Ladies, prepare yourselves for some scary statistics.
The average woman works fewer years than the average man (by about 12 years), makes $300,000 less than the average man in a lifetime and lives six years longer than the average man.
That combination means women have to plan for a longer retirement with less money. To complicate matters, many women who are approaching retirement are prone to give money away, especially to needy adult children, at a time when they should be saving the most.
"Women are often focused on being loving family members, caregivers and friends without thinking about themselves and their future," says Anna Rappaport, a Chicago-based retirement consultant and a former president of the Society of Actuaries. "It's easy to forget that we need to provide for our futures, and particularly for retirement and our old age.”
In case you aren't convinced, here are some more frightening stats, courtesy of the Women’s Institute for a Secure Retirement (WISER), in Washington, D.C.:
- Three out of four working women earn less than $40,000 per year.
- Half of all women work in jobs without pensions.
- Women's earnings average $.77 for every $1 earned by men.
Women also have shorter work histories, says Rappaport, due to raising children and other caregiving responsibilities, she says. And they live longer: at birth women are expected to live to age 80 and men only to 74. Due to their longevity, women are likely to spend their last years alone – after age 85, only 13% of women are married with a spouse present.
Don't Let Family Derail Your Finances
Spending money you don’t have on the grandkids and adult children is one of the top money mistakes for women to avoid, according to WISER, and Rappaport agrees. “You can decimate your own retirement this way,” Rappaport says.
So what can you do to make sure you don’t get caught short?
1. Learn how to say "No." “If you happen to be part of a large family you’ll want to make sure you don’t end up with an unfair share of the responsibilities,” says Rappaport. Try setting limits and delegate some of the family work to siblings. Saying "no" can be “gut wrenching,” she says, but it’s important nonetheless.
2. Keep your job. If you’re thinking about giving up your job or taking on a part-time work instead, you might be better off in the long run continuing in that full-time job, using family leave if available, and then taking a leave of absence or reducing your hours temporarily. That should help to preserve your retirement benefits.
Gaps in employment will impair your ability to build retirement assets and income, and vest in a traditional or “defined benefit” pension plan if you are lucky enough to have one of those, while interfering with your ability to contribute to a 401(k) as well.
3. Keep your 401(k) intact. Leaving a job, say to care for an older relative, may have you thinking about borrowing or taking a hardship withdrawal from a 401(k), another impediment to your ability to be secure in retirement, Rappaport says. “Try hard to avoid dipping into those funds while caregiving,” she advises.
4. Wait on social security, if possible. “If you claim it at 62 versus 70 it makes a huge difference in your benefit,” says Rappaport. A recent report by T. Rowe Price cites the case of an individual working until age 65. That individual’s annual combined retirement income from investments and from Social Security was 28% greater than if he or she had retired at 62, assuming the person saved 25% of their salary each year. If the same person worked until 67 and saved 25% of salary, his or her combined retirement income would be 50% greater than at 62.
5. Plan for a possible second career. Keeping your skills up to date and remaining employable is critical, says Rappaport. Four of ten women over 65 have nothing to retire on but Social Security, and the sooner they dip in, the less they get. “Not claiming too early is a really important issue." That’s why keeping your skills up to date and remaining employable is critical, Rappaport says.
For more help with retirement planning, take a look at BankingMyWay's retirement planning calculator.