Despite the current trend toward erasing differences between genders, the fact remains that women and men are not equal in all things. When it comes to retirement planning, females are at a particular disadvantage to their male counterparts for two reasons:
- They live longer.
- They save less.
Living longer may seem like a good thing, but it can be expensive. A man reaching age 65 today can expect to live until he is 84.3, according to the Social Security Administration. However, a 65 year-old woman can expect to make it until 86.6. Those two years might not sound like a lot, but it can be a challenge for women, particularly since they are likely to have less retirement savings.
That is in part because women are more likely to take time off from work to raise families. Indeed, the Department of Labor reports only 57 percent of women who are of working age participated in the labor force in 2015. Then, when they do work, they may have other financial priorities.
According to the 17th Annual Transamerica Survey, published in December 2016, only 51 percent of working women — compared with 62 percent of working men — cite saving for retirement as a financial priority. That may be because 53 percent of working women say their biggest financial priority is “just getting by — covering daily expenses.” When they do save, women only put a median of 6 percent of their income into a 401(k) while men are depositing 10 percent of their money.
So how can women make sure they don’t end up in the poorhouse in retirement? To maximize your chances of a long and happy retirement, follow these five steps:
Step 1: Have a plan for your retirement years
You can’t know if you’ll be able to retire happily ever after if you don’t know what happily ever after looks like for you. So this is your chance to dream. Pull out a pen and paper and jot down your answers to the following:
- At what age do you want to retire?
- Will you work part-time after quitting your full-time job?
- Do you want to travel? If so, where and how?
- Will you move to a new home, city or state in retirement?
- What other hobbies or activities will fill your time?
- Roughly how long do you think you’ll live considering your health and the life expectancy of your family members?
This is the fun part. Write down your idea of a perfect retirement. We’ll bring you back to reality in a moment.
Step 2: Calculate what you’ll need to pay for your plan
Now that you have a plan for retirement, you have to figure out how much it will cost. For the most exact estimate, visit a financial planner. They will have the knowledge and software needed to give you a realistic number.
If paying for a consultation with a planner isn’t in the budget, you can use an online calculator instead. MSN, AARP and CNN Money offer these tools, to name just a few. Calculators can give you a rough estimate of how much you need to have saved for retirement, and it’s helpful to play around with the numbers. Of course, it’s up to you to consider how far your money will go — which will vary a lot depending on your lifestyle and whether you’re planning to retire in Bismarck or Bermuda.
Regardless of how you calculate, don’t forget to consider your expected health. Do you think you’ll be fit as a fiddle in your 80s? Or do you foresee major medical problems in your future? Health care can be expensive, particularly long-term care that’s not covered by Medicare, so don’t forget to include that in your planning.
Step 3: Evaluate your current financial situation
Here’s where reality sets in. Take a look at your current income and savings situation. Are you on track to save enough to hit that magical number needed to make your retirement plan a reality? Again, a financial planner makes this process easy. If you don’t have one, you’ll have to fire up the calculator and crunch some numbers yourself. The calculators above can help too.
Once you have figured how much savings you’ll have, don’t forget to check your Social Security account to factor in those benefits. While Social Security is not meant to be the sole source of income in retirement, it can go a long way toward closing the gap between personal savings and living expenses.
If you have a spouse, remember that you might outlive him or her. However, you could get Social Security spousal benefits or survivor pension benefits. Investigate what money might carry over to you and include those in your calculations. If your spouse’s pension disappears when he dies, you need to be prepared for that too.
Step 4: Adjust plans and lower expectations, if needed
If you’re like most women, you’ve likely realized by now you won’t have enough money to make all your dreams come true, let alone get you through 20 years of retirement comfortably. So it’s time to make changes.
Ideally, you can ramp up savings and still have the retirement you want. However, if you work in a low-income job or are close to retirement age, saving enough might not be possible. Instead, consider whether you can do the following to stretch your retirement dollars further.
- Can you work longer to save more?
- Can you delay the start of Social Security benefits? Remember, you get an 8 percent boost in your monthly benefit amount for every year you delay from your full retirement age until age 70.
- Can you limit your retirement travel?
- Are there less expensive living options available?
If your means are limited, you may have to adjust your lifestyle in retirement right from the start. That can be disappointing, but it’s less disappointing than realizing you’ve run out of cash at age 75.
Step 5: Take advantage of workplace and tax advantaged retirement plans
Assuming you’re still in the workforce and a few years away from retirement, now is the time to get serious about ditching the debt and saving money instead.
While there are plenty of places to stash cash, you’ll want to look to your company’s 401(k) plan first. Many employers will match contributions, up to a certain percentage. That means you may be able to instantly double the deposits into your retirement fund. Plus, 401(k) plans come with added tax benefits such as immediate deductions for contributions to traditional plans and tax-free gains and withdrawals for Roth accounts.
If your company doesn’t have a 401(k) benefit, opening an IRA is the next best thing. You won’t get any match on your contributions, but you do get all the tax benefits.
Women don’t have it as easy as men when it comes to retirement savings, but that doesn’t mean living happily ever after is out of the question. Take stock of your situation now and make plans for the future so your retirement expenses won’t take you by surprise.
What are your retirement savings secrets? Share with other readers in comments below or on our Facebook page.
Learn everything you need to plan your dream retirement
The Only Retirement Guide You'll Ever Need gives you the knowledge you need to retire on your own terms. Sure, you can pay a financial adviser, but this online course gives you total control to create a custom retirement plan around the things that make you happy.
You're going to get expert, personalized advice. You'll have access to the latest tools. And when it's complete, you'll be able to approach your retirement confidently and with peace of mind.
It's time to plan the best years of your life. Let's get started.