Retirement is a tough issue for everyone. Saving and investing enough to last throughout retirement is a challenge for both men and women. However, women traditionally have some added issues to face, especially women of the baby boomer generation. Here are a few of those issues and some tips for women to help ensure they meet their retirement savings goals.
Although this gap is narrowing in some industries and professions, women often earn less than their male counterparts for doing the same work. Of course, this is unfair, but it’s a fact in many cases.
Time Away From Work
Women are traditionally more likely than men to have taken time out of the workforce during their working career. Giving birth and raising children are common reasons. Additionally, women are more likely than men to take time off work to serve as caregivers to family members such as aging parents.
The caregiver role often occurs as women are nearer to retirement, when they are in their 50s or older. This results in lost income and also in lost years of saving for retirement. Additionally, women who take time off to serve as caregivers may then have trouble resuming their careers once this role ends.
Longer Life Expectancies
According to the Social Security Administration, the average life expectancy for women is 86.6 years versus 84.3 years for men. In doing retirement planning it is important to be conscious of this discrepancy and avoid using averages.
For married women this can result in their becoming single later in life and having to adjust to the financial aspects of that. If the woman has deferred all or most financial decision-making to her husband, this can be quite an adjustment whether she is in the process of saving for retirement or is retired and now needs to manage her own financial affairs.
Ways to Avoid a Retirement Shortfall
Plan for a longer life expectancy. Whether married or single, women need to make saving for retirement a key priority. Take advantage of your 401(k) or similar employer-sponsored retirement plan, fund IRAs, and save and invest via taxable accounts. If you use any sort of retirement calculator, use a long life expectancy; 100 is not unreasonable.
Ensure that you qualify for Social Security. For women who leave the workforce for long periods of time, it is important you keep track of your earnings and the quarters worked for the purpose of calculating and maximizing your Social Security benefits.
Understand your Social Security benefits. If you are married, there is a degree of planning that needs to go into deciding when to claim your benefits as a couple. In many cases it will make sense for the spouse with the higher earnings record to wait as long as possible before beginning to receive payments in order to maximize the potential Social Security survivor’s benefit for the other spouse. Often, especially among boomer couples, the woman is the spouse with the lower benefit, so maximizing the potential survivor’s benefit is important in light of the longer life expectancies for women.
For single women it is critical you look at the ramifications of taking Social Security as soon as you are eligible versus waiting as long as possible. This decision is an integral part of your overall retirement planning. The breakeven point between taking your benefit as soon as you are eligible and waiting until your full retirement age tends to be somewhere in your 80s, depending upon the particular study.
Know your options under Social Security if you are divorced. There is a whole set of rules governing the ability of a divorced spouse to claim a spouse’s benefit based upon the earnings record of an ex-spouse. If you are divorced it is important you understand these rules to determine if you can benefit. There is also the ability to collect a survivor’s benefit from an ex-spouse under certain circumstances.
Understand the impact of leaving a job. While there are other priorities in life beyond work, women need to understand the financial impact of leaving a job. How will this impact their retirement readiness? Will they be able to re-enter the workforce easily if and when they are ready to do so? How will this period of eliminating or reducing their contributions to their retirement savings impact their ability to retire?
Keep track of retirement plans from former employers. Workers of both sexes are likely to change jobs several times throughout their careers. It is important you manage any old 401(k) or similar retirement plans.
Be an active participant in the financial planning process. In too many cases married women abdicate most financial aspects of their life to their husbands. Even when dealing with a financial advisor where both are the client, too often the advisor focuses on the husband. This probably accounts for the fact that when couples divorce or the husband dies first, the newly single woman switches financial advisors a significant percentage of the time.
Women need to be actively engaged in their own financial success whether married or single. They need to be involved in their own financial planning whether they are doing it themselves or working with a financial advisor. In the latter case, if the financial advisor is not taking you seriously or is talking down to you because you are a woman, fire that advisor and find someone who will treat you like the valued client you are.
Retirement planning is tough for everyone. Life expectancies are longer, meaning your money has to last longer.
Retirement planning for women comes with its own set of issues, including an even longer life expectancy, earnings that are often lower than those of their male counterparts and the greater likelihood of extended periods out of the workforce. Whether doing your own planning or working with a financial advisor, make sure you take these and other unique factors into consideration.