Retirement can be a complex phase of life from a financial standpoint, and many women are underprepared due to a lack of financial literacy. A report from The American College of Financial Services found that 89% of women received a failing grade on a retirement literacy quiz and only 1 in 3 women has a formal retirement plan in place. In this “Financially Savvy Female” column, we’re chatting with Hilary Fiorella, executive director of The American College Center for Women in Financial Services, about what the biggest knowledge gaps and challenges are when it comes to women and retirement.
Only 14% of Women Feel Knowledgeable About Retirement Income Planning
One of the most important aspects of retirement planning is knowing where you can draw income from and how to best do this to last throughout your retirement years. Yet many women lack this knowledge.
“The first thing to do is to get a [retirement income] plan by working with a competent, educated professional,” Fiorella said. “There are probably six or seven or eight categories that you should really focus on, and when you sit down with your advisor, they can take you through the pros and cons of each.”
Fiorella notes that women have unique challenges when it comes to developing a retirement income plan.
“Women typically have gaps in their income — we call that volatile income,” she said. “We may be a trailing spouse, we may change jobs, we may have caregiving responsibilities, we may have a child, we may be caring for somebody in our family, so we take breaks. That can trickle into a smaller retirement account, and we can have a lower net worth. And women live longer and spend more time in retirement, so they’re going to need more assets. When you sit down with your professional, make sure that your account for those cash-flow issues that are specific to women: longer lifetimes, gaps in income and lower net worth.”
Only 20% of Women Feel Highly Knowledgeable About Social Security
Social Security is often one of the income sources women rely on in retirement, yet many women don’t fully understand how the program works and how to optimize their benefits. And many women wait too long to start thinking about when they will begin collecting Social Security.
“You should think about Social Security probably 10 to 15 years away from retirement,” Fiorella said.
Another mistake women make is taking Social Security too soon.
“Just because you can doesn’t mean you should,” Fiorella said. “The longer that women can wait, the better. Every year after you reach the age of retirement, if you continue to delay, you’ll receive 8% more each year up to age 70. That can be really critical in the later years.”
Only 10% of Women Feel Educated About Annuity Products
“If you don’t have other sources of income — if you don’t have a pension, if you don’t have a 401(k), if your Social Security is not enough to cover your expenses — your professional advisor may decide that an annuity is great for you for that guaranteed income,” Fiorella said. “Annuities get a lot of coverage these days and there are people on both sides of the fence with annuities, but I think annuities can play a very important role in terms of providing long-term guaranteed income in retirement. There are many different options at different price points out there. You should definitely explore annuities if you need guaranteed income in your retirement.”
Only 12% of Women Feel Highly Knowledgeable About Long-Term Care
Having a plan to cover the cost of long-term care may be a part of your retirement plan, yet women are undereducated on the topic and only 27% have a plan to fund long-term care.
“Men typically carry insurance, women less so, so that’s a big gap for some women,” Fiorella said. “If you need it in your retirement, if that’s a component of your retirement plan, then you should think about that and talk to your professional about that.”
Other Retirement Topics Women Need To Understand
Here are some other topics related to your finances and retirement that you should make sure you’re educated about.
“In terms of health insurance, women are concerned, but women are generally more educated [than men] about healthcare and what Medicare is and what Medicare pays for just because we’re typically more tuned into that when we’re caring for our families or extended families,” Fiorella said.
Still, Fiorella said that it’s essential for women to have a plan for their healthcare coverage in retirement.
“Seek out a Medicare specialist nine months before you retire to make sure you have the appropriate coverages,” she said. “Know that if you’re planning to retire before age 65, Medicare doesn’t go into effect until you’re 65. So if you retire before 65, make sure you have COBRA or gap insurance — something in place. Speak to a professional. There are insurances that can plug that gap if needed.”
The study found that just over 6 in 10 women own life insurance versus 7 in 10 men. Interestingly, African-American women are more likely to have life insurance than other groups.
“Life insurance is highly important to African-American women, with 6 in 10 saying it’s highly important to their retirement planning and more than a third saying it’s extremely important,” Fiorella said. “African-American women are also more likely to report owning life insurance than non-African-American women.”
“Make sure that you have a durable power of attorney, you have an advanced medical directive, a will and a trust,” Fiorella said.
Your estate plan should also account for any philanthropic donations you would like to make.
“Women are generally more philanthropic than men, so a lot of women in retirement want to leave a legacy or think about where they want to leave their money,” Fiorella said. “When you’re thinking about estate planning, also do some consideration 10 to 15 years before you retire about what your philanthropic goals are.”
GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.
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