Whether single, married, divorced, or widowed, women face a challenge in planning for retirement that can be summed up succinctly: need more, have less. Women, on average, live five years longer than men and also have less opportunity to earn and build wealth. According to the Women’s Institute for a Secure Retirement, a typical college-educated woman earns almost $500,000 less during her career than a college-educated man. Women also suspend or cut back on employment to care for elderly, ill, or disabled parents, siblings, or other family members.
Social Security benefits are computed over the span of a work life assumed to be 35 years. Employed men aver¬age more than 30 years in the workforce; for women, the average is 27 years. Thus earnings counted toward Social Security, lower per year for women to begin with, are even lower in the aggregate due to fewer years of paying into the system.
When they are offered options for retirement planning, women too often neglect to take full advantage of them. Fewer than half participate in employers’ retirement plans. Expecting to rely on a spouse to take care of the finances is not a dependable approach to retirement. Women are much more likely than men to be managing on their own in their later years. Almost 80% of men older than 65 are married compared to just over 40% of women.
What are some of the steps women can take to ensure the golden time they’ve dreamed of is free from worry and deprivation?
Saving Early, Saving More
It’s crucial for women, given their average longer life spans, shorter work lives, and lower overall earnings, to start saving early. Women can then take advantage of the magic of compounding interest to help make up for lower earnings and fewer years in the workplace.
Women must understand that planning well for their own retirement serves the needs of their families better in the long run. They need to resist the impulse to ne¬glect tax-deferred savings accounts in favor of spending on pricier-than-necessary education, weddings, and other big-ticket items for children or other family members.
Given that women often have a lot of catching up to do and are limited in the amount they are allowed to save in qualified accounts by their generally lower wages, saving additional funds for retirement in an after-tax ac¬count may be a smart move. Earning women who don’t belong to an employer-sponsored retirement plan and nonearning women married to earning spouses should consider contributing to their own IRA.
A solid retirement for anyone depends on a diversified asset allocation that provides both security and growth and protects against inflation and deflation. During the prime earning years, between 50% and 60% of an individual’s investment portfolio should be optimally allocated to equities. Research shows that this level of investment in stocks is necessary to maintain portfolio longevity throughout an average life span. Women who seek safety by holding only cash and interest-earning investments risk either outliving their portfolio or facing a severely constricted standard of living later on.
However, women’s greater conservatism can work to their advantage. They are better able to resist the temptation to trade frequently, which incurs costs and reduces returns over the long term.
Maximizing Social Security
Most Americans choose to start claiming Social Security benefits at a reduced level as soon as they’re eligible. But waiting to claim Social Security at the full retirement age or at age 70 makes sense for women, given their longer life spans, greater likelihood of being alone in later years, and dependence on Social Security benefits for a larger percentage of their income in retirement.
Because women are more often the lower earning or younger partner in a marriage, they are more likely to face decisions about when to take benefits and whether to claim benefits on their own or on a spouse’s earnings record. For example, a younger wife may want to begin taking spousal benefits when her husband reaches full retirement age and then file for benefits on her own employment record when she reaches age 70.
Divorce can change the equation too. Any man or woman who has been married for 10 years or more and has not remarried can collect on a former spouse’s record.
Beyond the Financials
Women do have some advantages over men in facing their later years. They tend to have fewer concerns than men do about what they are going to do in retirement. Their sense of identity is less likely to be bound up in their work, and they are more apt to have a variety of support systems. Women often are less unsettled by ambiguity and uncertainty than men are, less inclined to need to feel in control.
Retirement ultimately is about the time we have at our disposal as well as the money in our accounts. Savvy planning can help women, and those they care about, make the most of both.