Why women need to plan for their retirement
by Simon BloomfieldIf you’re looking forward to enjoying a peaceful, comfortable retirement someday, you’re not alone. By age 65, five out of six people have hung up the briefcase or tool belt and retired.
The fly in the ointment: If you are a woman, you may have to put in more effort before you get to enjoy a worry-free, financially secure retirement.
One reason is the longevity factor. Women on average outlive men by six years – to age 73 for men versus 79 for women. Those are just the life expectancies at birth. By retirement, the gap widens even further. Since women still tend to marry men older than themselves, it is estimated that seven out of 10 women today will outlive their male counterparts by at least 15 years. So, by the time they’re 85, nearly six out of 10 women are living on their own.
Plus, most women have fewer retirement resources. Retired women, on average, receive $352 each month from Social Security, while men receive nearly $612. At the same time, more than six out of every 10 women working today do not have a pension plan, while three-quarters of all retired women today receive no pension benefits, which is it is no wonder 67 percent of women fear that their savings will run out before they die.
These factors very likely will have a dramatic impact on your lifestyle and standard of living in your senior years. It doesn’t matter whether you are married or single; whether you are young and just starting out or close to retirement.
You will in all likelihood need more retirement income than you thought. How much will you need? That depends on a number of factors.
Running the numbers
Let’s assume that you will need $40,000 a year in today’s dollars at retirement. Let’s further assume that you will live six years longer than a man who is the same age as you. That means you will need an additional $240,000 in income.
Some may come from Social Security; some may come from a pension at work. But you may need to make up the shortfall yourself – or run the risk of spending your retirement years struggling financially.
That women on average earn less than men is old news. What is not always so clearly understood is how this income factor can directly impact not only your standard of living today, but also your lifestyle in retirement. For many women, unless they start taking steps now, retirement may not be possible. Fortunately, there are steps you can take, but you need to get started.
The gender income gap is persistent and well documented. According to 1998 Labor Department statistics, when a man and a woman work in the same occupation, the woman is likely to earn just 76 cents for every dollar received by her male counterpart.
The simple math: Lower income can result in lower retirement benefits. This is one reason why, when it comes to company pension plans, 61 percent of working women today do not have pension plans, while 76 percent of women who are now retired receive no pension benefits. Plus, women receive, on average, almost half the Social Security benefits men receive ($4,226 annually, compared to $7,342 for men).
Most serious of all: Many women are not doing anything about their situation. According to the National Center for Women and Retirement Research, more than 58 percent of female baby boomers have less than $10,000 saved in a pension plan or 401(k) plans. So it comes as no surprise that between one-third and two-thirds of women age 35 to 55 today are expected to be impoverished by age 70.
Recommendation: It doesn’t matter whether you are married or single; in your 20s or so close to retirement you can taste it. If you are not already actively and aggressively involved in making sure it will be financially secure, it’s time to take the plunge.
What you can do right now
• Contact Social Security to make sure your earnings records are right and to find out how big your benefits checks will be at retirement. The toll free number is (800) 772-1213, or you can reach them online at www.ssa.gov.
• Do the same with your pension administrator at work, as well as with all administrators from previous positions.
• If possible, make maximum contributions to your employer-sponsored 401(k) and other qualified plans and IRAs, as well as saving after-tax dollars in annuities and other financial vehicles.
• If you’re married, work closely with your husband. Remember, odds are that you will outlive him; make sure your financial arrangements reflect that.
• Look before you leap. As a rule, if you change jobs frequently, over a period of years you may build up vesting with several employers, but you would have built up much more if you’d stayed in one place.
• Bring in professional help.
Changing jobs often will affect your future financial security
Women, on average, in our society leave or change jobs every 4.8 years, according to the Bureau of National Affairs. Men move every 6.6 years. That may not seem significant. However, vesting for pension benefits often does not take place until the five-year anniversary. So while men tend to vest (acquire ownership) in their pension benefits, women tend to leave right before they vest.
Why do women change jobs more frequently or step in and out of the income-generating workforce?
Two reasons:
1. They do it for children, taking time off to raise families. According to the Business and Professional Women’s Foundation, women take off an average of 11.5 years away from the work force, compared to just one year for men.
2. They do it for aging parents. It is estimated that nearly half of all women in the work force will have some day-to-day responsibilities for elderly parents. When the conflicting demands become too high, it is the woman who generally leaves the work force to become a full-time caregiver.
As a result, many women end up sacrificing their own financial security in retirement. The real-life statistics are daunting:
• For every year a woman stays home caring for a child, she must work five extra years to replace lost income, pension coverage and career promotion.
• Only 38 percent of women who retired in 1994 received any pension benefits (compared to 58 percent for men).
• A woman who takes seven years off over a 40-year career can expect to receive one-half the pension benefits of someone with 40 years of uninterrupted service.
Nine things you can do to boost your retirement security
1. Make a conscious effort to take charge of your own retirement planning. Don’t leave it to chance … or your husband. Start saving for retirement. No excuses.
2. Get knowledgeable about finances. You don’t need to become a Wall Street wizard. You can learn enough to make intelligent choices – or at least understand the advice of experts – by reading a few books or attending a weekend seminars. Investing a few hours learning the basics can pay big dividends in knowledge today, and financial security tomorrow.
3. Make maximum contributions to qualified retirement plans through work and IRAs on your own. No ifs, no ands, no buts. Just do it.
4. Join or start an investment club. Not only is this one of the best ways to learn about investing, but it can lead to nice profits. Best of all, investment clubs are becoming the domain of women. Among the more than 17,000 investment clubs that belong to the National Association of Investors Corporations, nearly 42 percent are all women, 46 percent are mixed, and just 13 percent are all men. Plus, they’re registering better returns than the men-only clubs – 21 percent average annual return for women, versus 15 percent for men.
5. If you’re single, don’t wait for Mr. Right to come along and solve all your problems. Too many women torpedo their own financial security by deferring to their husbands – even the one they haven’t met yet. Besides, even if he is Mr. Right, you will probably outlive him. Your best bet: Take charge of your own future.
6. If you’re married, take an active part in your household’s finances. Become economic partners with your husband. Make money a hobby, something you can do together. Bonus: Couples who make money decisions jointly tend to have a better personal relationship, as well. They’re less likely to file for bankruptcy … or divorce.
7. If you’re married, discuss the critical differences between joint and single life pension and annuity benefits. Under a single life option, when he dies, his benefits die with him. Also, since you probably will outlive him, make sure that your (his and yours) estate plan provides for you after he is gone.
8. Look before you leap when changing jobs. Don’t go solely for a bigger paycheck; make sure you won’t lose retirement benefits. Also, you may want to think twice before retiring early – before your benefits are maxed out.
9. Become financially aggressive. Historically, women have tended to be conservative with money. While this is changing, many women still tend to focus too much on protecting principal than on achieving solid returns.
Originally published in the Sep/Oct 2006 issue of Cape Business.
Simon Bloomfield Simon Bloomfield is a New York Life executive, working in Hyannis. 
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