Women: We Need To Plan Our Retirement!

By Paulette C. Pasquale
Certified Financial Planner, W3 Wealth Management

When it comes to being prepared for retirement, women face many different obstacles and are likely to be less financially secure. There are many reasons for this. 

First, women tend to have much lower lifetime earnings that men – averaging only 60% of men’s lifetime earnings. This probably means lower lifetime savings and also means that their Social Security benefits are lower than for a man with comparable education. Lifetime earnings for women are typically lower for several reasons.  

Second, women tend to choose lower paying careers with less opportunity for advancement (consider social services vs. tech).  They are also less likely to negotiate for their pay, and more likely to be subject to wage inequality.  

Another major factor in reducing women’s lifetime earnings is that they are more likely to take time out of their careers, either through temporary leaves or shifting to part-time employment, to care for children, aging parents or an ailing spouse.  

Third, women have longer life expectancies, which means their retirement portfolio, must last longer.

Therefore, it is very important for women to become involved in planning their financial future. This means they need to pay attention to their financial lives, be involved in making decisions and be sure to understand the decisions being made.  

Very often one member of a household handles financial decisions.  However, it is very important for both to be engaged with finances and understand what’s going to happen when one becomes the surviving spouse. You don’t have to be an investment guru. But you do need to understand your finances.

What are some ways to improve the outlook?

One of the best ways for anyone to improve their retirement outlooks is to start saving early in their careers and to maximize contributions whenever possible. Starting early and saving heavily early in your career also allows you to cut back a bit during the years you are raising a family, while the money you have saved is working and growing for you.  

As you reach your peak earning years and your family financial responsibilities are ebbing, you have another opportunity to max out your retirement savings with catch-up provisions that allow people over age 50 to save extra in their retirement plans.  

It is also important to put your savings to work for you. Women in general tend to invest more conservatively.  While this may feel safer in the near term, being too conservative reduces your ability to have your savings grow as they should over the long term. 

One approach is to use target-date or managed portfolios that will allow you to invest in a portfolio with an appropriate level of risk while allowing your assets to grow. Seeking professional advice can be very beneficial to determining how much you can afford to save, how much you need to save as well as how to invest.

When should I take my Social Security?

Making smart Social Security decisions will allow you to maximize your total lifetime Social Security benefits and dramatically improve your outlook. Consider delaying taking your benefits for as long as possible, perhaps until age 70.  

Your lifetime benefits increase dramatically with each year you wait. If you elect to take benefits at age 62 rather than at full retirement age, your monthly benefit will be permanently reduced by 25%.

On the other hand, for each year that you delay after full retirement age up to age 70, your monthly benefit will increase by 8%.  As an example, if your full retirement benefit at age 66 is $2,000, your benefit at age 62 would be permanently reduced to $1,500; if you wait to age 70, your benefit would be over $2,600.  

You also need to make careful decisions regarding spousal benefits to maximize the total lifetime benefits for both you and your spouse. It is important that you do your research before making your Social Security election decisions.

Carefully consider your own benefits versus your spousal benefit, whether you may be entitled to benefits based on a previous spouse’ earnings and whether you are entitled to widow’s benefits.

Understand all options before making a final decision. We recommend consulting with your Social Security office or a financial professional to determine the best options to maximize your lifetime benefits. Remember, women live longer. So this is a decision that will affect you for a very long time.

Does this mean I have to work until age 70?

The age at which you retire does not have to be the same as the age you take your Social Security.  However, you will need income at retirement. 

We often find that drawing money from your savings in the early years of retirement is more than offset by the higher lifetime benefits gained by delaying Social Security.  Think of it this way – where else can you get an 8% guaranteed annual increase?  Careful planning can help determine the optimal timing.

Another option is to consider working longer.  This gives you more years to save, delays drawing down your retirement savings and allows you to maximize your Social Security.  In addition to the potential financial benefits of working longer, many people find that they miss some of the social and mental benefits of working when they retire and have more time on their hands than they desire. 

Working longer does not need to mean staying in a job you dislike or that has become too strenuous or stressful.  Consider the possibility of reducing your hours, or stress level with a job that perhaps pays less but is more enjoyable. Even lower income will mean less drawdown of your retirement savings.

If you do choose to work longer, it will be important to invest in yourself. Continue learning and increasing your skills to remain a valuable employee and be mindful of possible ageism. You should also invest in your health, which is the key to being able to continue working for as long as YOU want to work.  Many employers are happy to have older workers who bring a lifetime of experience and expertise to the workplace.  

Why is it important that women have longer life expectancies?

In general, women tend to live between five to 10 years longer than men. This holds several implications for women in retirement.

First, they are likely to be the survivor and end their final years living alone. The household income will now be lower with the loss of the spouse’s income. The longer life expectancy and lower income later in life will also require greater retirement savings.  

Health care is another expense that needs to be planned for.  Women likely provide much of the care for their partner but will now need 
to rely on others for care as they age. 

And caregiving often takes a physical toll on the caregiver. Women will need to plan for their own future health care, which can be very costly. This is likely to be an additional expense the spouse lacked.

There are many considerations unique to retirement planning for women. It is important to be involved in the financial aspects of your life and take the time to plan for your future.

A financial planning professional is able to provide analysis and insights to guide your decisions.

The examples given in this presentation are hypothetical and are for illustrative purposes only.

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