Retirement Savings Difficulties Facing Women

The United States is home to nearly 170 million women, with about 3.5 million of them living in Arizona. Not every woman will face identical retirement savings challenges, but there are some hurdles women are statistically more likely to experience.

Longer Life Expectancy

Most people would not describe living a long life as a bad thing – and no one should have to. Unfortunately, many retirees do find themselves outliving their retirement savings. Although life expectancy averages do change slightly from year to year, women, on average, live between five and six years longer than men.

This is far from uniform, and there are many health and lifestyle variables that can influence an individual’s life expectancy.

However, from a retirement savings perspective, women are more likely to face additional years of healthcare costs and living expenses, as well as more years of inflation that might reduce the purchasing power of their retirement savings.

Gender Pay Gap

The gender pay gap stems from a variety of sources. Data suggests that even today women earn an average of 82 cents for every dollar earned by men. The disparity in lifelong earnings is reflected in retirement savings and lower Social Security income. Like life expectancy, the gender pay gap is far from uniform, and the extent to which a woman is affected by it will depend on their educational attainment, lifestyle, time in the workforce and family situation.

Career Interruptions

One of the primary causes of the gender pay gap is career interruptions. Women are more likely to take time off work to fulfill necessary caregiving responsibilities after they have children. They are also more likely to care for aging parents or other family members with special needs, which can have the same career-interrupting effects. Career interruptions lead to lost wages, lost opportunities for career advancement and promotions, and ultimately, reduced retirement contributions and Social Security income.

Part-Time Employment   

Women who handle caregiving responsibilities for their household or a family member must often pursue part-time rather than full-time employment. Such jobs are less likely to offer retirement planning benefits like employer-sponsored retirement plans or matching contributions. Even if these plans are available, women may contribute less or not be able to afford to make full use of available matching funds.

Lower Social Security Benefits

Social Security is based on a worker’s highest 35 years of earnings. All of the above factors can potentially result in a lower lifetime Social Security income. This can be particularly difficult for women who are single, divorced or widowed and don’t qualify for a survivor benefit from their spouse.  

Higher Healthcare Costs

Longer life expectancy and higher healthcare costs are invariably linked. People typically require more healthcare services as they age, and even healthy women may have higher lifetime medical expenses than a less healthy spouse they may outlive by five or six years. This can be doubly true if they require long-term care or memory care during their final years.

Although vital, housing and care in those facilities represent some of the most resource-intensive retirement expenses.

Divorce or Widowhood

Women are more likely to experience negative financial repercussions from either divorce or widowhood, both of which can have serious retirement savings implications. Divorce may result in the division of retirement assets. Alternatively, depending on the details of the divorce or any premarital agreements, a woman might receive alternative assets of equal value in lieu of a couple’s existing retirement savings at the time of divorce.

There are many divorce scenarios that, when combined with the other income and Social Security-limiting factors, can make achieving financial stability in retirement much more difficult.

How a couple decides to take their pension or Social Security can also have serious consequences for widows. Products like single-life annuities that only provide payment for the life of the holder, annuities with low survivor percentages, or having no survivor benefit, can leave widows with drastically reduced income after the death of their spouse.

When Social Security is claimed can have far-reaching implications. For example, if a higher-earning husband claimed Social Security early, reducing both his current benefit and survivor benefit, his widow could see a reduction of 25 to 30 percent after his passing.

There are a number of steps the higher-earning spouse can take to maximize the survivor benefit for their spouse, but it does require planning to execute properly.

Are You and Your Spouse Thinking About All Potential Future Scenarios?

These may not be comfortable topics for couples to discuss, but these variables are important for planning your financial future. Reach out today to schedule a meeting with a financial counselor.