[gap height=”25″]Why is there such a financial inequity between men and women in their Golden Years? [gap height=”25″]
Recent studies have shown that women, even those who worked outside the home, are much more likely to slip below the poverty line in retirement than men are. Approximately eight percent of adults aged 65 and older must rely on food stamps to survive and, of those, two-thirds are women. Why is there such a financial inequity between men and women in their Golden Years? [gap height=”25″]
In years past, women typically earned much less than men (fortunately, this has started to change). Because they earned less, women were not able to save as much for retirement. Federal law establishes the maximum percentages that workers can contribute to retirement plans. Assuming that two workers both contribute the maximum amount allowed to their retirement plans, a male worker who earns $60,000 will save more than a female worker who earns $40,000. Women must also make what they can save last longer. According to the Social Security Administration, the life expectancy of a man who is 65 today is 84.3 years. The life expectancy of a female who is 65 today is 86.6 years – a difference of almost 2.5 years. [gap height=”25″]
Many women who are now retired are not as educated about finances as women of subsequent generations. They let their husbands manage the money, and frequently are unintended victims of poor decisions made by their spouses. This is especially true when considering both defined benefit pensions and Social Security elections. Retirees generally have the choice of applying for a higher benefit that lasts for their own lifetime, or a reduced benefit that is paid over the course of both their lifetime and that of their surviving spouse. Many insist on applying for the higher benefit under the premise that they need a higher income on which to live. If they are the first to die, though, their spouses are cut off completely. Many primary wage earners also make bad decisions when applying for Social Security benefits, never considering how their actions will affect their spouses. The decisions they make can mean a difference of about $25,000 in Social Security income every year, for their surviving spouse.[gap height=”25″]
The good news is that, even if you are retired now, there are steps you can take to improve your outlook in retirement. Consider some of these options:[gap height=”25″]
1) If you are saving for retirement, take advantage of a qualified retirement plan such as a 401(k), 403(b) and IRA. These plans offer tax advantages that, in the long run, will provide you with a much larger nest egg in retirement than buying identical investments inside a non-retirement account. Make sure to manage the money that you do save, well. Many women are afraid to invest their money in anything other than CDs, and never consider that the low rates of return they offer may cause them to run out of money before they run out of time.[gap height=”25″]
2) If your spouse is entitled to a defined benefit pension when he retires, or if he will receive payments from an annuity, make sure that he chooses the payment option that covers your life as well as his own – especially if you are younger than he is. If he chooses the option that covers only his life, the payments will stop when he dies. If you can’t afford to live on the reduced benefit amount that covers both of your lives, then you can’t afford to stop working. [gap height=”25″]
3) If your spouse earned more money than you did, ask him to think twice about applying for Social Security benefits at age 62. If he does, his benefit will be reduced by 25 percent for the rest of his life. Your spousal benefit, as well as your survivor benefit if he predeceases you, will also be permanently reduced. If it’s possible, encourage your spouse to wait until age 70 to apply for benefits. If he does, his benefit will be increased by 32 percent and if you survive him, the benefit you receive after his death will also be significantly higher.[gap height=”25″]
4) Many women are not educated about financial and tax strategies they can use to make their money last longer. Consider making a series of Roth IRA conversions during the years after you retire, but before you start taking withdrawals or Required Minimum Distributions from your retirement plans. The money you save in a Roth IRA is not taxable, and so lasts longer than money in a traditional retirement plan. [gap height=”25″]
5) If you can afford it, consider purchasing Long Term Care insurance. The cost of care, whether it be in your home or in a licensed facility, is far greater than many retirees anticipate. More than 70 percent of nursing home residents are women. Many must spend all of their assets in order to pay for their own care and, at their deaths, have nothing to leave their children.[gap height=”25″]
It is important to remember that there is no one-size-fits-all answer to this problem. In order to make sure that you are financially secure, it is imperative that you contact a financial professional that you can trust and discuss these points in detail. A good fee-based advisor will be able to guide you through the best possible choices for pensions, Social Security, investment planning and long-term care expenses.[gap height=”25″]
