The Hard Truth of Women and Retirement Planning

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The Hard Truth of Women and Retirement Planning

2020 has been a hard year for most. And studies show retirement plans have suffered due to the pandemic, especially amongst women.

Financial challenges have intensified this year with layoffs, furloughs, and extended periods of time working from home. A new study outlines women’s financial vulnerabilities before and during the pandemic. Results in the Women and Retirement: Risks and Realities Amid COVID-19 study showed one in four women workers (24 percent) who are employed or recently unemployed say their confidence in their ability to retire comfortably has declined amid the coronavirus pandemic.

The survey found:

  • Fifty-two percent of women workers have experienced one or more impacts to their employment situation as a result of the pandemic, including reduced work hours (24 percent), layoffs (16 percent), reduced salaries (13 percent), furloughs (13 percent), and/or early retirement (four percent).
  • Women face competing financial priorities. Almost six in 10 women cite paying off some form of debt as a financial priority (59 percent). Other financial priorities include saving for retirement (50 percent), building emergency savings (44 percent), and just getting by to cover basic living expenses (33 percent).
  • Seven in 10 women are saving for retirement (70 percent), including those saving in a current employer’s 401(k) or similar plan (49 percent), outside of work (31 percent), and/or a former employer’s plan (nine percent).
  • Despite the challenges amid COVID-19, women, for the most part, are staying positive. More than four in five women have close relationships with family and/or friends (86 percent), consider themselves to be a generally happy person (85 percent), and are enjoying life (84 percent). However, 44 percent often feel anxious and depressed, while 35 percent are having trouble making ends meet.

But what does this mean for women and retirement planning?

Before the pandemic, women were already financially vulnerable and their ability to achieve a secure retirement was uncertain. The pandemic has seemingly exacerbated their risks.

So why do women have it harder when planning for their golden years?

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 report from the Institute for Women’s Policy Research. 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.

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 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.

It’s not all doom and gloom. Women can catch up on their retirement savings with a bit of careful planning. To make up the shortfall, female workers will need to either defer their retirement or save more money during their working years.

Consider working with a financial planner who can help you figure out how much you need to have saved by the time you retire.

A financial planner can not only tell you how much to be saving for your individual needs, but also give you expert advice on where to invest your money to see the best returns; an area where women traditionally tend to shy away from.

As a woman, there are more obstacles on the path to retirement. But by saving and developing a sound plan, you can overcome those obstacles and take control of your financial future.

At CKS Summit Group, our focus is to bring you fresh new ideas for your retirement income. Our cutting edge tactical portfolios help our clients achieve safe, healthy growth of their savings and preservation of their principal balance.

Come and experience the new evolution of retirement income planning. Click here to set up your complimentary strategy session today.