Women can face unique challenges when planning for retirement. Let's take a look at three of them.
Time Away from the Workforce
First, women frequently step out of the workforce in their 20s, 30s, or 40s to care for children — a time when their job might just be kicking into high (or higher) gear. It's a noble cause, of course. But consider this: A long break from the workforce can result in several financial losses beyond the immediate loss of a salary.
In the near term, it can mean an interruption in saving for retirement and the loss of any employer match, the loss of other employee benefits like health or disability insurance, and the postponement of student loan payments. In the mid term, it may mean a stagnant salary down the road due to difficulties re-entering the workforce and/or a loss of promotion opportunities. And in the long term, it may mean potentially lower Social Security retirement benefits because your benefit is based on the number of years you've worked and the amount you've earned. (Generally, you need about 10 years of work, or 40 credits, to qualify for your own Social Security retirement benefits.)
Lower Earning Over a Lifetime
Second, women generally earn less over the course of their lifetimes. Sometimes this can be explained by family caregiving responsibilities, occupational segregation, educational attainment, or part-time schedules. But that's not the whole story. A stubborn gender pay gap has women earning, on average, about 82% of what men earn for comparable full-time jobs, although the gap has narrowed to 89% for women ages 25 to 34.1 In any event, earning less over the course of one's lifetime often means lower overall savings, retirement plan balances, and Social Security benefits.
Longer Life Expectancy
Third, statistically, women live longer than men.2 The Centers for Disease Control and Prevention puts the average life expectancy for a woman at birth at 81 versus 76 for a man. This means women will generally need to stretch their retirement savings and benefits over a longer period of time.
Solutions
So what does this all mean? Is it time to throw in the towel? Quite the opposite. It's time to become educated about your options related to personal finance and investing!
• Basic numbers: Become familiar with your household’s income, expenses, assets, and liabilities. You should have access to all online account information including bank accounts, credit cards, loans, and life insurance policies.
• Investments: Know where all of you and your partner's investment accounts are and become familiar with each investment so you understand the strategy being used, and what asset allocation has been implemented.
• Documents: Make sure you know where all your household’s key financial documents are, including wills, durable powers of attorney, healthcare directives, home/car titles, and so on. If you have a safe deposit box outside the home, identify how to access it.
• Advisors: If you aren't already, meet with all of your family’s advisors: financial advisor, estate attorney, accountant, insurance agent or broker. Avoid professionals who focus their attention on your partner; you are just as valuable a player in your family's decisions.
• Retirement analysis: Work with a financial advisor you're comfortable with to understand clearly how much you need save to maintain your standard of living during retirement. If you're already retired, work with your advisor to understand how much you can comfortably afford to spend without running out of money.
• Insurance: With the expectation of living longer, it's important to consider if you are properly insured. Having longevity and long-term care policies in place can minimize the risk of you outliving your assets. Many financial advisors can research and write policies for you that are part of your overall financial plan.
• Self-educate: Consider taking financial education classes through local adult continuing education centers, research free online resources such as The Kahn Academy, or read basic primers on personal finance to educate yourself.
Educating yourself on your finances is an empowering feeling! Doing so will allow you to feel prepared when something unexpected comes up in your life and leave you feeling ready for independence.
1) Pew Research Center, The Narrowing, But Persistent, Gender Gap in Pay, April 2018
2) NCHS Data Brief, Number 293, December 2017