Much conventional retirement-planning advice fails to consider the unique challenges women face in their senior years. From longer life spans to lower lifetime earnings, women planning for retirement are discovering that one-size-fits-all advice doesn’t always meet their needs.
“Women earn less [than men] and, although the pay has increased, it impacts our Social Security and our ability to increase our own personal savings,” says Megan Kopka, a certified financial advisor in Wilmington, N.C. “Plus, women often take pink-collar jobs that pay less than the male-dominated careers.”
Years spent caring for children or aging parents also add to the challenge.
“A greater portion of women compared to men were working in the home as a parent and household manager for the bulk of their money-earning years,” says Kirsten Crane Cadden, a certified financial advisor with Warren Street Wealth Advisors in Los Angeles. “This can put a woman in a position of relying heavily on a spouse, not only for income during the working years but also for Social Security benefits, insurance benefits, and more.”
While the best planning happens long before your golden years, if you’re a woman nearing retirement age, here are some considerations you should be making to ensure your retirement plan works for you.
Don’t Leave Money on the Table
Women planning for retirement may not be aware of the claiming strategies available to them, says Elliott Weir III, founder of III Financial, certified financial planners in Cedar Park, Texas. that specializes in helping widows. “There are survivor benefits, spousal benefits even for many divorced women, and their own benefits,” he says.
Pew Research found that the rate of divorce after age 50 nearly doubled from 1990 to 2015. Newly single women approaching the age of retirement may have lower savings and income and higher expenses than if they were married. However, if you’re divorced, you may qualify for a portion of your former spouse’s Social Security benefits, according to the U.S. Department of Labor.
“For divorcing women, it is imperative that you get 50% of everything,” says Kopka. “The couple you were is a legal and financial obligation. You likely filed married filing jointly and got all those great benefits. Therefore, no matter who brought what into a marriage if there is a lifestyle to maintain it should be equal.”
Widows may be entitled to survivor benefits.
“Often overlooked in planning is the fact that most women will become widows,” says Kopka. “The retirement funds may all go to the surviving spouse, however, the taxable income at withdrawal is very different from married filing jointly to single filer.”
Set Your Withdrawal Rate Carefully
Once you’re ready to start making withdrawals from retirement investment accounts, you’ll need to determine the percentage to take. The “4% rule” has been used as a safe measurement for retirees so they don’t spend down too much of their savings. However, this rule of thumb may not fit every woman’s situation and will be much too high in many cases.
According to a report from Heinz Family Philanthropies and The Women’s Institute for a Secure Retirement, a widow’s expenses are likely to be 80% of what they were before the husband dies, but her income may drop to just two-thirds of what it was prior to the spouse’s death since pension and Social Security benefits from the husband’s work are generally reduced by 50%. What’s more, single women may need more money for healthcare since they won’t have a spouse to help as their health begins failing. It’s also important to plan for a longer potential lifespan.
The rate you withdraw may be lower or higher than the 4% rule, depending on criteria such as the amount Social Security, pension or annuity income, living expenses, health, and age, says Weir. “The critical component is annually reviewing the rate and making adjustments as needed,” he says.
Take Charge of Your Accounts
It’s easy to fall into the trap of “set it and forget it” when it comes to retirement accounts, but educating yourself on the specifics helps avoid costly mistakes.
For instance, some 401(k) or traditional pension plans require that you stay employed with the company for a certain number of years before you become “vested” and can receive your full benefits. If you don’t know and understand your plan, you risk making the error of leaving before you are eligible to get your full pension. That’s only one example of the value of taking full responsibility for your investments. Women who feel behind in retirement savings may think it’s too late, but everything counts. If your employer is offering a match, you should at the very least be taking advantage of it for as long as you can.
“Many women have come to me with super conservative portfolios or cash in the bank making zero [interest],” says Kopka. “[But] women tend to be better investors than men, once we are financially literate.”
Taking the reigns on your investments doesn’t mean you need to go it alone. A financial planner can be very helpful in maximizing both earnings potential and strategizing for how to invest. Whatever stage of retirement planning you are in, paying attention to the ways in which being a woman may impact your big picture will help you plan for a secure future.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.