12 Surprising Things Women Should Know About Retirement Planning

By Max Wong on 30 March 2015 0 comments

One of my longstanding fears is that my retirement will see me living on the street, homeless and destitute. As it turns out, my fear is far from unique. In fact, it even has a name: Bag Lady Syndrome. According to a poll by Allianz Life Insurance, 49% of American women fear ending up a bag lady, even those who make six figure salaries. In fact, according to a recent survey of workers by the Transamerica Center for Retirement Studies, only 14% of women are very confident in their ability to retire comfortably.

Yes. I have heard the news: Women continue to make huge strides in school and in the workplace. But I also know the reality. Women are at a much greater risk of financial insecurity in later life than men for a number of reasons.

1. Longevity Does Not Work in Women's Favor

The women in my family generally live to be close to 100. While most people are impressed by my genetics, I find longevity to be an expensive double-edged sword. How am I going to pay for a 30-year retirement? The average American woman lives six years longer than the average man, which is why 70% of Social Security beneficiaries over age 85 are women. There are 50% more elderly women living in poverty than men.

2. 54% of Women Don't Plan to Retire, Ever

Like Mrs. Hughes on Downton Abbey, over half of all American women plan on working until they drop dead.

3. Almost Half of All Women Plan to Work Through Retirement

Shuffleboard and sensible shoes are not everyone's dream retirement. Roughly 49% of women plan on continuing to work during retirement. While work is pleasurable for many women, and delaying retirement is a great way to shore up savings, the job market for 70- year-olds isn't great. Planning to simply not retire is not a viable retirement strategy.

4. Baby Boomers Are Still Living the Dream

Like every other gen X-er on the planet, I figured out in college that I would spend my life paying for someone else's social security, since it's a benefit that I doubt I will ever enjoy. However, this bitter worldview is generational. To wit: 26% of baby boomers (born 1946-1964) don't have a backup plan if they are forced into retirement sooner than expected due to health problems or job loss.

5. Time Off for Caregiving Negatively Impacts Retirement

Millennials, get ready to be poor when you are old. Even if your baby boomer parents put away enough money for retirement, you might still have to supplement their care. A recently published study by the Employment Benefit Research Institute calculates that female baby boomers on the verge of retirement have a savings shortfall of nearly $63,000, while male boomers have a deficit of $34,000.

What's worse, 58% of women don't plan to take time out of the workforce to act as a caregiver for a child or an aging parent, which is odd considering that 80% of American women give birth at some point during their child bearing years. In fact, the average woman spends 17 years raising children and 18 years caring for aging relatives (including her spouse).

Of the 22% of the female population who aren't living in denial of the time suck that is parenting or childcare, 67% believe that taking time off work to care for children or aging parents will hurt their ability to save for retirement. (See also: 9 People in Your Life Who Are Keeping You Poor)

While women who take off time to be caregivers lose out on matching funds and cannot contribute to a 401(k), a survey by the asset management firm BlackRock shows that women can close the savings gap when they return to the workforce. However, they miss out on the magic that is compound interest during years spent being caretakers.

6. The Majority of Women Expect to Self-Fund Retirement

Only 5% of women expect a company-funded pension to be the primary source of retirement, because less than a third of women will receive any kind of pension at all. Roughly 27% expect to rely on social security, while 59% of women expect to self-fund their retirement through a 401(k) or other savings and investments.

7. Part-Time Work Is Women's Work

Due to childcare responsibilities, women are much more likely than men to work part-time. Not only does this translate into a much smaller paycheck, most part-time jobs do not include benefits such as health care.

8. Women Are Less Likely to Be Offered a Retirement Plan

Also, because part-time workers of either gender are less likely to be included in 401(k)-style retirement plans through work, fewer women are offered retirement benefits.

This is compounded by the fact that women who take time out from their careers to raise children or care for aging relatives are not eligible for retirement plans and miss out on matching contributions.

9. Women's Annual Contributions to 401(k)-Style Plans Lag Behind Men

This falls into the "No Duh" category of financial factoids. Women's annual contributions to retirement plans lag behind men's because women make less money on average, and have to take off more time for childcare.

10. Fewer Women Take Advantage of Retirement Plans Than Men

What is preposterous, however, is that even when women are offered retirement plans, only 77% participate, compared to 82% of men!

11. Women Think They Will Only Need $800,000 to Retire Comfortably

Statistically, women live longer than men, and therefore have a longer retirement. This should correspond with higher estimates for retirement savings needs. However, it does not. The median estimated retirement savings need for women is $800,000, compared to the $1,000,000 median men need to feel financially secure in retirement. Why is there this discrepancy?

12. Women Are Guessing Their Retirement Savings Needs

Alas, the main reason that women are low-balling their savings is because 57% are just guessing their retirement needs. Only 8% of women in the Transamerica Study used a calculator to run numbers.

While this is depressing news, women of every age can take steps to improve their retirement readiness.

Develop a Retirement Strategy and Put It on Paper

Use a retirement calculator to figure out how much you will need to save each year — including both employer-sponsored plans and outside savings.

Plan Your Parenthood

Can you actually afford to have children? If you already have children, carefully consider any and all options to help mitigate the impact on your long-term financial security. Can you move in with family to help save on childcare costs?

Seek Retirement Benefits

If you employer doesn't offer you a retirement plan, it doesn't hurt to ask for one or seek out an employer who does.

Participate in Company Plans

Regardless of how little money is left over from each paycheck, workers with 401(k) plans should try to maximize the amount of money they put away, especially if the employer matches funds. Women (and men) who don't participate in matching 401(k) plans are literally refusing free money.

Educate Yourself About Retirement Investing

If you can, seek professional guidance. Learn about ways to stretch savings, including when to withdraw money from retirement accounts with minimal penalties.

Have a Backup Plan

Do you have disability insurance or life insurance? Identify possible cost-cutting or money-making lifestyle changes such as moving into a smaller home or living with roommates.

Actually Do the Math

Use a retirement calculator to estimate your retirement savings needs and do everything in your power to achieve that goal.

Share Your Knowledge and Plans

Talk to your family and close friends about your retirement plans. Managing financial and time expectations should be part of everyone's retirement strategy.

Are you afraid of becoming a bag lady? What is your strategy to keep this paranoid fantasy from becoming a reality?

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