Women and Retirement: What’s The Tea?

Women often experience some very specific retirement risks that could jeopardize their lifetime income. It’s time to spill the tea, on what today’s woman is facing in retirement and how best to plan for it.
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​When it comes to retirement, the strategy of saving early and saving often is good general advice for everyone. But that doesn’t mean the ins and outs of retirement will look the same for all. Personal circumstances and financial influencers can define your specific needs for the future.  Women in particular face some challenges that can leave them at a disadvantage to men in retirement. For example, women’s average retirement income is about 80 percent of what men receive, according to the National Institute on Retirement Security. The good news is that knowing of challenges like this in advance will allow you to create a retirement income plan that caters to your future. 

Here are the top five factors that women need to consider when planning for retirement.

1. Women Live Longer

Women who reach the typical retirement age of 65, are statistically prone to living for another 20 years or more while 65-year-old men’s average life expectancy is to live another 17 years. That means women need to save more over their lifetime to ensure they don’t outlive their retirement savings.

The current average spending among households of age 65 or older is about $47,000 per year, according to the Bureau of Labor Statistics. Of course, how much you spend each year in retirement will depend on your personal lifestyle. Regardless, when planning for retirement female retirees in general may need to live off your savings longer than men will. It’s important for you to have a strategy for making your income go further in life. Thinking about ways to maximize your retirement income — including a plan for when to start taking Social Security is key.

For people born in 1960 or later the full retirement age is now age 67 instead of age 65 and if you can wait until age 67 to begin taking Social Security payments, that is one way to help increase your retirement paychecks. You’re eligible to claim your benefits as early as 62, but claiming Social Security prior to age 67 will reduce your benefits by as much as 30 percent. Many struggle with this decision however, because sometimes those paychecks are just simply “needed” sooner rather than later.

With Social Security being only one piece of the puzzle, knowing exactly how much you’ll need to save, what retirement income options are available to you, and how to draw from multiple income sources in a tax-efficient way are all important parts of your retirement plan.

2. Women Are More Likely To Have Gaps In Their Retirement-Saving Years

Contributing to the wage gap is the fact that women are still largely in charge of caregiving, and thus more likely to experience interruptions in their careers to raise children or care for other family members. In fact, one in three moms in a 2021 McKinsey & Company study considered scaling back at work or quitting their jobs entirely during the pandemic, largely due to childcare responsibilities. 

The problem is that time out of the workforce also means putting a pin in your retirement contributions — something that can cause female retirees to run out of money well before their end of life. For women who are married, a spousal IRA may allow you and your spouse to keep up on retirement contributions while you take time off. But for single women or women who were homemakers, a better option might be a lifetime income annuity. This will enable you to take an asset you have already saved over the years, protect it, and purpose it into the role of providing you with monthly retirement paychecks for as long as you live.

3. Women Have Higher Healthcare Costs

Healthcare expenses are subject to inflation just like other cost of living requirements. And unfortunately, cost of care does tend to be higher for people in retirement, regardless of gender. But because of their longer lifespans, women can expect to pay $200,000 more than men in health insurance premiums alone, according to an estimate by Health View Services. 

Additionally, retirees often face the expense of long term care needs. Based on a recent cost of care survey conducted by John Hancock, for 2022 In Home Care for just 6 hours each day averages $4,464 per month, Assisted Living averages $4,805 per month, and Nursing Home averages $7,874 per month. Now this can vary based on where you live and specific providers in your area but these general guidelines definitely illustrate how important it is for women, who are living longer, to make a plan for a lifetime income arrangement that will help cover costs like this no matter how long you live.

4. A ‘Gray Divorce’ Impacts Women More 

The divorce rate among Americans who are 50 and over has roughly doubled since the 1990s, according to Pew Research Center. And research has shown that getting divorced later in life is financially harder on women than men. A 2020 Bowling Green State University study estimates that women see a 45 percent decrease in their standard of living following a gray divorce, versus 21 percent for men. 

The lower lifetime earnings of women compared with men and taking time out of the workforce to provide childcare are some of the reasons behind the gap. And unfortunately, wives who have largely left financial decision-making to their husbands can be especially vulnerable. If you’re going through a divorce it would be a good idea to recalibrate your retirement plans with a professional and figure out what retirement income options you have. 

This is an area where a fixed index and/or lifetime income annuity can sometimes help but another example would be to take advantage of the Social Security Administration's ex-spouse benefits if eligible. Did you know that if you were married for at least 10 years and your ex-spouse is eligible to begin collecting Social Security, you might be able to collect benefits on their record? You could be entitled to an amount that’s equal to half of their benefit if you meet other criteria and haven’t remarried.

4. DIVERSIFY, DIVERSIFY, DIVERSIFY

Because women are likely to outlive their husbands, proper estate planning is key to ensuring their finances will be protected following the death of a spouse.

A full estate plan includes not only creating a will or trust, but also includes naming powers of attorney and updating beneficiaries on life insurance policies, retirement accounts and other financial accounts. Keeping this information up to date is key because beneficiaries named in a policy override those named in a will. For instance, if a husband names an ex-spouse as a beneficiary on a life insurance policy but names his current wife in a will, the proceeds will go to the ex-spouse.

It’s important to work with estate planning, tax and financial professionals when setting up an estate plan so they can help you and your spouse figure out how to best protect your assets and pass them on with tax efficiency in mind.

Summerlin Benefits Consulting Inc. helps all of our clients avoid retirement risks that could affect their future income plans. In today's world however, as our female clients experience unique financial influences on your future, we want you to know that we are here for you.