Is Your Retirement at Risk?
While many Americans are facing retirement woefully unprepared, women face even more risk in our retirement years than our male counterparts. A Brookings analysis of 2013 Census Bureau data revealed that women have twice the risk of men of downward income mobility in retirement. In fact, the median retirement income for women in 2010 was just 59% of that of men, according the U.S. Government Accountability Office. Women generally have lower savings, lower private pension coverage, and depend more on Social Security income in retirement.
The primary reasons for women’s increased retirement risk are our lower average lifetime earnings and greater longevity.
Lower Lifetime Earnings. Women are likely to earn less than men over our lifetimes for the following reasons:
- Income inequality. The median earnings for women working full time are still less than 80% of what men earn for similar job responsibilities and with comparable skill levels and educational backgrounds.
- Caregiving. Women are more likely than men to be caregivers in response to family needs. In fact, women relinquish an average of $320,000 of income over our lifetimes to take time off from professional careers and forego promotions for caregiving duties.
Lower income during our working years negatively impacts our Social Security benefits, pension accruals, and long-term wealth accumulation.
Longevity. According to a 2013 Society of Actuaries (SOA) report, women outlive men by 3 to 4 years on average. Our longer life spans mean a greater likelihood that we will outlive our assets due to a number of factors:
- We underestimate our life expectancy. Many women can expect to live into their 90s and beyond. But according to the SOA study, very few women look 20 years ahead or more when planning for retirement finances, resulting in a retirement planning horizon that is too short.
- Inflation: Since women tend to live longer, we feel the erosive impacts of inflation to a greater degree than men. This means that the income and nest eggs we have amassed won’t go as far as they had in years past because the goods and services we purchase become more expensive with the passage of time.
- Higher healthcare and long-term care expenses. Because women have a longer average life span, we are at a greater likelihood of suffering chronic illnesses resulting in health care and long-term care costs. According to a US News article, “Retirement Risks for Women”, women spend a third more on healthcare than men over our lifetimes. And the expected average cost of lifetime long-term care is $82,000 for females and just $29,000 for males. These additional costs can eat away at our financial resources over time.
- More likely to become widowed. Because men tend to marry younger women, and women tend to outlive men, widowhood is a reality to many women in our later years. According to the SOA, 85% of women over age 85 are widows, as opposed to only 45% of men over age 85. The Social Security Administration’s website points out that many women experience a significant decrease in income after the death of a spouse, in part because when a spouse dies, the lower Social Security benefit usually ends. In addition, the deceased spouse’s pension benefits may be reduced or eliminated.
What can you do? Here are some strategies that can lead you on the path to a financially secure retirement:
- Start saving now and invest a portion for growth (as appropriate for your circumstances).
- Consult a financial professional or online tools to estimate your life expectancy and lay out financial projections with an appropriate planning horizon. Then stress test these projections for a longer life span.
- Take care of your health.
- Develop a strategy for paying for long-term care expenses, such as securing long-term care insurance.
- Look at where you’d stand financially if you lost your spouse, and secure appropriate life insurance.
- Think carefully about Social Security claiming strategies. In general, delaying benefits can mean greater lifetime earnings from this income source.
- Take an active role in your financial planning now, because if your spouse dies first (which is statistical likely), you’ll need to take on that role at a very stressful, trying time in your life.
- Consider joint & survivor pension benefits at the time of your spouse’s retirement.