Q. What special needs do boomer women have in planning for retirement? How do I help my clients overcome these challenges?
A. Everyone is finding preparation for retirement more difficult, but women face challenges that are unique to them. Because women tend to live longer, they have a higher risk than men of outliving their spouse and their income. Women also typically have saved less for retirement, due in part to a lifelong history of statistically lower earnings.
Women’s Retirement Challenges
- Gender Wage Gap – Although the gender wage gap has narrowed by more than one-third since 1960, the average woman today still earns 20 percent less than a man. In 2007, the median weekly earnings of women who were full-time wage and salary workers were $614, or 80 percent of the $766 earned by men. (Source: U.S. Department of Labor Women’s Bureau) Over a 35-year working life, this equates to a non-compounded deficit of more than $210,000 in income for the average woman.
- Fewer Years in Workforce Extends the Gender Earnings Gap – Women are far more likely to leave employment for long stretches to care for children or aging parents. (Source: AARP) Over a lifetime, women work 12 years fewer than men on average. (Source: The Hartford Financial Services Group) This trend contributed to a 62 percent gap between the total earnings for women and men during the 15-year period of 1983-1998. (Source: Institute for Women’s Policy Research) Lower earnings over many years present additional challenges for women in saving for retirement.
- Increased Longevity – On average, a woman at age 65 can expect to live another 22 years, or three years longer than a man of the same age. (Source: U.S. Department of Labor) Women’s longevity increases the risk that they will lose purchasing power over time due to inflation and possibly outlive their savings. As a result of increased longevity and lower earnings, the average woman will need to save 2 percent more of her pay than the average man over 30 years to achieve the same standard of living in retirement. (Source: Hewitt Associates)
Planning Strategies for Women
Despite these challenges, small but significant changes now can help many women attain a more comfortable place in retirement. The following recommendations could help your women clients close the gap between the challenges they face today and the retirement security they desire.
Invest early and save as much as possible. Saving more for as long as possible will help women achieve the benefits of long-term compounding to accumulate wealth sufficient to generate a more comfortable retirement income. Although this seems elementary to financial professionals, only about half of America’s working adults actually take advantage of 401(k) plans offered by their employers, and women are less likely to participate than men. (Source: AARP)
Social Security contributions and benefits are based on earnings, and because women have historically earned less, their Social Security benefits are also commensurately lower. In 2005, the average Social Security retirement benefit was 32 percent smaller for women than men. While 72.3 percent of women receive a monthly benefit of less than $1,000, more than two thirds (67.8 percent) of men receive more than $1,000 per month. (Source: U.S. Social Security Administration)
In addition, women often rely on Social Security for a higher portion of their retirement income because they are approximately one-third less likely than men to receive income from a pension. (Source: NCPSSM Foundation) For these reasons, personal savings and investments are a more critical component of retirement income for women.