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Take our daughters to work ... and more

Updated: May 3, 2013 12:14PM

Originally published: August 7, 2001

As I watched proud mothers bring their daughters (and sons) to work last week, it occurred to me that the kids might be missing out on some of the most important lessons. In one day they could get a view of how demanding and rewarding Mom’s work is, but might have missed out on some of the larger financial issues that go with the job.

How many mothers showed their kids the net result on their paychecks--after deductions for taxes, insurance and retirement investments? It might have been enlightening to understand how little is left after a hard day’s work.

And how many moms stressed the future value of the work--giving their kids a peek at their 40l(k) plan statements, showing the importance of letting their money work for them?

So just in time for Mother’s Day, here are two work/money lessons to be shared between the generations of mothers and daughters. Yes, young men need this advice too. But since women still earn on average only 75 cents for every dollar that men earn, and since women live 5 to 6 years longer than men, and thus will need more money, and since women make up three-fourths of the elderly poor, I’m hoping Mother’s Day will provide the opportunity to talk and take action on building a secure retirement.

1. Always build your own Social Security credits.

Social Security uses the highest 35 years of wages to calculate retirement benefits. A woman who is not employed outside the home can at age 62 (age 60 if she is a widow) claim benefits on her spouse’s work records as a dependent wife.

But those benefits tend to be far below the benefits women might have earned on their own.

For example, this year a retiree (male or female) age 65 collects an average benefit of $804 per month from Social Security. But the spouse of that retiree (without her own Social Security earnings record) would collect only about $400. Many women who are not employed outside the home count on receiving that wife’s benefit without recognizing that the most they can receive is half of their spouse’s check. If you’re separated or divorced, that can make a real impact on your lifestyle.

And marriage isn’t a guarantee that you’ll receive any benefits on your husband’s account. Many women will divorce before the 10-year marriage duration requirement to collect on an ex-spouse’s benefits.

Even worse, a divorced woman needs her own Social Security credits to qualify for monthly checks in case she becomes disabled. And if she dies without having had her own separate Social Security account, her children won’t be covered for surviving-child benefits. Today those checks average $657 per month.

Even if a wife is not employed outside the home, there may be ways to build Social Security earnings. For example, many couples run a business together, but the accountant may file all the self-employment income under the husband’s Social Security number. The wife should insist that the income be shared, and reported in both names so she can build her own Social Security credits. It may cost a bit more in FICA taxes, but in the long run it’s worth it.

Or a spouse who helps her husband run his office or practice could become a paid employee, with both Social Security and retirement plan benefits.

2. Always build a separate retirement plan.

Social Security will never be enough.

Take a look at that average monthly check of $804. Even if it goes up a bit through the years with inflation increases, it won’t be enough to cover all your living and potential uncovered medical expenses.

Yet, today women are far more dependent on Social Security for the majority of their retirement income than men are.

That’s bound to change as more women spend longer years in the work force, and as retirement plans become more portable.

Still, having a separate retirement plan is a lesson many mothers never knew to pass on to their daughters.

So here are some things to remember:

* Even non-employed spouses can have an Individual Retirement Plan. Couples filing a joint return with less than $150,000 of adjusted gross income can each qualify for a nondeductible Roth IRA contribution of up to $2,000 each. All the investment earnings will come out tax-free at retirement age 59 1/2 if the account is held for at least five years.

* Non-employed spouses in couples with incomes under $150,000 can still have a traditional, deductible individual retirement account if the working spouse is not active in a company plan. Worst case, if he is in a plan, she could open a traditional nondeductible IRA.

* Many working wives forego contributions to their own company retirement plans in order to have more cash for household and child-rearing expenses. They figure their spouse’s plan might have better investment options, or a larger match from the company. But even though retirement plans might be considered marital property in case of a divorce, each working woman should have her own, separate retirement plan. And if she leaves her job, she should roll it over into her own, separate IRA rollover account.

Many women still live in dread fear of becoming a “bag lady” in their old age. If you take these two steps, you’ll go a long way to making sure the bag you’re holding is full of cash. And that’s the Savage Truth.

Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail at Her third book, The Savage Truth on Money, recently was published by John Wiley & Sons Inc.

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