Do you have a dream for retirement? Do you think you’ll be financially secure enough to make that dream come true? That may depend on whether you’re a man or a woman.
When it comes to retirement, women face different challenges than men, which can affect their plans for post-career life. They need to consider the fact that they live longer, so it’s important to maintain their health to potentially work longer and avoid high healthcare bills. Plus, they need to make up for the fact they may earn lower incomes and take breaks from their careers for caregiving duties. See our previous blog that goes into detail on these challenges.
According to a recent report by nonprofit Transamerica Center for Retirement Studies, “Here and Now: How Women Can Take Control of Their Retirement,” more than half of the women surveyed expect to retire past the traditional retirement age of 65 or continue working in retirement. Why? Well, two of their top reasons for doing so are that they want the income and they can’t afford to retire because they haven't saved enough. This means many may not be able to realize the vision they have for themselves in retirement, which, according to survey respondents, includes traveling, spending time with friends and family, and doing volunteer work.1
So what can be done to reduce the number of women who don’t feel they can retire completely and live their dreams? Let’s explore some ways to take action:
Calculate retirement savings needs
One of the first steps in helping to make sure you’ll have enough money for retirement is to know how many years you’ll need to financially support yourself without work. What age do you plan to retire? From there, figure out what your life expectancy may be. (Morbid, we know, but quite handy for retirement planning.) You can find several life expectancy calculators by searching online.
The second step is to know how much money you’ll need for each year in retirement. Put together a worksheet that lists the cost of daily necessities, as well as those nice-to-haves that could be cut if needed. For a detailed walk-through on this, see our previous blog.
Once you have an idea of your expenses and the years you plan to be in retirement, you can get a better sense of how much money you’ll need. Don’t forget to factor in those wild-card unknowns — healthcare costs (including Medicare premiums and out-of-pocket costs), taxes, and inflation. Since women historically make less money than men,2 you may need to find ways to make up the difference through saving more, smart investing, and either boosting or supplementing your current income.
A financial professional can help you put this all together. You’ll be able to identify if you’ll have enough and where you may need to close some gaps before those retirement years are upon you.
Learn about Social Security and other benefits
According to the survey, 48% of women are concerned Social Security will be less than expected. One way to find out is to go to the Social Security website, ssa.gov, and set up an account. This will tell you how much money you can expect to receive every month. You can also check that all of your employment is accounted for.
What other benefits might be available? Did any of your jobs have a pension, 401(k), or other retirement plan? If you’re not sure, call your former human resources departments to make sure you didn’t leave any money behind. Even small amounts can help when you go into the phase of your life when you’re not working.
Know your spouse’s retirement plans
If you’re married, it’s important to know how your spouse envisions retirement. According to the study, women see themselves spending time with friends and family (61%), while men want to pursue hobbies (52%)1 and both would like to travel. Make sure you’re aware of each other’s dreams and what you’ll need financially for them.
Also, talk to each other about expectations and options for Social Security claiming and pension payouts. Get educated about the various options and seek help, if needed.
Keep in mind how you will you manage healthcare costs — are you both planning to wait to retire at age 65 and go on Medicare? If you retire earlier, will one of you be dependent on the other’s employer insurance? What if that person wants to retire early — can you afford independent insurance? Don’t forget, no insurance plan covers everything; there are premium payments for the insurance itself, plus expenses that aren’t covered.
Women also need to prepare for the possibility of facing retirement alone. Their longevity could have them outliving their husband, and the divorce rate for adults ages 50 and older has doubled in the last 25 years.2 The loss of a partner can also mean the loss of that person's income if they were still working and the possibility of reduced Social Security and pension benefits, as well as employer-sponsored health insurance. Plus, you’ll pay more taxes as an individual than as a married couple.
A financial professional can help you come up with strategies for going through retirement together and on your own so you don’t get caught off-guard.
Reconsider caregiving duties
If you have a family member such as a child or an aging parent who needs care, don’t just assume that because you’re a woman, you’re the one to take on that role. Really consider what it would mean to drop out of the workforce to make time for it.
Here’s how it could impact your retirement and your career: Scaling back to part time-work would mean no longer having access to employer benefits such as healthcare coverage, pre-tax contributions to a 401(k), employer matches, pensions, and any supplemental insurance that may be offered.
Dropping out of the workforce completely would also mean having a gap in your resume that may be difficult to explain if you want to reenter the workforce later on. You’ll also lose the negotiating power for a higher salary that you had when coming directly from another job. Plus, letting your skills get outdated, and being out of the routine of working doesn’t put you in a favorable light with employers. Statistics show employers are more likely to hire someone who’s currently working than not working.3
Instead, look for alternative methods of affordable caregiving:
- For children, consider babysitting co-ops, sharing babysitting with other parents, home day care, using a spare room to offer free housing to a college student in exchange for child care, or asking friends and family to help.
- For aging family members, get them set up early with the financial means to hire caregivers through long term care insurance, annuities, or an irrevocable trust.
Have a backup plan if forced to retire early
While you may plan to retire at a certain age, life can be unpredictable. A health issue, caregiver needs, or an unexpected layoff could force you to retire early. Do you have a backup plan for it? If not, here are some ideas:
- Keep your skills up to date, particularly those that would be good for work-from-home jobs in case you can’t go into a workplace on a regular basis.
- Downsize to a smaller home and put the money saved from selling your larger home into your savings for retirement. Also consider shared housing or living with a housemate — think of the “Golden Girls” TV show. If you’re not sure who would make a good housemate, you can find one through programs such as the National Shared Housing Resource Center.
- Consider relocating to a city with a lower cost of living so your retirement money goes further.
- Review your insurance policies, make sure you have disability and long term care policies in place.
- Know what benefits might be available to you — early pensions and Social Security, disability, unemployment, or workers’ compensation insurance if you are sick, laid off, or injured.
Put a retirement strategy down in writing
It’s OK to dream a little about what retirement will look like. But if you’re serious about making those dreams a reality, you need to plan financially for them, especially since your challenges may be different from your male counterparts. The best way to plan is to write down a goal and track your progress along the way.
Don’t forget to include risk factors that could knock you off track such as market volatility, inflation, and healthcare costs. If all of that sounds too overwhelming to do on your own, consult with a financial professional. It’s their job to create a strategy for you that takes all of that into account.
While the challenges for women may require them to take a slightly different approach to retirement planning than men, it doesn’t mean they can’t get to the same finish line.
Check out our infographic to map your way to a fulfilling retirement.
Things to Consider
- Retirement includes you and your spouse — plan for both.
- Create a backup plan to make and stretch money if forced to retire early.
- Caretaking can impact your career and retirement; there are alternatives.
1 “Here and Now: How Women Can Take Control of Their Retirement,” nonprofit Transamerica Center for Retirement Studies, 2018
2 “6 Charts That Show the Glaring Gap Between Men and Women’s Salaries,” Business Insider, April 2019
3 “This Is Why Baby Boomers Are Divorcing At a Stunning Rate,” MarketWatch, October 2018
4 “Why It’s Better to Search For a Job While You Already Have One,” CNN Business, April 2018