Smart Retirement Strategies for Women
Friday, October 7, 2016
In truth, when it comes to smart retirement planning, it doesn’t matter if you're a man or a woman. Retirement doesn’t differentiate by gender. But how we approach retirement may be different for men than for women.
For one thing, during their working years, women may find that they are more concerned with day-to-day finances than long term planning. Women, particularly mothers, are typically more aware of the needs of the family today, from yet another pair of new sneakers to after school violin lessons. While keeping an eye on the day-to-day budget, women may be more likely to lose sight of the importance of financial planning for the long run.
Another factor that differentiates how women plan for retirement is that they have different concerns about their retirement years than men do. Women tend to outlive men by three to four years on average. Not only does this mean there is a need for retirement income for a longer period, but there’s also the increased likelihood that there will be a need for disability care as they reach the distinction of being a part of the most elderly segment of society.
Despite this commonly understood difference between the life expectancies of women and men, female earners tend to plan for the same number of retirement years as men do. (Actually, both men and women tend to underestimate how much money they will need in retirement, so women are at an even greater financial disadvantage without adequate planning). Add to this the fact that women earn less than men on average and spend less time in the labor force than men do.
Women also tend to be caregivers of both children and elderly parents for longer periods than men. When more income is diverted to caring for family, there’s less left over for investing in retirement funds, and similarly, women are more likely to retire early in order to care for elderly parents. These combined decisions can have a huge impact on a women’s earning potential and the size of her retirement account. According to the Society of Actuaries lifetime wealth can fall by $303,800 for family caregivers who leave the workforce.
First Step: Avoid Averages
Generic advice says to base long term investing on the average amount needed for financial success during retirement. But this model will let down half of the people who use it. It’s better to estimate how much you’ll need in retirement holdings to be 95% sure you won’t run out, rather than only 50% sure.
An example: An American woman who has an income of $105,000 and $250,000 in non-housing wealth at age 62 would find that she only needs an estimated $545,000 to have a 50% chance of not running out of money during retirement. By contrast, to have a 95% certainty that she will not run out of funds before her death, she would need $1 million in retirement assets.
Next: Consider these Tips
1. Participate in your company’s employee benefit plan; if your company offers a match, contribute the full allowable amount
2. Before choosing to leave a position to care for a family member, carefully consider the decision’s long-term financial implications
3. Don’t overlook retirement needs during divorce proceedings
4. Consider a longer life expectancy when planning for retirement income
5. Remember that the market is subject to risks and unanticipated downfalls, plan accordingly
6. Avoid withdrawing retirement funds early whenever possible.
7. Seek professional financial guidance
If you’re interested in learning more about how to retire smart, give our office a call today. There is never a charge for consultations or advice.