In my experience of working with women over the last 30 years, I have seen first-hand how this can be true.
In my own family, I witnessed some of this.
Some of you may know, my dad passed away when I was 19 and left my mom, who was 47 at the time, with the running of their business.
My dad had a small life insurance policy and a small retirement plan. Since my mom was too young to collect a widow’s Social Security benefit (And my sisters and I were all over 18) we weren’t eligible either. To read more about Social Security survivor benefits, click HERE
So why do women face unique financial issues in retirement?
Before we get to the actual reasons, bear in mind that some of these apply more to those that have children or are taking care of aging parents.
The good news is one can usually make some small changes to help overcome these issues.
Here’s the list:
- At different points in time, women are more likely to work part-time and are less likely to have employer-sponsored plans.
- Women are more likely to be caretakers for others, which means less time in the labor force or fewer hours of paid employment each week.
- Many women are not saving for retirement.
- On average, women earn less than men 2
- On average, women can expect to live longer than men.
- For all the reasons above, women are more likely to live in poverty. Here is a sobering statistic: about 43% of women are more likely than men to live on an income below the poverty level. About 65% of the elderly poor are women1.
Even though Social Security is a great supplement, it is not, nor was it ever intended to fully meet your financial needs in retirement. And since women generally have earned less due to the issues above, that means a lower Social Security benefit.
If married, you are eligible to receive a Social Security benefit on your spouses work history even if you never worked outside the home however, the spousal benefit is generally half of your spouse’s full retirement age benefit. There are rules and guidelines, and you can read more about that HERE.
One of the best things one can do is to aggressively save for retirement. Unfortunately, women face greater challenges than men when it comes to setting aside funds for retirement. As stated above, this can be due to lower pay, working fewer (or no) hours, or not having a retirement plan available to you if you are working.
If you don’t have a retirement plan, I suggest creating your own. Anyone with earned income can establish an IRA. If your income is below a certain threshold, (Whether filing as a single person or married) you can contribute to a Roth IRA.
In fact, there is a provision that allows a married spouse to contribute to an IRA even if they don’t have earned income. This is called a “Spousal IRA” where you can use your spouse’s income to make a contribution for your own account.
Meet the challenge head-on
Your goal is to level the playing field by mitigating financial obstacles.
If you are young and just getting started in the workforce, time is on your side. But recognize that at some point, if one needs time away from working to raise a family or take care of a loved one, it can put you behind someone that remains employed for a long time.
Planning today is a huge advantage that will help you level the playing field.
At any age, take advantage of employer-sponsored plans such as a 401(k). This is especially true if your employer offers a match. Utilizing the match to its fullest is like getting FREE money.
But what if you are working part-time? You may still be eligible for a company retirement plan thanks to the SECURE Act. Read more about that HERE.
But you may say, I can’t afford to save right now—maybe next year my finances will improve. Don’t fall into that trap. In my experience, there is always another bill to pay. You can’t afford to procrastinate. Participate at the lowest percentage and gradually increase that when you get a raise. The key is to try not to increase your lifestyle as the raises come in.
If your employer offers a Roth 401(k), you won’t receive immediate tax benefits, but you’ll be able to withdraw qualified funds at retirement tax-free. Please consider this option with your financial planner or CPA.
Here’s one additional possibility—the Saver’s Credit. A Transamerica Retirement Survey found that 72% of women are unaware of this credit. Read more about it HERE.
If you are eligible, the amount of tax credit ranges between 10% and 50% of your retirement plan or IRA contribution up to $2,000 ($4,000 if married filing jointly).
For tax year 2022, single filers can claim with income less than $34,000; married up to $68,000. Contributions to a traditional IRA, Roth IRA, and 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or government 457(b) plans are credit eligible if you meet the requirements.
As with any tax planning ideas, please consult with your tax advisor or give us a call.
What if you are in your early 60s? Withdrawing and timing your Social Security becomes critical. You can begin taking Social Security at 62, but benefits may be reduced by up to 30% compared with delaying until full retirement age, which for many is age 67.
If you can delay until 70 years of age, your benefits will increase by about 8% a year over your benefit amount at age 67.
Sometimes it makes sense for a higher earner spouse to delay Social Security to age 70 as this can provide in a maximum spousal survivor benefit to you.
Are you already in retirement? Can you work part-time or simply rely on savings and a pension, which will supplement Social Security? Retirement planning doesn’t end at retirement. We can review your current and future expected needs and offer a holistic financial plan.
Finally, let’s avoid some common money mistakes
Some of the bigger mistakes we see (and it can apply to all)
- Not working with a Certified Financial Planner®(CFP®) practitioner. There is so much information out there that a CFP® can really help cut through the noise. A planner can put a comprehensive financial plan together to help ensure financial success
- Not saving your tax refund. Tax refunds can be a great boost to long term savings
- Prioritizing college over retirement. If you have kids, you don’t want to be a burden on them in retirement. Saving for college is important, but we would recommend focusing on retirement first. College loans are far from optimal, but at least they are an option for your kids. You can always finance an education but it’s hard to finance retirement
- Getting into debt. Don’t live beyond your means. Debt will put you in bad place financially. Those that have low debt in retirement seem to do better
You will probably outlive your husband. Know and understand your finances in the event you are left to take over the family finances.
Here is a previous blog article on the topic on adding more to your retirement plan if you are over 50: https://planwithfps.com/blog/over-50-you-may-be-eligible-for-a-catch-up-contribution
Feel free to reach out to me if you have any questions. I’m here to help.
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All the best.
Rick Fingerman, CFP®, CDFA™, CCPS®
1.U.S. Department of Labor blog, 5 Things to know about women and retirement
2.Senate Joint Economic Committee, “Gender Pay Inequality, Consequences for Women, Families, and the Economy.” 2016.
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.