Women and retirement planning:
The facts are undeniable, women in general have lower lifetime earnings than men which means lower contributions to their retirement accounts. How does this affect women and retirement planning?
Wage inequality along with the fact that women are more likely to stop working in order to provide for caregiving to family members, compounds the problem.
Factor in the fact that women live longer than men, means they need to have a smaller retirement nest egg last longer.
How will my earnings affect my retirement?
Women’s earnings tend to peak earlier in life compared to men’s. As mentioned above, women are more likely to leave the workforce in order to care for others.
According to PayScale, a woman’s earnings peak at age 44 where a man’s earnings peak at age 55.
Nearly twice as many adult daughters provide informal long-term care services to elderly parents as adult sons and nearly 3 times as many mothers have quit a job to care for a child or family member as fathers have.
Because a woman’s earnings will peak earlier than a man’s, it is critical that you take advantage of retirement contributions at two key times:
- The early years of employment when the effects of compounding are most beneficial
- The early-to-peak earning years when women can contribute the most money
Women can play catch-up if they had to reduce or stop working because of caregiving. You can contribute more to your retirement accounts once you are past the age of 50. This is available to IRAs and company retirement plans such as 401(k)s.
What is an appropriate amount of investment risk?
Although it has been reported that women tend to be more conservative than men when it comes to investing, the difference can largely be attributed to the gender income gap.
Women as a group make less than men. With less money, there is less margin for error, therefore the more likely that women will be more cautious with their money. Remove this factor, women and men are more closely aligned in how they invest.
What can be done? At Retirement Solutions, we use a methodology referred to as the Bucket Method. 3 buckets of money are used to place money/investments into.
Each bucket is designed to fund a woman’s income needs based upon when the money will be needed. Money needed for the short-term is allocated in a very safe manner such as money market, CD, etc.
Money needed further into the future gets allocated to another bucket which will provide a greater return for slightly more investment risk.
The final bucket will be used for money not needed for years and will be allocated to investments with a greater degree of growth/investment risk.
In this manner, current financial obligations will always be provided by money that is being kept safe and secure without any investment risk.
How long should I plan to work?
Contrary to popular belief, our retirement dates are less in our control than we believe. Health, lifestyle, caregiving demands and the ability to stay employed all factor into when we retire.
The benefits of working longer are undeniable: additional retirement plan contributions, delayed investment withdrawals, a shorter period of having to drawdown your investments and finally, delayed Social Security benefits which translate into larger benefits.
According to the Transamerica Center for Retirement Studies, only 18% of women feel confident that they will be likely to fully retire with a comfortable lifestyle. This compares to 28% for men.
The financial benefits of delaying retirement means that women need to maintain their work skills via continuing education and making investments into physical health.
How will Social Security affect my retirement?
Social Security plays an outsize role in a woman’s retirement plan. Women’s average Social Security benefits are smaller than men’s which explains why women are more likely to face financial hardships in retirement.
The reliance on Social Security by women combined with the fact that women live longer than men, accentuate the importance of maximizing the lifetime value of Social Security for women.
If you have longevity in your DNA, that is more the reason to delay your benefits from Social Security.
How am I planning for healthcare costs?
Living longer than men, means your lifetime healthcare costs will be greater as well.
According to the U.S. Department of Health and Human Services, 58% of women 65 and older will need long-term care during their lifetime.
Retirement savings can be applied to support healthcare related financial needs. You need to create an action plan for long-term care in advance.
Retirement Solutions has been working with women for decades, determining where they are financially and where they want to be. We have the experience and the tools to help you navigate your way through retirement.
We offer a no-obligation, no-cost 15-minute consultation to determine whether we can assist you in your quest to become financially secure and without worry.
At the end of the 15-minute consultation you will decide whether we can assist you or whether you continue looking for guidance. No pressure will be placed upon you, we promise.
Simply click the “Schedule a Consultation” link in the upper right corner of this page. You talk, we listen.