As women plan for retirement, they must consider several realities that statistically set them apart from men, including the probability of earning less money and living longer.
Of course, every person’s situation is unique, but the fact that women generally spend more years in retirement with fewer assets than their male counterparts can create challenges. Here are some factors women should consider when planning for retirement.
Anticipate a long lifespan
In the United States, on average, women outlive men by five years. 1 As a result, in 2022 there were twice as many women aged 85 and above compared to men. 2 A longer lifespan means more years in retirement and a need for additional savings.
Overcome the income gap
Women workers generally earn less than their male counterparts, roughly 82 cents or less on average for every dollar a man earns. 3 Recent trends show that women are closing this gap by increasing their education level, entering more nontraditional fields and negotiating their salary when changing jobs. However, the data also shows that as women age, the income disparity widens.4
Women are also more likely to have gaps in their work histories due to caregiving responsibilities that have historically been handled disproportionately by women. These work hiatuses may reduce earnings over their work life, impacting Social Security and retirement benefits.
Take charge of your financial well-being
These strategies can help you be proactive and save toward the retirement you deserve:
• Make regular contributions to retirement accounts. Automatic monthly payments make it easy to save every month. Max out any employer matches available to you.
• Open an IRA. You can fund a traditional IRA with pre-tax contributions, which may help reduce your tax bill by deferring taxes on those dollars until you are in retirement. Or you can make after-tax contributions to a Roth IRA. Withdrawals from Roth accounts are not taxed, assuming it has been open for at least five years and the withdrawals are made after you reach 59½ years of age. Note that there are income limits attached to Roth accounts.
• Make catch-up contributions. Annual contribution limits for retirement accounts change when you reach age 50 and beyond. You are allowed to make catch-up contributions to increase your 401(k) and IRA. Check current guidelines at IRS.gov.
• Live within your means. This is an obvious one. Overspending creates debt. Interest rates on unpaid balances can grow unmanageable. Get a handle on your expenses and ensure you’re saving more than you spend so you can put excess money away for retirement.
• Leverage the power of compounding by investing early and often. The money that is invested can earn interest, which can then earn its own interest. This compound effect leads to optimal growth over time.
• Advocate for higher wages. You have the right to be fairly compensated at work. If disparities exist, don’t be afraid to negotiate for the salary you deserve or pursue a higher paying job.
• Postpone retirement or continue to work part time. Most experts recommend waiting until full retirement age to start receiving Social Security. Once you reach full retirement age, you can choose to delay your benefits in exchange for a larger monthly check down the road. Or you can continue working and earning while receiving monthly Social Security income.
• Make sure you’re taking the appropriate amount of risk in your investment portfolio. A conservative investment strategy may backfire if it causes you to miss out on market gains while you still have a long-time horizon until retirement. That said, you may want to take some risk off the table if you’re planning to retire in the next few years and you want to guard against big market swings. A financial advisor can help you create a plan that addresses your unique financial goals within the timeframe you have to invest.
1 US Centers for Disease Control: Life Expectancy in the US
2 US Census Data: Women’s History Month: March 2022
3 US Bureau of Labor Statistics: Women’s Earnings
4 US Census Data: Gender Pay Gap Widens As Women Age
Holley Smaldone-Cragg, CMFC, is a Financial Advisor with Ameriprise Financial in Geneva. She specializes in fee-based financial planning and asset management strategies and has been in practice for over 35 years. Her website is ameripriseadvisors.com/holley.cragg.com.