5 Unique Retirement Savings Challenges Women Face — and How To Overcome Them
Saving for retirement is a tremendous hurdle for many. A recent GOBankingRates survey found that most Americans have less than $50,000 saved for retirement. On average, you’ll need closer to $1 million to live comfortably during retirement, though location plays a significant role. For example, in an expensive state like Hawaii, you’ll need closer to $2 million.
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Though many struggle with saving for this important life phase, women are struggling more than men.
Another recent GOBankingRates survey found that 40% of women have less than $10,000 saved for retirement and an additional 30% have between $10,001 and $50,000 saved for retirement. As for men, 31% have have less than $10,000 saved for retirement and 24% have between $10,001 and $50,000.
The reason for this is because women face more hurdles both leading up to and during retirement. Here we’ll examine five of these retirement challenges, along with some tips on how to overcome them.
Gender Wage Gap
Women make less than men on average, so this naturally leads to them not being able to save as much for retirement (or anything else).
“According to the U.S. Census, 50% of women have no retirement savings compared to 47% of men, and also have less in retirement savings,” said Kimberly Hamilton, CFEI, founder of Beworth Finance and author of “Building Wealth on a Dime.” “This makes them more likely to rely on other sources like Social Security earlier in their retirement, as opposed to waiting until they are 70 to get the full maximum benefit. Further, because they make less and Social Security is based on what you make during working years, their Social Security benefits are also less than men’s Social Security benefits on average. All of this together means they have less sources of income to rely on.”
Caregiving Responsibilities During Working Years
Women are about twice as likely than men to be caregivers to children and aging family members. This can put a huge strain on their savings, especially if women are caregiving during prime earning years and forced to leave work.
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“When women stay out of the workforce to care for children or an aging family member, there is a long-term impact,” said David Freitag, a financial planning consultant with MassMutual. “Social Security retirement benefits are based on a general average of 35 years of your highest (not consecutive) years of earnings. When you have zeroes in that mix, the average will decline and your Social Security retirement benefits may be dramatically less for the full span of your retirement years because of those zero years.”
Higher Medical Expenses
Medical debt also tends to hit women harder than men.
“Women often spend a larger portion of retirement savings on medical expenses,” said Hamilton. “Fidelity’s 2022 Health Care Cost Estimate reported that single women retirees will spend $165,000 on medical expenses in retirement [versus] $150,000 for male retirees. If married, women also tend to spend a larger portion of their savings to care for their partner’s expenses, as women tend to live longer. It’s also worth noting that because Americans don’t become available for Medicare until age 65, many retirees decide to take Social Security benefits early to cover the costs between when they retire and when they become eligible for Medicare to help with associated expenses.”
“Women are living longer — the average age we use in our financial plans is now 93,” said Aviva Pinto, CDFA, CDS, managing director at Wealthspire. “That means they will have to have saved enough to last almost 30 years assuming they retire by age 65.”
Less Confidence in Investing
Ample evidence shows that women are great at investing, but are more hesitant to take the risks often required to do so. This can set them back in contributing to their retirement portfolio.
“On average women contribute less towards their retirement accounts than men: 6% vs 8% respectively,” said Nicole K. Scanlon, J.D., managing director of Family Wealth Management at Olson Wealth Group. “Consequently, women have lower 401(k) balances — almost 50% less.”
Overcoming Some of These Challenges
There is no one-size-fits-all way to overcome these challenges, but there are a few ways to help get ahead of the problems they cause:
- Invest early and often. This includes “taking advantage of any employer match and catch-up contributions to save more if age 50 or older,” said Hamilton. “On the bright side, it’s worth noting that several studies show women are more successful investors than men in the long term.”
- Take advantage of all tax advantaged accounts, including flexible savings accounts (FSAs) and health savings accounts (HSAs). “[These] can provide major tax benefits in retirement on medical-related expenses.”
- “If you can, delay taking social security benefits till you can receive the maximum benefit at age 70,” Hamilton said.
- “Consider delaying retirement or working part-time if needed to allow more of your existing investments to grow and take advantage of any work-sponsored benefits, like healthcare plans,” said Hamilton.
- Be open with your spouse. “If married, talk about finances with your partner and develop a plan for your finances in the event you live longer than your partner,” said Hamilton.
- Scanlon also offered some 401(k) tips — “My advice is to save the minimum to reach your employer match so as to take advantage of free employer matching. Women should target 15% of gross salary towards retirement savings…In addition, elect to increase your contribution by 1 to 2% annually until you hit 15% of your gross income. From there, they should understand their allocation. Because women tend to be more cautious and less subject to emotional investing, they tend to stay in the market during volatile times. As a result, they outperform men by 40 basis points (or .4%) annually. Year after year, that outperformance adds up. I suggest women gain confidence to invest, because when they do, they do a fantastic job.”
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