Women and Retirement: What You Need to Know

Here’s some good news: 60% of women are investing in the stock market, with Gen Z women leading the way. The message is getting out and women are taking charge of their financial futures. Women, especially younger women, understand the unique financial challenges they face and are preparing for them.

Saving for retirement is a big lift for everyone, but women have a unique challenge. Because of that, they need to think about retirement differently.

What’s at stake?

On average, women live about six years longer than men. Women are also more likely to be diagnosed with dementia and need some type of costly long-term care, making those additional years expensive ones when you factor in the cost of medical care. And because of women’s longevity, they often face those latter, medically intensive years on their own.

At the same time, women deal with a number of challenges when it comes to work. Despite the educational advances they’ve made over the decades, the wage gap persists. Women earn just 82 cents for every dollar that a man makes.

Lower wages prevent women from accumulating as big a nest egg as men because retirement savings are usually tied to a percentage of salary. For instance, a woman earning $82,000 would only save $12,300 a year if she designated 15% of her salary to a 401(k). A man earning $100,000 a year, on the other hand, would be saving $15,000 per year. Employer contribution amounts are also a percentage of salary, say 3%, so that amount is smaller too. Compounding over the years only magnifies the discrepancy. Vanguard, a provider of retirement plans, reports that women’s median balances are 43% lower than men's.

In addition to lower wages, women are also more likely to take time out of the workforce for child-rearing or to take care of older relatives. They're also more likely to work in part-time jobs, often without access to 401(k) plans. These career disruptions can reduce a woman’s Social Security benefits and 401(k) balance.

The bottom line: Women must do more with less.

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Taking charge of their money

Women now hold more college degrees than men, and they also hold more leadership roles in government, business and education than ever. Nonetheless, several studies, including one from New York Life, show that women still report being less confident in their ability to manage money.

However, that’s more likely tied to income than gender. Because women earn less, they're more likely to safeguard those savings. Vanguard’s research shows that women earning over $100,000 a year participate in retirement savings at slightly higher rates.

What’s more, women are more patient savers. They tend to trade less frequently and more likely to participate in target-date funds, funds that set investment allocations based on a participant’s retirement date and adjust continually as retirement draws closer. In fact, several studies like this one, show that women outperform men in investing because of these traits.

One area women can improve upon is reducing the amount of cash they have on hand. This cash earns them minimal interest, missing out on the potential for greater growth.

Addressing the challenges

Women need to rethink the traditional retirement playbook, and they need new strategies tailor-made for the current environment. Consider some of these ideas:

• Start investing: If you haven’t started investing yet, do it now. Even a little goes a long way. The younger you are, the more time your money can grow. 
• Work longer: With longer lifespans, women should consider putting in a few more years of work to shore up their savings. Every year that you work is one year less that you need to finance – and it’s another year of savings. 
• Maximize your Social Security benefits: You're eligible to start Social Security at age 62, but you won’t get your full benefit. Your monthly benefit will be higher if you wait until your full retirement age (now between 66 and 67, depending on when you were born). Delaying Social Security until age 70 will result in an even bigger monthly benefit. Additionally, if your husband outearned you and has a higher Social Security benefit, you can apply for a living spousal benefit. This allows you to claim up to 50% of your spouse’s Social Security benefit if you wait until your full retirement age, providing a significant boost to your monthly income. 
• Fund your Health Savings account (HSA): Because of women’s longer lifespans, they're likely to have higher medical bills throughout retirement as well. Consider contributing to a health savings account to grow a pool of money for health-related expenses. HSAs are especially attractive because they are triple-tax-free. You get an income tax deduction for contributing, your money grows tax free and withdrawals made for qualifying medical expenses aren’t taxed. 
• Connect with an advisor: Everyone’s financial situation is different and it’s important to get personalized advice about what strategies will work for you. A financial advisor can work with you on a range of issues to ensure financial security throughout your life, including managing your debt, taxes, insurance and estate planning. 

I also encourage you to read our detailed Retirement Readiness Guide , which includes key considerations to keep in mind when planning for retirement.

Bottom line

While women face unique financial challenges for retirement, proactive planning turns those challenges into opportunities. Taking charge of your finances now helps you build a solid foundation for financial security to achieve your goals with confidence.

If you’d like professional advice, please request an appointment with one of our wealth advisors who can work with you to uncover your retirement why and then help you figure out how to afford it.

ABOUT THE AUTHOR

Nicole Farbo

VP Wealth Fiduciary Advisor, CFP® | Johnson Financial Group

As Vice President, Wealth Fiduciary Advisor, and a CERTIFIED FINANCIAL PLANNER™ professional, Nicole provides personalized financial planning and trust services to clients with complex needs to create, grow and preserve their assets. She builds relationships with her clients, their families, and their trusted professionals in order to understand how to best help them achieve their goals. With former experience as a Private Banker and Financial Advisor, Nicole is experienced in managing both sides of an individual’s balance sheet, enabling her to look at a client’s financial picture holistically and recommend solutions that support their overall financial plan.