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Planning for Retirement: Strategies to Overcome Challenges

12 Minute Read

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.

1. Women are more likely to be caregivers.

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.

2. Women collect less Social Security.

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.

3. Women live longer.

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.

4. Women face higher healthcare costs.

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.

A 65-year old woman retiring today should spend about $150,000 on health care in her later years

5. Women are less prepared for retirement.

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.


Understand your retirement budget

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:

68% of women are saving for retirement through an employer sponsored plan versus 81% of men

  • Estimate your Social Security. If you have a spouse, it's crucial that you make a plan for claiming Social Security as a couple. It's usually best for the spouse with the higher income to wait as long as possible to claim benefits—both to increase what they can claim and potentially increase spousal benefits after they die.
  • Consider your retirement spending. What do you plan to do in retirement? Will you travel? Play golf? Maintain a second home for the "snowbird" months? When you stop working, you'll have plenty of free time for other activities, so make sure you've factored them into your budget.
  • Calculate your tax rate. Taxes can take a big bite of your retirement income, depending how your savings are distributed. Make sure you've run the numbers on your expected income in retirement, taking into account what you'll pay in taxes overall.

Save more

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.

  • Save at work: A 401(k) plan allows participants to put away up to $19,500 in 2021. If you aren't maxing out your 401(k) contribution, get there as quickly as you can. Your high-earning years are a prime opportunity to feather your savings nest.
  • Make catch-up contributions: If you're 50 or older, you can make additional contributions to your 401(k) plan (up to $6,500 in 2021) and any IRAs you might have (an additional $1,000). Take advantage of the extra opportunity.
  • Save outside your work account: You can save additional cash for retirement into an IRA. If you're eligible for a Roth IRA, experts suggest saving to the account so you'll have a mix of tax-deferred and post-tax earnings in retirement. If you're not eligible for a Roth, but you can contribute to a tax-deductible IRA, you can still snag a tax deduction by saving there. In 2021 you can save up to $6,000 ($7,000 if you're 50 or older) to an IRA account.
  • Check your progress: One rule of thumb is that you should aim to save at least three times your salary by age 40, eight times your salary by age 60, and 10 times your salary by age 67, according to Fidelity Investments.
  • Talk to your adult children: Some evidence suggests that adults are putting their retirements at risk by supplementing their adult children's finances. If you're still supporting your offspring, make a plan to wean them off your financial assistance, giving the process between six to 12 months so everyone has a chance to adjust. A financial advisor can help you do this strategically.

Pay down debt

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:

women 50 or over and quit their job to care for an aging parent will forgo $324,000 in wages and savings

  • Understand your payoff picture. Make a spreadsheet of all the debts on your balance sheet, the payments on each, and the time it will take to pay them off at your current pace. Are you helping your children with student loans? Do you have a mortgage on a second home, or a loan on a vehicle? It can be eye-opening (and motivating) to see what's outstanding and what it looks like to get your debts to zero.
  • Make a debt pay-off plan. How much can you put toward debts each month, and how long will it take you to pay them off if you get aggressive? Consider that the sooner you can pay off anything outstanding, the more capital you'll have to put toward saving and investing. 
  • Make a date to be mortgage-free. A home loan is usually the largest chunk of debt in your portfolio. And it's not bad debt, but it's smart to take steps to enter retirement without that recurring bill on your balance sheet. Use an online mortgage calculator to make sure you're on track to wipe out that debt by the time you quit working.

Get to know your financial advisor

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:

  • Regularly attend meetings. If you're leaving the financial planning “nuts and bolts” to your spouse, it's time to pull a seat up to the table and make sure you're just as familiar with your financial picture.
  • Help manage the finances. Make a point to get involved in your household's money decisions and make sure you understand where your money is and what it's invested in. Keep in mind that if you live longer than your spouse (and there's a good chance of that), the finances eventually will be in your hands one day.
  • Consult your planner when needed. The research is clear: those who work with an advisor are more likely to have their financial houses in order. Two-thirds of those who have a financial advisor say they feel financially secure. Consider your advisor a helpful tool in your back pocket and include them in decisions along the way.

Consider long-term care insurance

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.

  • Understand the costs. Estimate the cost of care in your area to understand how much you might need to cover. It's good to look at the cost of care for the present-day and in the future.
  • Shop in your mid-50s. This is a good time to shop for long-term care, but if you're in good health, you can shop as late as age 60 to 65. The later you buy, the bigger your premiums will be, but you'll spend less time paying them. A financial planner can advise you on the best time to purchase, given your circumstances.
  • Consider other products. Some life insurance policies offer long-term care or a chronic illness rider that can cover costs by allowing you to receive some of your death benefits early. This is also something to discuss with your financial professional.

Fund your HSA

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:

In 2017 average annual social security income for women 65 and older was $14,353 compared to $18,041 for men

  • Contribute the max. In 2021, HSAs allow up to $3,600 in contributions for individual health coverage and up to $7,200 if you have family coverage, with a $1,000 catch-up contribution available to those aged 55 or older.
  • Save it for later. You can use the money to pay for healthcare expenses now, but it's even more potent if you use other funds to pay for current healthcare costs and keep your HSA money for healthcare costs in retirement. Think of it like another IRA, but with even more tax benefits (since you can withdraw the funds tax-free for healthcare expenses).
  • Understand its flexibility. If you use the money for eligible medical expenses, it comes out of the account tax-free. But even if you don't, withdrawals in retirement will just be taxed at ordinary income rates, much like your 401(k) or IRA money.

Create a guaranteed income stream (annuities)

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:

  • Fixed annuity: This product pays a set rate of return on your money, so you're protected against market downturns.
  • Fixed index annuity: This product offers the ability to participate in the market with the growth potential while still protecting the principal if the market dips.
  • Variable annuity: This product gives you a chance to earn higher returns by investing in a diversified portfolio of securities. As with all investments, the opportunity for higher returns comes with a risk of greater volatility and potential loss of principal.

Establish an emergency reserve

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. 

A successful retirement comes down to planning

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.

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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.