While many Americans are facing their retirement years completely unprepared, women face even more risk of outliving their savings than their male counterparts and are twice as likely to live under the poverty line in retirement. (1) As a result of this reality, only 10% of women are very confident they will be able to retire comfortably. (2) Why is there such a disparity? What are some unique retirement hurdles women face and how can they conquer them?
1. Greater Longevity
At birth, women are expected to live until 81, and men 76. (3) When saving for retirement, those five extra years could make or break your standard of living. But even with the average life expectancy being 81, one in three females could live until 90, while only one in five males will reach that milestone. (4) In the past 10 years alone, the U.S. centenarian population has grown 44%. What these numbers tell us is that women need even more resources to carry them through retirement. Women must also plan ahead for the likelihood of outliving their spouse.
How can we plan ahead to mitigate longevity risk when we don’t know how long we will live? The first step is to estimate your life expectancy, either by utilizing online calculators or by consulting with a financial professional. You may not be able to predict your exact lifespan, but you can determine an approximate range and plan accordingly. Once you calculate a few financial projections with an appropriate planning horizon, stress-test each projection for a longer lifespan. How do these estimations hold up if you live an additional two, five, or ten years? Evaluate the strength of your current strategies and decide whether or not you need to save more aggressively.
2. Higher Health Care & Long-Term Care Costs
Health care represents one of the largest expenses in retirement, but even more so for females. According to a study conducted by HealthView Services, women can expect to pay over $300,000 in health care costs, compared to the $260,000 average men pay. (5) These numbers are for healthy 65-year-olds, so if there are any known health concerns, that number will increase.
On top of standard healthcare expenses, an average 63% of people turning age 65 will require some form of long-term care during their lifetimes. (6) Furthermore, because of their longer life estimations, women pay significantly more for long-term care —$82,000, compared to just $29,000 for men. (7) These additional costs can eat away at your hard-earned savings very quickly.
There are two aspects to mitigating the risk of healthcare and long-term care costs. The first is to take care of your health now. Make sure you’re eating well, exercising regularly, and getting enough sleep every night. Getting regular health checkups and physicals help you detect problems early and improve your chances of living a healthier life.
Financially, you can review your options for long-term care insurance. Although policies can be expensive, they pale in comparison to long-term care costs. In 2007, the average long-term care insurance policy cost around $2,207 per year, (8) whereas long-term care can cost between $3,628 and $7,698 per month. (9) Instead of, or along with, long-term care insurance, consider starting a savings plan specifically for future healthcare needs. One option is to create a separate, high-yield savings account and contribute a specific amount every month.
By combining proactive physical care and dedicated financial preparation, you may be able to lessen the impact of healthcare expenses in your retirement years.
3. Income & Workforce Limitations
Even in 2018, there is an income disparity between men and women. For every dollar earned by men, women earn $0.81 (10) and average annual Social Security payments are about $4,000 less for women. (11) Since women 80 and older receive an income that is 44% lower than that of men, it’s not surprising that three-quarters of the people in poverty are female. (12)
Women also spend more time out of the workforce to care for children or other family members. Not only does this impact earning power and Social Security payments, but also participation in employer-sponsored retirement plans. Females tend to contribute 7% of their income while men contribute 10%. (13) Over time, that 3% makes a considerable difference in savings.
Lower lifetime earnings often result in women claiming for Social Security benefits early, reducing the amount they receive by as much as 30%. (14) Before making Social Security claiming decisions, work with a professional who can walk you through different scenarios and help you choose the best strategy for your situation.
Finally, save early and often. Even though your income opportunities may not be as high as those of men, small amounts can add up over time. If your employer offers a retirement plan, be sure to participate and maximize your contribution rate to take advantage of any employer matching. Women tend to invest more conservatively than their male counterparts, so work with a professional to allocate your assets appropriately and determine your risk tolerance.
4. Higher Debt Loads
Women may make up 56% of higher-education students, but they hold 65% of the debt. Additionally, research shows that women pay more for the debt that they carry than men, even though they’re less likely to default. (15) As women try to pay off their debt, it limits their available assets they could be investing and putting away for retirement.
To mitigate the burden of debt, look for loan forgiveness programs that might be applicable to you and do your best to consolidate your loans. If possible, pay off the ones with the highest interest rate first and then throw all your extra cash towards the rest. Once your debt is paid off, all that money you were allocating to your payments will be available to put towards retirement savings.
5. Lack of Planning
The Transamerica Center for Retirement Studies tells us that only 50% of women have some sort of retirement strategy, but 78% of American workers say they would feel more confident if they had a guaranteed income investment option. (16) As women generally take less risk than men, they may struggle more to feel confident in their planning options and, as a result, avoid planning altogether.
The key is to find a financial advisor that you trust and work well with. It’s never too late to create a plan, as long as you start today.
The Future Is Bright
Women may have more work cut out for them to obtain their ideal retirement, but it is not out of reach. The earlier you plan and the more aware you are of the common problems or threats women face, the greater the chance you can achieve your goals.
At Archer Investment Management, we specialize in serving the financial and planning needs of women. We understand the unique challenges they face that can make financial planning more critical than ever for them. If you are nearing retirement and are worried about your financial situation, or if you want a second look at your current plan, click here to schedule a phone call.
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
(3) Social Security Actuarial Life Table, 2016.
(4) Key Findings and Issues. Longevity. Society of Actuaries, June 2012
(7) Society of Actuaries, “The Impact of Retirement Risk on Women,” 2010
(12) Elayne Clift. “USA Women Moving Millions”, News Blaze, September 16, 2008.