Retirement Planning for Women: Special Considerations

Investing, saving, and borrowing are the same for men and women, as well as the same rules for both. They may, however, be facing very different circumstances and making very different choices. Preparing for retirement is particularly challenging because of this divide.

By the Numbers: Retirement Among Women

Over the course of their careers, women lose over $400,000 in retirement savings because they have approximately 30% less saved than men.

You should consider retirement even if it seems a long way off and isn’t a top-of-mind priority. Retirement is, in any case, a topic you should not ignore when analyzing it from a dollar perspective alone. It’s crucial to determine your financial goals now, regardless of your age, marital status, marital status, divorce status, or widow status, to ensure a comfortable retirement.

Furthermore, when planning for retirement, women must take into account some special considerations.

Part-time work is more common among women, and employer-sponsored retirement plans are less common.

The percentage of women working part-time was nearly 60 percent in 2021, out of 32.1 million part-time employees. The number of women of color who work 45 hours a week or more is nearly half that of men.

Additionally, more than two out of three part-time workers in low-paid jobs are women, and part-time workers hold low-paying jobs about three times as often as full-time workers.

Why’s that problematic? Retirement plans are less likely to be offered at part-time jobs.

It is more common for women to take time off from work to take care of their families.

Typically, women take on the role of caregivers. It is more common for mothers to reduce their work hours in order to care for children and family members.

In the U.S., 60% of family caregivers are women, according to research by the Family Caregiver Alliance. Women caregivers provide an estimated $188 billion worth of unpaid services each year, impacting everything from their health to their finances.

However, the norm is changing. More than 14 million men are currently caring for their families, according to the American Association of Retired Persons (AARP).

The gender pay gap.

Men typically earn more money for doing the same work than women, which is the basis of the pay gap. Though it’s not always true, it happens more often than not. As of 2021, women earned 83% of the weekly earnings of their male counterparts, according to the Institute for Women’s Policy Research.

Nevertheless, women earn only 73 cents for every dollar that men earn when all workers are considered-and the gap is even greater among women of color.

In terms of pay equality for women, progress has been made over the years. There is still much to be done, however.

Retirement savings are too low among women.

Among women ages 55 to 66, 50% have no personal retirement savings, compared to 47% of men.

Additionally, 22% of women do not have $100,000 or more in retirement savings, while 30% of men do.

Life expectancy is higher for women.

The average life expectancy of a woman over 65 is 86 years old. Their retirement will last 21 years, nearly 3 years longer than men’s.

Due to this, it is especially important for women to build a sufficient nest egg for retirement.

Older women are more likely to live in poverty.

As a result of these and other factors, women are typically retired for a longer period of time and with fewer assets than men. Sadly, women 65 and older are 43% more likely to live below poverty than men. In addition, about 65% of the elderly poor are women.

The Best Way for Women to Take Control of Their Retirement

Get to know your spending habits.

“The first step is to look at where you are spending your money,” said Leigh Singleton, the director of financial education at banking app Monifi. By doing so, you’ll be able to identify regular expenses that could eat up your long-term savings.

“Take a step back and see what most important to you — maybe it’s a down payment on a home,” Singleton advised.

You should invest the funds you have saved once you’ve identified areas for cutting back in an investment account.

She said starting early will make you more money since the money will grow exponentially over time.

Empower yourself with financial knowledge.

Financial literacy involves many aspects. At its core, though, is your ability to manage your finances efficiently and effectively. This is the money you make from work and the money you spend on bills or investments.

According to studies, women have a lower level of financial literacy than men, which makes preparing for retirement more difficult for them.

The solution? Take control of your finances and empower yourself.

The may sound easier side than done. However, there are an endless amount of resources available at your fingertips — oftentimes for free. Some suggestions include:

• Books, including the Dummies Guide to Financial Literacy and Your Money or Your Life.
• Magazines, such as Kiplinger and Barroin’s
• Podcasts like “NPR’s Planet Money” and “Money Girl”
• Online courses, such as Udemy.com’s Personal Finance 101 and Planning for Risk, Retirement, and Investment
• Free financial advice from your bank, credit union, online broker, or credit counseling agencies.

Even if your spouse is an amazing financial manager, you shouldn’t assume they will always manage the finances for you. And, a financial advisor’s advice may not always be in your best interest if you are using them.

It’s essential to stay involved in the financial planning process at every stage, whether you’re married, single, or divorced. In the end, gaining a basic understanding of the topic can help secure your future. In the end, gaining a basic understanding of the topic can help secure your future.

Develop a retirement plan.

An effective retirement plan is crucial for maximizing retirement enjoyment. However, according to 2021 Midland National research, Empowered – Women and Retirement, only 43% of female consumers have a retirement plan. There are another 16% of women who are somewhere in the planning process.

In order to take charge of their financial future, women are increasingly focusing on organizing and planning for retirement. Despite 64% of women surveyed indicating that their current retirement plan was moderate to strong, there’s still room for improvement.

Following these steps will help ensure a retirement plan remains on track:

• Make a retirement budget. Typically, retirees need 70 to 90% of their pre-retirement income to cover standard living expenses, according to the U.S. Department of Labor.
• Assess your financial situation. Maintain a constant review of your income and savings in order to determine your spending and the amount of money you’ll need in retirement. Building a budget around estimated retirement expenses is the best way to do this.
• Pay off your debts. Those planning for retirement can strengthen their finances by adjusting expenses.

You don’t have to be intimidated by the prospect of creating a retirement plan. In addition to assessing what you have, a financial professional can help tailor a plan that suits your needs.

Make frequent and early investments.

The sooner you start investing, the better. Why? It’s all about compound interest.

You can accumulate more money before you retire if you let your money grow for a longer period of time. The good news is that women tend to invest for longer periods than men, which can lead to long-term wealth growth.

It is recommended that you save between 10 and 15% of your income for retirement. You should also consider these options for investing and saving:

• Make use of pre-tax retirement plans, such as 401(k)s, if you have access to one. If your employer offers a match, take advantage of it as well.
• Regularly contribute to an IRA or another tax-advantaged savings vehicle.
• SEP and SIMPLE IRAs can be leveraged for savings if you are self-employed.
• Open a spousal IRA. According to the IRS, “Each spouse can make a contribution up to the current limit.” A couple with only one working spouse can contribute up to $13,000 per year to a spousal IRA in 2023.

Your 401(k) and IRA contribution limits increase when you turn 50. You can contribute up to $7,500 a year to your 401(k) or $6,500 to your IRA in 2023.

Don’t shy away from investing.

Investment habits should be formed at an early age as well. Investing $500 a month in a retirement plan beginning at age 25 and continuing up until age 65 will result in $240,000 in out-of-pocket contributions. If that sum were invested primarily in stocks, it could generate a return of approximately 7% annually. That $240,000 becomes roughly $1.2 million if that assumption is applied.

Here’s the thing, though. There has historically been a lack of confidence among women when it comes to investing. As reported by Fidelity, only 9% of women view themselves as better investors than men. Compared to men, only 52% of women say they feel confident managing their investments, according to a Merrill Lynch and Age Wave study.

But, don’t let that deter you. In spite of their lack of confidence, women tend to be good investors. Fidelity reported that women’s portfolios performed 0.4% better in 2021 than men’s.

What’s more, Vanguard reports that women at all income levels have higher retirement plan participation rates than men. Additionally, robo-advisor Betterment found that women change their asset allocation 20% less frequently than men.

There are many things to be proud of when it comes to investing for women, despite the challenges thrown their way.

Plan for healthcare costs.

These days, retirees are concerned about rising medical costs. The Centers for Disease Control and Prevention (CDC) reports that women typically outlive their male partners by five years. As a result of their longer lifespan, they have to pay more for healthcare. In addition, women earn less on average than men in their working years, which results in fewer Social Security benefits for them.

Due to these obstacles, women need to develop a strategy to save more for healthcare. Using an HSA for out-of-pocket expenses is tax-free. You may also want to consider fixed index annuities and IRAs.

Become familiar with the Social Security system and its rules.

During retirement, Social Security can provide a source of reliable income. But, when should you start collecting benefits? This is one of the things you should consider when planning your retirement.

The answer? It is possible to start receiving benefits as early as 62 years old. You will, however, receive a lower monthly benefit the sooner you begin receiving benefits.

Until age 70, the amount of the monthly benefit increases by 8% per year if you choose to delay taking benefits. As part of your broader wealth plan, you want to evaluate your options and determine how Social Security fits in.

Again, if your spouse has a good work history, you might also consider a “spousal benefit.” An early withdrawal from benefits may be necessary if your spouse becomes disabled, divorced, or dies. For every scenario, you can plan your Social Security income with the Social Security benefits calculator.

Discover opportunities for self-employment and passive income.

Often, we assume that being self-employed means owning a large company. Self-employment, however, refers to smaller ventures, such as side hustles or hobbies you are monetizing.

What is the best thing about self-employment? The amount of effort and time you put into your work determines how much money you will make. That means you can work during your downtime, like on weekends, for example.

You can also increase your earnings by earning passive income. Passive income involves doing the work upfront and reaping the benefits without having to do anything more.

A few examples of passive income include:

• Blogging
• Creating an online course
• E-book sales
• Rental income
• Dividend stocks
• Digital file sales (printables or templates)
• Sales of stock photos
• Cashback from rewards cards

Passive income and self-employment can help you save for retirement and control your schedule and finances more effectively. Even better? If you’re a retiree, you can still take advantage of a passive income.

Be sure to protect your assets.

It is inevitable that the unexpected will happen, no matter how carefully you plan. An unforeseen event can devastate even the best-prepared retirement plan in your 50s and 60s.

Thankfully, there is a potential safety net provided by insurance. To determine if your insurance coverage is adequate, assess your existing coverage. There are numerous types of insurance you can choose from, including home, auto, umbrella, health, survivor income, disability, life, and long-term care. Be sure to review your insurance policies once a year to make sure they remain effective and provide appropriate benefits.

Changes in circumstances, including fluctuations in investment values or home value, a marriage, divorce, birth, or death, may necessitate changes in policies and beneficiaries.

Set up a retirement “paycheck.”

Retiring from work and no longer receiving a regular paycheck can be an adjustment for some people. As such, you should consider how you’ll generate reliable income to maintain your lifestyle in retirement as part of your retirement planning. There are many sources of income that can contribute to this, including personal savings, IRA distributions, retirement fund distributions, annuities, and inheritances.

Planning helps you estimate income sources that will generate income for your business. Moreover, it will pinpoint any income gaps that may exist. In order to overcome such gaps, you can increase your savings, change your spending projections, or delay retiring.

Talk to your partners about long-term goals.

A woman’s concerns about money are different from a man’s. Security is the most important reason they save, according to the Midland survey, followed by peace of mind, emergencies, and health care. Additionally, women are significantly more likely than men to worry about saving for emergencies and mortgage or rent expenses.

Planning long-term goals like retirement require honest discussions with your significant other about these priorities. With most women handling all household finances, this shift must be carefully considered and explored to ensure their financial security in the future.

FAQs

1. What is the average retirement age for women?

According to NCOA’s March 2022 Women Living in and Preparing for Retirement study, the average retirement age for women is 64. Most women report retiring between 60 and 69.

• 3% retired before age 50
• 15% retired between 50-59
• 35% between ages 60-64
• 36% between ages 65-69
• 10% retired at age 70 or older

2. Concerning finances and retirement, what is the primary concern for women?

• The increasing cost of health care concerns nearly nine out of ten people (89%).
• It is very or somewhat worrying for three-quarters (75%) of respondents to be able to afford long-term care for themselves or a partner/spouse in the future.
• Over seven out of ten (71%) retired women are concerned about their caregiving needs, which is significantly higher than the concerns reported by retired men (59%).
• In retirement, more than half of women feel they will not have enough money (56%).

3. What would women like help with when it comes to retirement?

According to their responses, they would like assistance in the following areas:

• As they age, nearly half (42%) of retirees would like assistance planning for their own care.
• The percentage of retired women (33%) who would like assistance planning how to age in place is significantly higher than that of retired men (25%).

Retired women also would like help with:

• The ability to access public benefits (26%)
• Selecting the right health care plan (21%)
• Using retirement plans to minimize taxes (18%)
• Increasing their retirement income (18%)
• Earning income during retirement (17%)

4. In what ways do women plan for retirement?

One key question asked respondents about how they planned for retirement, among others. Here are a few highlights:

• A majority (52%) of respondents said they tried to cut expenses
• Nearly half (48%) participate in employer-sponsored retirement savings plans such as 401(k)s or 403(b)s
• Debt was paid off by 45% of respondents
• More than a quarter (26%) of homeowners downsized

5. When a woman takes on the role of caregiver, what happens? What impact does that have on their retirement?

Approximately a quarter of older women currently provide care, but many more have provided care in the past. Compared to 41% of men, nearly six in ten (58%) older women have provided care for relatives or friends.

Nearly 7 in 10 (69%) older women who are currently providing care report financial strains, while 58% of male caregivers report a similar burden. Women caregivers say providing care is a considerable financial burden for around a quarter (23%) of them.

In terms of retirement, 26% put off or never retired. It is significantly more than the 16% of male caregivers.