Planning for Retirement: Strategies to Overcome Challenges
Anticipating our “golden days of retirement”, we might fantasize that we’ll have nothing more pressing to do than start the day with a lazy breakfast on the deck and end it with a moonlight walk. But when we factor in the prospect of supporting ourselves later in life, those golden days start to look a little less bright for many women.
In fact, according to the TransAmerica Center for Retirement Studies, only one in eight women are “very confident” they will retire with a comfortable lifestyle while forty-six percent are “not too confident” or “not at all confident” in their ability to do this.
If women might feel somewhat behind the eight ball when it comes to their golden years— it’s for good reason. According to the Center for American Progress, they earn less on average than their male counterparts. They also save less for retirement, reporting an average total savings of only $23,000, compared with $76,000 for men. And this isn't just because they make less; women with access to an employer-sponsored 401(k) contribute a smaller percentage of their salaries.
Finally, women live longer than men, frequently by themselves, meaning they might need to bear all their own healthcare costs and manage their own care. This means that they spend more on healthcare in retirement than men.
Put it all together, and it's an intimidating series of hurdles—but the situation isn't impossible. By recognizing the challenges and planning to work around them, women can put themselves confidently on the path to a successful retirement.
Here's what you should know.
When it comes to taking care of children and elderly parents in the United States, women hold the brass ring. Three in 10 women are or have been caregivers during their working careers, and nearly all of them have made at least one work-related adjustment due to caregiving, such as using vacation and sick days, or missing work. For some women, this role can take a heavy economic toll. Research suggests that a woman aged 50 or older who quits her job to care for an aging parent will forgo more than $324,000 in wages and savings for retirement.
The "caregiver penalty" costs women $16,000 a year in lost wages, according to a 2018 analysis by the National Women's Law Center, and four in ten women are concerned that Social Security will be less than expected. Looking at this trend over a lifetime, women spend just 27 years in the workforce, compared to nearly 40 years for men. And it shows in the math: in 2017, the average annual Social Security income received by women 65 years and older was $14,353 compared to $18,041 for men, according to the Social Security Administration.
Women typically live about two years longer than men. Today's 65-year-old woman has a life expectancy of age 85.7, versus 83.1 for a man of the same age. This might seem like a boon, but this means that women's retirement savings have to last longer, and there's also a greater probability of living alone later in life, which means managing all costs on one retirement income.
Healthcare costs are a big issue in retirement, and even more so for women: A 65-year-old woman retiring today should expect to spend about $150,000 on healthcare in her later years, versus $135,000 for a man retiring, according to an analysis by Fidelity Investments. This differential is because women not only live longer than men, but also tend to see the doctor more often during their lifetime and get more preventative care.
Unfortunately, women tend to be at odds with what they know they need to have for the future. They estimate they'll need about $500,000 in retirement savings—but men are nearly twice as likely to have socked away $250,000 or more. According to a recent survey, only 68% of women were saving for retirement through an employer-sponsored plan versus 81% of men. And women are less likely than men to think about all the nitty-gritty retirement details, such as long-term care needs, inflation, and taxes.
It's one thing to save for retirement, and another to anticipate how you're going to spend that money. Let’s assume that your retirement spending will roughly equal 80 percent of your pre-retirement spending. Here's how to think about it:
Even if your total household retirement savings are higher than the median for women—$23,000, according to TransAmerica1—keep in mind that the maximum monthly Social Security benefit in 2020 is only about $3,000 for someone filing at full retirement age, so you may have to save more than the average to support your retirement income needs. One of the biggest things you can do to create a secure future is to save more now.
For more than six in 10 women, paying off debt is a top financial priority, with three in 10 stating that they'd like to pay off their mortgage. That's a crucial step toward retirement success because once you stop working, you'll be living on savings; taking care of debt before retirement gives you greater flexibility. You can whittle down debt with these steps:
Seven out of 10 wealthy women have an advisor, but about a third of those women only consult their advisor for specialized needs. Establishing a strong relationship with your financial advisor can help ensure that you stay on track and make decisions that benefit your future. To that end, try the following:
Of those who purchase a long-term care insurance policy at age 60 with a 90-day elimination period (meaning the policy kicks in after the first 90 days of care), 35% will use their coverage, according to actuarial data.
Fully 43 percent of adults with employer-based health coverage have a high-deductible health plan, meaning they can fund a Health Savings Account, or HSA. In fact, the greater the family income level, the greater the chance that someone has a high-deductible plan, according to the CDC. For savers, an HSA is essentially another retirement account, and the money is tax-deferred and can be invested. If you use the funds for eligible medical expenses (now or later), there are no taxes on the withdrawals—something an IRA can't boast. Here's how to make it work for you:
Living on your savings nest egg can create a certain amount of anxiety, so providing yourself with a reliable income stream can help. An annuity is an insurance product that guarantees a series of income payments, either now or in the future. Your financial advisor can help you determine what product is appropriate for your investment mix:
When it comes to retirement security, as a woman, it’s crucial to build a safety net you can rely on during tough times. You should have three to six months of living expenses saved to an interest-earning savings account, but a product like permanent life insurance can also provide a way to access cash when you need it. Over time, your premium payments help build the policy's cash value, allowing you the ability to borrow against the death benefit. This is only possible after you've owned the policy long enough to build cash value, so make sure you have an adequate cash emergency fund in the meantime.
Women face a variety of different challenges when it comes to building a secure retirement. But with enough planning and preparation, those challenges don’t have to be roadblocks. If you want professional guidance to help you make your best retirement plan or choose products that will strengthen your investment mix, contact us today. We'll work with you to understand your goals and priorities and develop a strategy to help you achieve your best result.
Get in touch with The Private Bank
Build a financial partnership to last a lifetime.
This is a publication of The Private Bank at MUFG Union Bank, N.A. (the Bank). This publication is for general information only and is not intended to provide specific advice to any individual. Some information provided herein was obtained from third-party sources deemed to be reliable. The Bank makes no representations or warranties with respect to the timeliness, accuracy, or completeness of this publication and bears no liability for any loss arising from its use.