Women’s Retirement Risks: Will Your Savings Last as Long as You Do?
The longer life expectancies that many Americans now enjoy are a double-edged sword. On one hand, greater longevity means more years to pursue passions and create memories with loved ones. On the other hand, those extra years can strain your savings, raise health care costs, and increase the risk of outliving your financial resources.
Women, in particular, are likely to confront a number of financial risks during their 60s, 70s and beyond. The main reason: Women have a well-established history of living longer than men as well as building less wealth than men over their lifetimes. That one-two punch can make retirement feel like a bit of a minefield for many women—even those with significant wealth.
The good news: As a woman, there are steps you can take that can potentially put you in a better position for retirement.
Retirement Challenges for Women
Certainly funding a comfortable retirement has the potential to be a challenging process for anyone. But the fact is that women face some unique hurdles that make their march toward retirement that much steeper.
1. Women Live Longer
Women live almost six years longer than men on average, to age 79 versus 73½ years old, respectively, according to the Centers for Disease Control and Prevention. The CDC has also forecast life expectancy at birth for women in 2019 at 81.4 years versus 76.3 years for men. But at age 65, women are likely to live nearly another 21 years compared to men’s additional expected 18 years
Research also shows that women with greater financial resources often live longer, which can further extend the number of years they need to plan for financially. Those extra years can boost the odds of women both running out of money and spending some of their retirement years without a partner for support.
Living longer may also lead to spending more money on health care costs. More than 70% of assisted living residents are women, and over half of nursing home residents are female, according to statistics compiled by Zippia.
Living longer can be a wonderful gift—but it also means planning for more years of financial independence.
2. Women Build Less Wealth
Women’s financial health is generally less sound than men’s—and the numbers paint a clear picture. U.S. Census Bureau data shows that just 22% of women have $100,000 or more saved for retirement, compared to 30% of men. At the same time, research from Willis Towers Watson projects that women will reach retirement with just 75% of the wealth accumulated by men.
What does that gap mean in real life? It means women often enter retirement with a smaller nest egg to draw from, even though they typically need those funds to last for more years than men. It also means they may have fewer resources to handle unexpected expenses, such as medical bills or long-term care.
The consequences of this shortfall are significant. For example, women age 65 and older are 80% more likely than men of the same age to be living in poverty, according to the National Institute on Retirement Security. While women with substantial assets may not face the threat of poverty, the data underscores a broader reality: many women are heading into retirement underfunded, and that increases the likelihood of financial stress in later years.
This isn’t about doom and gloom—it’s about awareness and action. Knowing the gap exists is the first step to closing it.
Driving Forces
The factors behind these challenges are complex. Key drivers include:
Gender Pay Gap
Although the wage gap between men and women has narrowed over the years, women still make only 82 cents for each dollar men make, according to Pew Research. Men still dominate 15 of the 20 highest-paying jobs—and women with bachelor’s degrees and full-time jobs earn 26% less than their male peers, according to the American Association of University Women.
Career Interruptions
Women historically have been more likely than men to be the primary family caregiver, taking time off (often unpaid) to raise their children or take care of family members. Such career interruptions can result in lower-paying jobs for women or more sporadic income streams—causing lower earnings and opportunities to save and invest over their lifetimes. One study by the Urban Institute shows that caregiving costs women nearly $300,000 in lost earnings over their lifetime.
High Health Care Costs
A 65-year-old woman retiring today might expect to spend about $155,000 on health care, versus $134,000 for a 65-year-old man, according to Milliman research. Some of that extra expense is due to women’s longer life expectancy, but some is due to potentially costly health issues. Research out of the University of Southern California finds that more women than men are spending a larger share of their later years with a disability.
Less Focus on Retirement Planning
Due to lower lifetime earnings and more time spent on caregiving, women often find themselves less inclined or able to focus on investing for retirement. According to a study from YouGov Omnibus, 52% of women have never held an investment product, compared to 37% of men.
One reason appears to be a lack of confidence and knowledge about investments. While 45% of men said that they would feel confident investing some of their money, the figure among women was just 28%. And while more than four in ten men (43%) say they would know how to find suitable investment products if they wanted to invest some of their money, the same was true of only 27% of women.
Each of these forces alone can affect retirement readiness—but together, they create an even steeper hill for women to climb.
Strategies to Consider
Some of the biggest systemic challenges for women won’t likely be solved overnight. The good news is that a successful retirement is possible for women who harness various strategies.
Plan for a Multistage Retirement
The facts point to women in general living longer than men; therefore, heterosexual women with a partner should consider what retirement will look like as part of a shared journey and, later, as a solo voyage. Each stage may have different financial requirements and costs as well as other issues to navigate.
The solo stage, if it occurs, is likely to be more expensive and complicated as you age and potentially face increased health care costs and responsibilities you’ll need to address on your own instead of with a partner. Planning for a multistage retirement should involve honest discussions about investing and spending—as well as wishes and needs—with advisors, family members and others who might one day be involved in helping with caregiving.
Get Involved with Family Finances
If you’re not already, look to be an active partner in investment decisions and other financial matters. That might mean learning more about aspects of financial planning and retirement spending (from your advisor, books, adult ed classes and other resources), as being financially literate can be crucial in making wise, confident decisions about wealth—or even simply understanding actions that people may want to take on your behalf.
Job Hop
If you work, look for ways to increase your take-home pay. One idea is to job hop. Pew Research found that 60% of workers who changed jobs saw an increase in their real earnings, versus only 47% of those who remained with the same employer. Staying in the workforce for a longer period of time is another way to potentially arrive at retirement with more money saved up. It could also help you build up additional Social Security credits that result in more retirement income.
Another advantage to working longer: People with “post-retirement” jobs related to their previous careers reported better mental health than those who fully retired, according to research published in the Journal of Occupational Health Psychology.
Allocate More Money to Retirement Savings
An obvious move—one that could be easier said than done, of course—is to set aside more money in retirement-focused accounts. That might mean putting more into a 401(k) or Roth IRA, or a health savings account designed to help fund health care expenses. There are also spousal IRAs, which let a working partner open an IRA for a nonworking spouse to save for retirement. Consult with a professional about the rules, benefits and risks of any retirement savings option you’re considering.
Retirement can present some unique and tough challenges for women. But there are plenty of ways you can increase the likelihood of living the lifestyle you desire and remaining in healthy financial shape throughout your golden years.
The earlier you begin planning, the more flexibility and peace of mind you’ll have. A simple next step is to review your current plan with your advisor and identify one or two areas to strengthen this year.
VFO Inner Circle Special Report
By John J. Bowen Jr.
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