Ladies, it’s Time to Discuss your Current Retirement Plan

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I was recently having lunch with my ten year old daughter, and she was letting me know how her life will turn out.

Evidently, she’ll be attending Harvard for both her undergraduate and her law degrees. She’ll then work as a prosecuting attorney and she’ll marry her dream guy (Chris Hemsworth) and they’ll have two children, a boy and a girl. While I applaud her ambition (minus the Chris Hemsworth part), it got me to thinking about how her life might really turn out and what obstacles she will face. I tell anyone who will listen that nothing creates a feminist more than having A LOT of daughters. I frequently tell the girls to remember that “no matter what anyone says, you can achieve anything you desire.” For most, the goal is to have a comfortable lifestyle from the time we enter the workforce through retirement. Desire, sadly, often isn’t enough and the statistics for women can be daunting.

I didn’t want to ruin the moment with my daughter, but there are many things women need to take into account when it comes to life/retirement planning. Generally, there are three “buckets” for an individual to rely upon to provide for them in retirement: social security; employer sponsored retirement plans; and personal savings. While both men and women alike rely on these buckets, the value of each bucket can vary depending on the sex of the individual. The reasons for this are numerous.

For starters, according to the Women’s Institute for Secure Retirement, women typically work 12 less years throughout their lifetimes than men. While there are many factors to account for this difference, the primary ones are taking time away from the workforce to raise children and/or to care for elderly parents. On top of that, upon returning to the workforce, a woman is often forced to accept part-time employment, because it is either the only opportunity offered or because there are still other demands upon her time. The net result is that women typically contribute less to social security which produces a lower benefit. Moreover, they might have less in their employer sponsored retirement plan because they’ve contributed for fewer years, and their personal savings bucket is often limited because of a reduced amount of disposable income.

The problem of a reduced social security benefit/nest egg is heightened when you consider that a woman typically lives five years longer than a man, according to the Institute for Health Metrics and Evaluation. The average difference of five years has significant consequences when we take into account the increased health insurance costs of a woman in her later years. For instance, would it surprise you to learn that AARP reports that 70% of nursing home residents are women and the average age of admission is 80 years old? Simply put, a woman requires a higher benefit in retirement, not less.

Often times, as people begin planning they assume that they’ll receive two social security benefits during their retirement, not one. But, many women are entering retirement as divorcees or widows. 37% of women aged 65 or older are living alone, compared to 19% of men who are the same age. And, almost half of women over the age of 75 are living alone, per the Council on Contemporary Families. To make matters worse, social security is the ONLY source of income for 1 in 4 unmarried retired women. Back in 1935, Social Security was designed to provide for the bare essentials in life, now eighty years later the program is still structured the same way. As such, according to the US Census Bureau, the poverty rate for women aged 65 and older is 16% compared to 9% for men who are in the same age group.

These statistics can be depressing and lead to a couple of questions:

First, what can women do to beat the odds?

And second, are my daughters doomed?

The simple answer is that women need to have a conversation about retirement planning, taking into account various social security scenarios and other risks that are not often at the forefront of their minds. If they are married, they need to be part of the process, and not leave the financial planning sole to their husbands. If they are single, they need to be aware of how much they need to save in order to support themselves for what may be 20-30 years in retirement. As for my daughters, it is never too early to start making a difference for themselves by the decisions that they make now. My advice to them is to contribute to their retirement plans as early as they are eligible and, at a minimum, to contribute as much as their employer is offering to match. I will encourage them to save a fixed percentage of their income, not a fixed dollar amount so as to battle inflation and not create a false sense of security. And, in light of their likely high healthcare expenses in their twilight years, I will encourage them to explore long-term care insurance as soon as they are eligible. The less they need it at the time of application, the less likely it will be cost prohibitive.

If this resonates with you, and you would like to have a discussion on where you are right now in regards to retirement, why not get that conversation started today?