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Planning for retirement as a woman: The full breakdown

At a glance:

  • The facts about women and retirement

  • Why women are retiring poor

  • Women and housing in retirement

  • Women and insurance needs in retirement

  • Women and Social Security

  • Summary of planning for retirement as a woman

If you are a woman, then after looking at the facts, you may be concerned about how you will survive after you retire.

This post will help you understand why so many women are retiring poor and find ways to improve your situation.

The most important thing you can do to defend yourself from poverty late in life is to start planning and saving now.

Mature Businesswoman pulling a suitcase in a big city
(Getty)

The facts about women and retirement

Here are the facts:

  • According to the Department of Labor, a woman 65 years old can expect, on average, to live another 20 years, two years longer than a man.

  • It is widely believed that about 50% percent of first marriages, and even higher percentages of second marriages end in divorce.

  • There are currently six million more women 65 and over than men, according to the Census Bureau.

  • The Census Bureau reports that 50.1% of women 65 and older are widowed or divorced, compared to 38.1% of men.

  • It's been estimated that a single woman has at least a 75% chance of outliving her financial assets in retirement.

  • Working women in their 40s and 50s expect to save an average of $200,000 for retirement, about half of what men their age expect to save, according to a financial survey.

  • The poverty rate for all women 65 and older is 11%, but for single women it is about 19%.

  • Single seniors are far more likely to live in poverty than married seniors.

  • In the 65 and older age group, the Census Bureau reports that twice as many women as men live in households that receive food stamps.

  • The Department of Labor reports that only about 46% of working women age 21 to 64 have ever participated in a retirement plan.

  • Among full-time, year-round workers, women are paid an average of about 80% of what men are paid.

  • More than 30% of older women rely on Social Security for most of their income.

  • According to the Census Bureau, as of 2018, 11.1% of women age 65 or above lived below the poverty line, compared to 8.1% of men.

Why women are retiring poor

The gender gap is a well-known issue that has been discussed and debated for decades. It means that women have always been paid, as an average, significantly less than men, usually about 22% less.

While this has had many effects on women during their working careers, it also carries over into their retirement in some ways: lower earnings yield lower contributions to Social Security, lower pensions, and lower 401(k) accounts.

In the case of 401(k) accounts, not only is the woman's contribution lower, but so is the company's match, if one was available.

Time spent in the workforce

Additionally, because of the actual number of years in the workforce, women typically earn one third less than men during their careers.

This, too, has a devastating effect on their income after retirement. Because of her role as caretaker, a woman is likely to enter the workforce late to raise children. She is also more likely to interrupt her career, or even retire early, to care for aging parents.

Not only would this reduce her earnings, but it may affect whether she becomes vested in a pension plan and/or 401(k).

To be vested in a pension plan means that your right to receive payments is protected. Companies usually have a minimum number of years of employment before you become vested.

Therefore, if a company has a five-year vesting waiting period, and a woman leaves after four years to care for her sick parent, she loses her right to a pension.

Finally, since a woman can expect to live many years after age 65, her less-than-adequate savings have to last even longer than a man's might.

Women and housing in retirement

The house where you raised your kids may feel like the only place you can call home, but keep an open mind. The place you call home may need to change as your financial picture changes entering retirement.

You might want to have a room for everyone when the kids come with the grandchildren for Thanksgiving, but that just may not be practical. Let's take a look at what your options might be.

Downsize

Depending on what part of the country you live in, you may lower your taxes immediately, as well as your utilities, simply by moving to a smaller house.

Since your property taxes are based on the size of your house and property, plus certain amenities, the same number of bedrooms in a house of overall less square footage on a smaller piece of property could lower your taxes substantially.

Simple Internet research will guide you to the states, cities and towns with lower tax rates on income, sales and property.

You'll have to be flexible about where you spend your retirement years, but the extra money in your pocket might make relocation attractive enough.

Are you 55 or over?

A 55-and-over community offers ways to lower your expenses. Generally, a move to a 55+ community is a downsizing, thereby lowering taxes and utility expenses.

If you buy in an active community, activities you may love are often offered at reduced prices, or are free for members of the community.

In recent years, too, over-55 communities are fighting payment of school taxes, claiming they don't have school-age children. They are few and far between, but there are already communities in which no school taxes are paid.

Townhomes and condos

Before you consider moving to a townhouse, also known as a "townhome," or condominium, better known as a "condo," you should know the difference. When you own a townhome, you own your building, interior and exterior, and the land it sits on, usually in front and back, of your building.

When you own a condo, it is said that you own your building from the paint inward. The condo association owns from the drywall out, all common buildings, and all land.

As an individual and condo owner, you do not own any land. This distinction matters when considering new housing to lower your living expenses.

Depending on where you live, how much property is involved, and other factors, your property taxes can be different enough between a townhome and a condo as to be significant.

Consider renting

You may choose to shed the mortgage and taxes altogether, and rent. Rent payments are generally lower than mortgage payments, depending, of course, on the outstanding amount and interest rate.

Switching from homeowner's insurance to renter's also puts extra money in your pocket.

Generally, the landlord is responsible for repairs, and sometimes maintenance, relieving you of that financial burden as well.

Roommate?

The adage "two can live cheaper than one" is probably truer about retirees than any other group.

Single women are not at the greatest risk of living in poverty because they don't have a husband, but because they have no one with whom to share expenses.

Living with a roommate greatly reduces your chances of living at a poverty level.

Women and insurance needs in retirement

When you budget your expenses during retirement, you'll need to factor in insurance.

First, we'll take a look at life insurance. Beyond insurance for your burial, ask yourself if you NEED life insurance, at all. Most retirees don't need life insurance. You DO need life insurance if:

  • You have non-adult children

  • Your spouse will incur a significant financial loss when you die

  • You are a business owner or partner

The next question is, do you WANT life insurance? Depending upon your health, term life insurance is not very expensive. You may choose to pay a little each month so that family and/or a favorite charity will benefit upon your death.

The Medicare option

Most retirees will no longer have company health benefits, and you will go on Medicare. The first thing you must know is that Medicare is not free. For budgeting purposes, bear in mind that you can have the premium deducted from your Social Security payment.

Medicare will send you a book with your benefit options when you first enroll. After that, you'll have the option to make changes annually.

Unlike most private insurance plans that have co-payments, Medicare has co-insurance, which is much more difficult to budget.

For example, the most Medicare will pay for a doctor visit is 80% of the allowable amount. If the doctor charges $100, and Medicare allows $80 for that visit, they will only pay the doctor $64, or 80% of $80.

That results in a co-insurance payment from you of $36 ($100 – $64). In a private insurance plan, the co-payment may only be $20, or less. You can see from just one example that co-insurance can be much more expensive than co-payments.

This is particularly true if your health status warrants seeing multiple doctors regularly, or if you need tests done that will leave you with substantial co-insurance payments.

More information on Medicare costs can be found here.

Private health plans

As a result, many retirees choose to purchase secondary insurance, which will, generally, pay for the entire co-insurance bill.

There are many types of secondary insurance, often called "Medigap," so do your homework.

An elderly woman waves American flags to veterans as they march on the street in Brooklyn. (Photo: JOHANNES EISELE/AFP via Getty Images)
An elderly woman waves American flags to veterans as they march on the street in Brooklyn. (Photo: JOHANNES EISELE/AFP via Getty Images)

What about long-term care?

Finally, you may want to look into long-term care insurance (LTC). LTC insurance provides benefits for nursing home and/or at-home care when you become unable to live independently.

Whether you will need long-term care and whether you can afford the care without purchasing insurance are guessing games. Major considerations when looking at LTC policies are:

  • If you have a health issue that could become increasingly disabling, you may want to consider purchasing when you are younger.

  • Before weighing the pros and cons of different policies, the soundness of the companies selling them should be determined.

  • Experts agree that if you choose a policy that allows protection from inflation, take it. Otherwise, your promised benefit will remain fixed, while the cost of LTC care steadily increases as the years go by until you finally make a claim.

  • All LTC policies require extremely careful attention to detail, especially when comparing one to another. Make sure you understand the benefits offered, and that you're comparing apples to apples.

  • Make sure you understand the language of the policy as to what is covered and when it's effective.

Long-term care is expensive; accordingly, so are LTC premiums, which can go into the thousands per year.

The best strategy to keep LTC insurance affordable is to buy it while you're relatively young. But whatever the cost, if you really can't afford it over the long haul, don't buy it.

The last thing you want to do is purchase a policy and then drop it, wasting thousands of dollars.

Women and Social Security

Since so many women must rely on Social Security benefits for their income later in life, it is important to understand how it works.

Almost all workers pay into the Social Security system through payroll tax deductions or by paying self-employment taxes.

How to be eligible

To be eligible for benefits, you must have at least 40 quarters, or about ten years, of Social Security qualified wages or self-employment income. Most earnings from regular jobs are qualified wages. These do not have to be consecutive years, but cumulative.

Once you retire and start to receive Social Security benefits, you keep receiving them until you die. To protect your benefits from inflation, you also receive an annual cost of living adjustment (COLA).

How benefits work

Benefit payments are based on 40 years of employment. The lowest five are dropped and the remaining 35 years are averaged. This is a "retired worker's benefit."

Because so many women would not qualify, as they do not work for forty years, a "spousal benefit" based on your husband's earnings is paid to married women and, in some cases, divorced women.

Survivor's benefits may be paid when a woman outlives her husband and receives his full Social Security benefit amount.

When you can receive benefits

You are eligible to receive your own retired worker's benefit between the ages of 65 and 67, depending on the year you were born, and reduced benefits at age 62.

Spousal benefits and survivor's benefits will be different. If you continue to work past your full retirement age, your monthly benefit will increase.

Every year the Social Security Administration sends you a statement identifying your earnings and estimated retirement benefit. You can also get this information at any time from www.ssa.gov.

Retire early?

Suppose you want to retire early and receive your retired worker's benefit, but you want to keep working part-time. Depending on your earnings, you may reduce your benefits.

Social Security sets a limit each year, adjusted by the cost of living, above which you begin to reduce your benefit. Once you reach the annual limit, you will lose one dollar in Social Security benefits for every two dollars over the limit.

Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.

Summary of planning for retirement as a woman

Unfortunately, life goes by too quickly, and before you know it, retirement is upon you. Too many women are ill-prepared financially for retirement and find themselves living at poverty level.

There are many reasons this can happen, not the least of which is poor planning. Let's face it: There is plenty of time if we don't let ourselves get caught off guard. Even if you're in your 20s or 30s—especially if you're in your 20s or 30s—start planning now for your retirement.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

Read more information and tips in our Retirement planning section

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