Financial Dangers Facing Women in Retirement
Social security is a good supplement, but it is not nor was it ever designed to fully meet your financial needs in retirement.
Saving for retirement is a deliberate choice. Unfortunately, women face greater challenges than men when it comes to setting aside funds for retirement.
For example, according to the Department of Labor,
- Women are more likely to work part-time and are less likely to have employer-sponsored plans.
- Women are more likely to be caretakers for others, which means less time in the labor force or fewer hours of paid employment each week.
- More than half of all women are not saving for retirement.
- On average, a 65-year-old woman can expect to live to age 86, which is nearly three years longer than men.
- For all the reasons above, women are more likely to live in poverty. Here is a sobering statistic: about 43% of women are more likely than men to live on an income below the poverty level. About 65% of the elderly poor are women.
Here are two more statistics from the Women’s Institute for a Secure Retirement.
Women receive significantly lower retirement benefits than men. In 2017, the median income for women over 65 was $19,180, compared to men of the same age, whose median income was $32,654.
And, on average, women spend nine more years out of the paid workforce than men.
Meet the challenge head-on
Your goal is to level the playing field by mitigating financial obstacles.
If you are young and just getting started in the workforce, time is on your side. But recognize some of the structural disadvantages that you may face. Planning is a huge advantage that will help you level the playing field.
For example, if you are in your 20s, take advantage of employer-sponsored plans such as a 401(k). This is especially true if your employer offers a match. Utilize the match to its fullest! This is FREE money!
But what if you are working part-time? You may still be eligible for a plan thanks to the SECURE Act.
But, you may say, I can’t afford to save right now—maybe next year finances will improve. Don’t fall into that trap. You can’t afford to procrastinate. Participate at the lowest percentage and gradually ramp up. Climb the mountain one step at a time.
If your employer offers a Roth 401(k), you won’t receive immediate tax benefits, but you’ll be able to withdraw qualified funds at retirement tax-free. Please consider this option.
Here’s one additional possibility—the Saver’s Credit. A Transamerica Retirement Survey found that 72% of women are unaware of the saver’s credit.
If you are eligible, the amount of tax credit ranges between 10% and 50% of your retirement plan or IRA contribution up to $2,000 ($4,000 if married and filing jointly).
For tax year 2022, single filers can claim with income less than $34,000; married up to $68,000. Contributions to a traditional IRA, Roth IRA, and 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or government 457(b) plans are credit eligible if you meet the requirements.
As with any tax ideas, feel free to consult with your tax advisor.
What if you are in your late 50s or early 60s? Withdrawing and timing your Social Security becomes critical. You can begin taking Social Security at 62, but benefits may be reduced by up to 30% compared with delaying until full retirement age, which is fast approaching 67.
If you can delay until 70 years of age, your benefits will increase by 24% over your benefit amount at age 67.
Social Security seems complicated, but it doesn’t have to be that way. Do you have questions? I can help.
Are you already in retirement? Can you work part-time or simply rely on savings and a pension, which will supplement Social Security? Retirement planning doesn’t end at retirement. I can review your current and future expected needs and offer a holistic financial plan.
Finally, let’s avoid some common money mistakes
Ladies (and gentlemen), these mistakes are common to both genders. These are the basics, but they bear repeating as these money traps are best avoided.
- Finances and ignorance. You don’t have to be an expert. But resources abound, and I can point you in the right direction.
- Not saving your tax refund. Don’t blow it on luxuries you don’t need.
- Prioritizing college savings over retirement. If you have kids, you don’t want to be a burden on them in retirement. Saving for college is important, but I would recommend focusing on retirement first. College loans are far from optimal, but at least they are an option for your kids.
- Getting into debt. Don’t live beyond your means. Debt will put you in financial bondage and keep you in financial bondage. It can lower your credit score, raise costs when you need a loan, and if you get behind, late fees and penalties can be expensive.
- Avoiding family finances. While many women are involved in the monthly bills, they may not be up to speed on the financial plan, which can include retirement, estate planning and insurance.
You will probably outlive your husband. Know and understand your finances in the event you are forced to take control.
I trust you’ve found this review to be educational and helpful. If you have any questions or would like to discuss any matters, please feel free to give me a call.
As always, thank you for the trust, confidence, and the opportunity to serve as your financial advisor.
Jeff Schlotterbeck, CFP®
Founder | Water Street Wealth Management