When we talk about financial and retirement planning, we tend to discuss this through the lens of a married couple. Planning often uses this scenario as a base case, and many strategies are designed around this ideal. However, for many people and groups, this doesn’t apply. For most retirees, there are unique challenges and issues that they need to overcome when planning for retirement.
One of which is women.
For a number of reasons, women are already behind the eight ball when it comes to their money and financial futures. From lower initial pay and lower savings rates to longevity issues, financial planning for women can be a daunting task. Special care and needs are required to make sure that they have the needed funds to survive and thrive in their golden years.
To learn more about retirement topics, visit our Retirement Channel.
Sobering Statistics
Whether they are divorced, widowed or living independently, single women face a separate set of challenges versus men of the same age or health status. And the statistics surrounding this fact are quite sobering. According to Morningstar, nearly 55% of women do not plan to retire until well after 65. Moreover, only 39% of women surveyed by the researcher said that they are confident they’ll have enough resources to last 25 years into retirement.
The reasons for the discontent are vast.
For one thing, the gender pay gap continues to wreak havoc on savings. On average, women earn 21% less than men. The number jumps to 40% and 45% less when accounting for African American and Latina women. Obviously, less pay equals a lower savings rate. What’s potentially worse is that more than a quarter of women indicate that they do not have any retirement benefits offered at their jobs and women hold more part-time jobs than men. Meanwhile, the average woman spends roughly nine years out of the workforce due to childbearing years.
At the same time, women have much longer timelines for their retirement savings to last. On average, life expectancy for a woman aged 65 is another 21 years. Also, women make up the largest population of those older than 90 years old, and statistically, they have the best chance of living to 100+.
All in all, the combination of factors produces a different set of scenarios for retirement savings and needs. Special planning is needed to make sure that women thrive in their golden years. With that, here are five tips for women to think about with their retirement planning.
Five Tips for Women
- 1. Save Aggressively
A recent survey from Aon Hewitt showed that women, on average, contribute just 6.9% of their paycheck to their retirement accounts. This compares to 7.6% for men. While both amounts are low, women are particularly vulnerable given their longer lifespans and needs later in life. And it can be hard to save more, given the gender pay gap, so it’s a must for women.
Experts suggest increasing contributions by just 1% per year until you can max out your 401(k). At that rate, most people will not impact their lifestyles. Women without retirement plans at work should lean heavily on IRA accounts,-particularly Roth IRAs, if eligible.
- 2. Diversify Your Assets
Secondly, women need to focus more on investing rather than saving. Research shows that women tend to hold very conservative portfolios versus men even when saving for retirement. Fidelity research finds more than half of women are keeping more than $20,000 or more sitting in cash. This is above emergency savings amounts. With the dual hand of inflation and low interest rates, this cash is actually losing money and purchasing power.
Holding some cash and emergency savings is always a good idea. But holding too much can impact long-term returns. As such, experts suggest that women move out of their comfort zone and hold other assets. like stocks. Those holdings don’t have to be the latest high-growth tech stock. Adding a dash of strong dividend payers or broad index ETFs like iShares Core S&P Total U.S. Stock Market ETF (ITOT) could be enough to increase returns without taking on too much risk.
Use the Mutual Funds Screener to find funds that meet your investment criteria.
- 3. Consider Long-Term Care Insurance
Thanks to their longer lifespans, women have another problem to contend with in retirement: health-related costs. Fidelity estimates a 65-year-old woman retiring now will need at least $155,000 to cover health care through their golden years. That’s an 18% increase over the last decade in terms of total costs.
One thing women should consider is long-term care insurance early in their lives. These policies can significantly help defray many of the costs of aging and cover care later in life. But as you age, policies tend to get more expensive. For women, adding one early on could be key to being able to afford coverage at a low cost.
- 4. Get the Most From Social Security
Thanks to the various forces at work, social security plays a very big role in women’s retirement income. As such, learning to maximize social security benefits is a key piece to the puzzle. For one thing, waiting as long as possible to take benefits could be the difference between living comfortably and struggling. If at all possible, waiting until 70 is a top-notch strategy to getting the most out of the program. And given women’s lifespans, waiting makes sense.
Secondly, there are special rules and programs for divorced or widowed women. If you’re divorced, you may be entitled to Social Security benefits on your ex’s earnings record, while you can collect widow’s benefits if you’re the surviving spouse. Checking these programs out is a great way to potentially boost your income later in retirement.
- 5. Make a Plan
Arguably, the most important piece of advice for women is to actually start planning for retirement today. Overall, retirement planning isn’t something that you should take on willy-nilly. But given the challenges that women face, not planning isn’t an option. Whether you speak with a financial advisor or do the process yourself, the need to make a concrete plan is vital. Making that plan today is very important.
The Bottom Line
Retirement planning is hard on its own, but women face a different set of challenges. Making a good plan, maximizing savings and understanding longevity issues are vital to success in retirement planning for women.
Keep track of the latest news in our News section, where we regularly publish the latest around investing.
