Do Women Have the Short Straw in Retirement?

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Do Women Have the Short Straw in Retirement?

Although a significant number of American workers are already failing to adequately prepare for retirement, women, in particular, have some additional challenges to consider as they plan for their future in retirement.

The average American is struggling to prepare for retirement. Half of adults age 55 and older have no retirement savings at all, according to a report from the U.S. Government Accountability Office, and three-quarters of Americans aren’t entirely sure that Social Security will be available once they retire, a survey from Northwestern Mutual found. Although saving for the future is a challenge for millions of workers, there’s one group of people in particular who are facing greater retirement risks: Women.

Why Women Struggle

Income and Life Costs

One of the biggest challenges that women face is the unfortunate fact that they tend to earn less than their male counterparts. On average, women earn around 19% less than men for doing the same work, according to a 2018 report from the Institute for Women’s Policy Research. In addition, they often have to pay more than men for the same products — also known as the “pink tax.” When studying prices of women’s and men’s personal care products, researchers from the U.S. Government Accountability Office found that in half the products analyzed, those that were targeted to women had significantly higher prices than those targeted to men. Only around 20% of men’s products had higher average prices than the women’s products. Also, women tend to face higher healthcare costs in retirement than men. The average man in his 40s can expect to spend around $294,000 on healthcare costs during retirement, according to a study from Urban Institute. But the average woman currently in her 40s will likely spend around $381,000 on healthcare costs.

Life Expectancy

In addition, women are traditionally more likely than men to have taken time out of the workforce. Giving birth and raising children are common reasons. Additionally, women are more likely than men to take time off work to serve as caregivers to family members such as aging parents.

Finally, there’s the fact that women live longer than men. According to the Social Security Administration, the average life expectancy for women is 81 years versus 76 years for men, leaving an additional 5 years of costs to cover solo.

Combating the Short Straw

As you can see, women are more likely than men to face higher retirement costs and outlive their savings, yet they are less likely to have a strategy in place to combat those risks. Policy makers and the private sector must take these factors into consideration in developing new approaches to strengthen retirement security.

Fortunately, a little extra planning and research now can ensure you’re as prepared as possible for retirement.

Start Saving Early

Some people may only need 75%-80% of their pre-retirement income to cover all their retirement costs; once they retire, but that’s not the case for everyone. If you have big plans for retirement (travel, hobbies etc) you may need more each year than you do now. Also, Social Security benefits are only intended to replace around 40% of pre-retirement income, meaning the majority of your income in retirement will need to come from your personal savings. To get an estimate of what you’ll need to save, establish a retirement budget and be honest with yourself about what you expect to spend. The more accurate your estimate is, the more prepared you’ll be.

Plan for a Longer Life

Whether married or not, women need to make saving for retirement a key priority. Take advantage of your 401(k) or similar employer-sponsored retirement plan, fund IRAs, and save and invest via taxable accounts. If you use the retirement calculators, figure in a long life expectancy; 100 is not unreasonable.

Over-Budget for Healthcare Costs

You could potentially spend hundreds of thousands of dollars on healthcare expenses alone in retirement, and Medicare doesn’t cover everything. With Original Medicare, you typically won’t pay a premium for Part A, but you will for Part B. You’ll also have a deductible for both Part A and Part B coverage, and if you want prescription drug coverage, you’ll need to enroll in Part D too. And beware: Original Medicare doesn’t cover most types of routine care, including dental and vision, so you’ll need to cover those expenses out-of-pocket. You can opt for a pricier Medicare Advantage plan, which offers greater coverage.

Final Thoughts

Women need to be actively engaged in their own financial success whether married or single. You may not be able to plan for every single cost in retirement, but actively planning is better than not preparing at all and getting caught off guard when it’s too late to adjust your retirement plan.

Be involved in your own financial planning whether that be alone or working with a financial advisor. In the latter case, choosing an experienced and understanding financial advisor is a must.

Celebrating 20 years, CKS Summit Group are here to bring you fresh new ideas for your retirement income. We are waiting to set up your complimentary strategy session with us. So call us today on 586-286-5820 or click here to find out more.