Five Ways for Women to Ease Retirement Stress

For many women, retirement isn't the relaxing haven it's cracked up to be. Because women earn less over their lifetimes than men and live longer in retirement, they also tend to have less saved. According to a Government Accountability Office report, 12 percent of women over 65 are living in poverty, compared with only 7 percent of men. For divorced and widowed women, the poverty rate is higher, at 21 and 15 percent, respectively.

Even those with incomes over the poverty level often face hardship. Nursing homes, which women have a greater chance of entering because they generally live longer, cost an average of $71,000 a year, and assisted-living facilities can cost $32,000.

Here are five steps women can take to ease money stress in their golden years:

Save more. The Women's Institute for a Secure Retirement recommends that women develop three sources of money: Social Security, a pension or retirement savings plan such as a 401(k), and individual savings. Partly because women frequently take time out of the workforce to care for children or parents, their Social Security benefits and retirement savings tend to be less than men's, making it more important to store up additional dough.

Start earlier. Manisha Thakor and Sharon Kedar, authors of On My Own Two Feet: A Modern Girl's Guide to Personal Finance, recommend that women dedicate 10 percent of their income to retirement savings, starting in their 20s. Saving 10 percent of a $50,000 salary beginning at age 25, for example, would create $2.2 million at retirement. (That calculation assumes that investments grow at 10 percent a year, gains are reinvested, and annual salary increases offset inflation.)

Maintain management skills. Traditionally, marrying couples turned over the finances to one person to manage. But women who want to keep investing and budgeting skills sharp for life should keep a hand in their finances. Since women live to be 80 on average, versus 75 for men, even those in solid marriages are likely to have to manage their own money one day. According to the Women's Institute for a Secure Retirement, only one third of women between the ages of 75 and 84 are married. Over 85, the number drops to 13 percent.

Consider a spousal IRA. Nonworking spouses, such as those who are taking time out of the workforce to care for children, can still contribute up to $4,000 a year into a retirement account. (In 2008, the maximum contribution will increase to $5,000, and after that it will be adjusted for inflation.) While in most cases, wives are entitled to at least part of their husbands' retirement savings in the case of death or divorce, pensions often decrease if the working partner is no longer living.

Overestimate money needs. Because people are constantly living longer and inflation erodes the value of money, many people underestimate their savings needs. The Women's Institute for a Secure Retirement says that women, given their longevity and lower savings, may want to consider replacing 100 percent of their income during retirement to keep up their lifestyle.