to pursue better financial literacy. Less than 50% of women feel confident about their finances, but Secure Act 2.0 provides some of the tools and information needed to help women become more financially savvy and feel empowered to make good decisions about their financial future.
Other Ways to Boost Your Savings
Even with these recent improvements to the retirement planning system, many women may still feel behind. If that’s you, there are some key steps to help you on your journey to retirement.
Start saving early and contribute regularly to your retirement accounts. Even small contributions made consistently over time can add up to significant savings, thanks to the power of compound interest.
Maximize your contributions every year, whether you are using a 401(k), IRA or another type of retirement account. At the very least, make sure you are contributing enough to take advantage of any employer matching contributions you have access to.
Make sure you have a comprehensive retirement plan that addresses your current financial situation, retirement goals and anticipated expenses in retirement. This will help you set accurate savings goals and help ensure your assets are allocated properly.
Consider working with a financial advisor who can help you create a personalized retirement plan. Our customized financial roadmaps are built around your unique goals and dreams. Not only do we provide investment advice and accountability as you work towards your savings goals, but we care deeply about the personal aspects of your life. When your financial plan aligns with your values and dreams, the journey to retirement will be that much more enjoyable.
To learn more about our financial roadmaps, schedule a meeting at zephyrusfs.com. Stay connected to us and the latest financial news by following us on Facebook and LinkedIn.