PART FOUR AND CONCLUSION OF A SERIES: What Every Woman Needs to Know About MONEY AND RETIREMENT: AL

If your employer or your husband’s employer does not offer a pension plan or 401(k), it’s especially important that you start making contributions to an individual retirement account (IRA). You can establish an IRA though most financial institutions-banks, brokerage houses, credit unions, etc. There are several types of IRAs, but most require that you wait until age 59 1/2 to begin withdrawing money without penalty. Each type of IRA offers different tax benefits. Your total individual contribution to all your IRAs is limited to $2,000 per year. The deadline for the annual contribution is April 15 of the following year, though the earnings will accrue more quickly if you contribute earlier.

The traditional IRA offers two tax breaks. First, the federal government allows you to delay paying tax on the money you contribute. For example, If you earn $25,000 in a year and put $2,000 into an IRA, you’ll pay taxes on just $23,000. Second, all of your investment earnings from an IRA are tax deferred. This means that no taxes are paid until you start to withdraw the money at age 59 1/2. If you withdraw any money before then, you may have to pay a 10 percent penalty in addition to the regular income tax. But beginning this year, you are allowed to make penalty-free withdrawals for college tuition and catastrophic illness, as well as up to $10,000 for a first-time home purchase.

The ROTH IRA provides tax benefits at retirement rather than up front. Contributions to a Roth IRA — up to $2,000 annually — cannot be deducted on your tax return. But when you begin withdrawing funds from your Roth IRA at age 59 1/2, you will not have to pay any tax. The Roth IRA is available to anyone whether or not they participate in a company retirement plan. However, there are income limits: You cannot invest in this IRA if your adjusted gross income (AGI) exceeds $95,000 for singles and $150,000 for married couples. You can make a partial contribution if your AGI is below $110,000 for singles and $160,000 for couples.

The Spousal IRA: A full-time homemaker is not eligible for an IRA contribution of up to $2,000. Starting in tax year 1998, if your job doesn’t have a retirement plan but your husband’s does, you are still eligible for a fully deductible IRA. To qualify for either, a couple’s AGI must be $150,000 or less.

• The Nondeductible IRA: Some people won’t qualify for any of the IRAs mentioned above or may only be allowed to make partial contributions. They are eligible for a nondeductible IRA, in which your money still grows, tax-deferred, until retirement. Annual contributions, though, are not tax- deductible.
  
• SEP-IRA: These Simplified Employee Pensions are designed for self-employed individuals as well as for small-business owners and their employees. The owner or self-employed worker can contribute up to 15 percent of income, tax-free, for the first $160,000 of income.
  
• SIMPLE IRA: Businesses with 100 employees or fewer can now offer the Savings Incentive Match Plan for Employees (SIMPLE), a salary-reduction plan similar to a 401(k).
  
• Keogh Plans: If you’re self-employed, you can also set up a Keogh, a retirement plan that permits you to set aside substantially more money than you can in an IRA — in some cases, tax-free.
  

TAKE CONTROL
OF YOUR FINANCIAL FUTURE
A Guide to Savings and Investments

Financial planners say that Americans will need 60 to 80 percent of their pre-retirement income when they retire. Actually, women may need 100 percent of their pre-retirement income because:

1. Their incomes — and therefore their savings — are often lower;
   
2. They live longer; and
   
3. Inflation erodes buying power over those additional years.
   
   THREE STEPS TO IMPROVE YOUR FINANCIAL OUTLOOK
   
   Step 1: Get started today — estimate the value of your assets and income. Assets are things you own, such as your home, car, bank accounts, IRAs, lump-sum payments from pensions, 401(k)s, stocks, bonds, and mutual funds.
   
   Step 2: Determine if the payments from your pensions, Social Security, and savings and assets will meet your monthly expenses at retirement.
   
   Request a statement from your employer that estimates the monthly pension benefit you are likely to receive. You may also request an estimated benefits statement from the Social Security Administration (call 800-772-1213). Finally, calculate how much income your savings will provide. Is the total enough to cover your projected monthly expenses? If not, consider saving more and investing those assets appropriately.
   
   Step 3: Learn about investment choices as they pertain to your 401(k) plan or personal savings.
   
   Your employer may offer you a "menu" of about four or five investment choices and allow you to divide your contributions as you wish. Make sure you understand each investment choice; select investments that best suit your age and your tolerance for risk, and consider including stock mutual funds in your plan. In the past, stocks have produced higher returns than bonds and other more conservative investments over a long period of time — although they have also shown greater volatility.
   
   DEFINITIONS AND INFORMATION
   
   What is stock? Stock represents part-ownership in a company and is traded in units called shares.
   
   What are bonds? Bonds are IOUs issued by companies, governments, or other institutions. The issuer agrees to pay back the face value of the bond known as the principal — over a fixed period of time. In return for this "loan" the issuer also agrees to pay a fixed rate of interest to the bondholder for the life of the bond. Bonds are often less risky than stocks, but may be less lucrative.
   
   What are mutual funds? Mutual funds are investments that pool together the money of thousands of investors and invest their money in a variety of stocks, bonds, or other securities. Instead of purchasing, say, a particular stock, you purchase shares in a whole group of stocks. Mutual funds offer small investors the advantage of diversification.
   
   What are load funds? Some mutual funds charge a commission called a "load" — a onetime fee paid when you buy or sell shares in the fund. Those funds that do not charge such a fee are called "no load."
   
   FINANCIAL ADVISORS:
   SOME THINGS YOU SHOULD KNOW
   
   Do I need a financial advisor to help me with my retirement investments?
   
   Many people can educate themselves by reading financial material in newspapers, magazines, and books, and by requesting information from local investment firms. However, if you are uncomfortable in this area, you may want to seek the help of a professional. There are two types of financial advice they give. They do not receive commissions from mutual funds or other financial products that they recommend. Commission-based financial advisors earn commissions on the investments that they sell. The commission-based planning profession is not regulated, so it’s hard to judge a planner’s qualifications. Try to find a licensed broker or a certified financial planner.
   
   If you’re interested in working with a financial advisor:
   
   
   
   • Do not be afraid to interview two or three different ones.
     
   • Beware of someone who promises too much.
     
   • Ask the advisor how the services he or she provides are paid for.
     
   • Find an adviser who will design a realistic investment program for you.
     
     INSURANCE: PROTECTING YOUR
     FUTURE ASSETS
     
     If you’re eligible for Social Security, you will qualify for Medicare, which provides basic coverage for your health needs starting at age 65. But many people purchase supplemental or "Medigap" insurance to help with costs not covered by Medicare. Contact your state insurance department for further information.
     
     Here are three other types of insurance some experts think you should consider: Disability insurance guarantees a monthly income if your ability to work is impaired by illness or injury. Coverage is designed to replace a reasonable percentage of your pre-disability income — sometimes as much as 60 to 80 percent. Even if your employer provides you with some coverage, you may wish to purchase an additional policy.
     
     Long-term care insurance is most often associated with nursing-home coverage, but it can also cover other forms of custodial care if you are no longer able to manage on your own — for example, in-home health aides, or participation in adult day care.
     
     Life insurance helps to replace the income of a spouse who dies prematurely. The simplest kind is called term.
     
     For more information, call the National Insurance Consumer Helpline at 800-942-4242.
     
     IN SUM: WHAT MARRIED WOMEN
     NEED TO KNOW
     
     
     
     • If your husband dies before you do, you can no longer receive the combined Social Security benefit. In other words, you will keep whichever benefit is larger, yours or your husband’s.
       
     • If your husband dies before you do, his pension is likely to be reduced or may stop. Even if you and your husband choose a widow’s benefit, most plans pay only half the pension to the widow.
       
     • If your husband dies before you do, your monthly expenses are likely to remain at 80 percent of what they were before. You will still need to pay for housing, utilities, transportation, medical care, and insurance.
       You are guaranteed some of your husband’s pension because under the federal pension law, traditional company and union pension plans must provide a survivor’s benefit to the wife if the employee dies first. The survivor pension can be forfeited only if the wife gives her permission in writing.
       
     • Different rules apply to certain other retirement plans, such 401(k)s and public-employee pension plans. You must find out what they are in order receive your full benefit.