Key Takeaways:
- Women may need to approach retirement saving differently because lower lifetime earnings, caregiving interruptions, and longer life expectancies can reduce savings and extend retirement.
- Investing beyond retirement accounts, saving for healthcare, and making the most of Social Security can help women address financial challenges that may arise later in life.
- Prioritizing your own long-term financial security is essential, especially when balancing retirement goals with caregiving responsibilities and other family needs.
Women need to save differently for retirement.
1. The pay gap fact
You are most often paid less than men in comparable positions. Lower salaries equate to lower amounts that can be set aside for retirement income since many save a percentage of their salary for retirement. Lower amounts of retirement savings over time hurt women because of the benefit of compounding growth of their money.
What can be done? Save more for retirement income if you can, even an extra 1%-2% can make a difference over time. You can also establish a non-retirement account that will be used for your retirement income needs.
2. The investing gap
Research indicates that women are more likely to keep money that they are not diverting to retirement accounts in cash instead of investing those monies into appropriate investments. Keeping too much money in cash may hurt you over time. The insidious cancer known as inflation will eat up any gains you make by keeping too much money in cash.
What can be done? Think beyond your retirement account when investing. You should have a reasonable amount of money in cash as an emergency fund, More than a reasonable amount can be detrimental to your financial well-being. Deploy any excess amount of your cash into an appropriate investment that is based upon when you will need that money. The longer you can invest the money before you need it, the more aggressive you can be. Don’t overdo it but do not be too conservative.
3. Caregiving
More than 75% of caregivers are women, first for children, then later in life for their ailing parents or a partner. When a woman leaves the workforce to take care of a loved one, it usually leads to a loss in salary. This will lead to a loss in retirement savings as well as a loss in Social Security benefits, health care savings, raises, bonuses, and more.
What can be done? If you must leave the workforce, try to keep saving for retirement. If you are working part-time, you can contribute to an IRA. If you are not entitled to invest in a retirement account, consider investing in a nonretirement account that someday will be used for your retirement income.
4. Longevity
On average, women live 4-5 years longer than men. 81% of people over the age of 85 are women. This means that women are likely to be alone in retirement, caring for themselves financially. Longevity can also impact health care costs, which are rising faster than the general rate of inflation. Your retirement income assets must take into account these circumstances.
What can be done? Either on your own or by using a qualified financial planner, calculate where you currently are money-wise and where you need to be in the future. This can be a time-consuming chore but well worth the effort. If you are not up to the task of doing it yourself, find someone that you trust to do the heavy lifting for you. Outliving your money is a scary situation.
5. Health care costs
Too many women do not consider the impact that health care costs have on retirement income. Women are more likely to need full-time care which can cost hundreds of thousands of dollars per year.
What can be done? Plan to save additionally for health care costs in retirement. If you are working, you may be able to establish a health savings account (HSA). If that is not possible, set up a separate “health care kitty” alongside your retirement funds.
7. Social Security
Because women are more likely to earn less than men, they are also more likely to receive less in Social Security benefits come retirement. This situation is made worse by the fact that women often retire earlier than men and live longer then men, a double whammy!
What can be done? Make the most of your benefits. Consider waiting until you reach the age of full retirement. Better yet, age 70 before claiming your Social Security benefits. You’ll face a permanent reduction if you claim before your full benefit applies. You receive an increase of 8% per year for every year you wait past your full retirement age, up to age 70. Divorced? If you were married for at least 10 years and have not remarried, you may be able to claim your ex-spouse’s benefit if it is higher than yours. The rules are complicated therefore you should consider working with a retirement specialist who can present you with the different alternatives that are available to you.
8. Prioritizing other people
Women are often expected to put family and other loved ones’ needs first even when it comes to money.
What can be done? Who will take care of you if you do not take care of yourself? Having a frank discussion with family members or close friends regarding this issue is critical. Loans for education, home mortgages, and the like are available; loans for retirement are non-existent.
Retirement Solutions offers a no-obligation, no-cost 15 minute consultation for those women who would like a second opinion regarding their financial situation. Let us know if you would like to avail yourself of this opportunity. There will be absolutely no pressure placed upon you to move forward. After the consultation, you will decide whether to move forward or to move on.
Simply click the “Schedule a Consultation” link in the upper right corner of this page. You talk, we listen.
