8 Simple Steps to a Secure Retirement (& Life!)
While many Americans are facing their retirement years woefully unprepared, women face even more risk in our retirement years than our male counterparts. Women have twice more risk than men of downward income mobility in retirement, as well as lower savings, lower private pension coverage, and greater dependence on Social Security income.
Here are some strategies that can lead you on the path to a financially secure retirement:
Step 1: Start Saving Now. Women still earn on average less than 80% of what men earn for similar jobs, even with comparable skill levels and educational backgrounds. In addition, we are significantly more likely to take time off from professional careers for caregiving duties. These factors can hamper our ability to accumulate retirement savings.
Our lower average lifetime earnings underscore the need for women to start saving for retirement as early as possible. Beginning a savings plan now puts time on your side and allows you to take advantage of the wealth-building phenomenon, compounding of returns. For an illustration of how compounding of returns works, visit Compound Interest Calculator.
Step 2. Retirement Projections. Women outlive men by 3 to 4 years on average. Despite the fact that many women can expect to live into their 90s and beyond, very few look 20 years ahead or more when planning for retirement finances. This can result in a planning horizon that is too short and a greater likelihood that we will outlive our savings.
Consult a financial professional or online tools to estimate your life expectancy (see Life Expectancy Calculator) and lay out financial projections with an appropriate planning horizon. Then stress test these projections for a longer life span. For a simple retirement planning calculator, visit Retirement Planning Calculator.
Step 3. Make Health a Priority. Because women tend to live longer than men, we are at a greater likelihood of suffering chronic illnesses resulting in greater medical costs. In fact, women spend a third more on health care than men over our lifetimes. These costs can eat away at our financial security.
To prevent higher health care costs in your later years, take care of your health now. Eat well, exercise, get proper rest, and pursue regular health checkups to stay on track.
Step 4. Long-Term Care Strategy. Women’s greater longevity also leads to greater long-term care costs than men. The expected average cost of lifetime long-term care is $82,000 for females and just $29,000 for males. These additional costs can erode our financial resources over time.
Develop a strategy now for paying for future long-term care expenses, such as a savings plan or securing long-term care insurance.
Step 5. Life Insurance Needs Analysis. Because men tend to marry younger women, and women tend to outlive men, widowhood is a reality to many women in our later years.
Look at where you’d stand financially if you lost your spouse, and secure appropriate life insurance to cover any income or wealth gaps. Confer with an advisor or utilize this simple calculator to assess your risk: Life Insurance Needs.
Step 6. Social Security Strategies. When a women’s spouse dies, the lower Social Security benefit usually ends, resulting in lower household income.
Think carefully about Social Security claiming strategies. In general, delaying benefits can mean greater lifetime earnings from this income source. Consult your local Social Security office or an advisor for more information.
Step 7. Pension Strategies. Once a woman becomes widowed, her deceased spouse’s pension benefits may be reduced or eliminated, causing a significant drop in income after the spouse’s death.
Consider choosing joint & survivor pension benefits at the time of your spouse’s retirement, instead of a single life pension benefit.
Step 8. Take Charge. During my years as a financial advisor, I’ve come across a great many women who leave the vast majority of the household financial duties to their spouses.
Take an active role in your financial planning now, because if your spouse dies first (which is statistically likely), you’ll need to play that part at a very stressful, trying time in your life.
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