If so, how can they plan to meet those challenges?
A new study has raised eyebrows about the retirement prospects of women. It comes from the National Institute on Retirement Security, a non-profit, non-partisan research organization based in Washington, D.C. Studying 2012 U.S. Census data, NRIS found that women aged 65 and older had 26% less income than their male peers. Looking at Vanguard’s 2014 fact set on its retirement plans, NRIS learned that the median retirement account balance for women was 34% less than that of men.1
Alarming numbers? Certainly. Two other statistics in the NRIS report are even more troubling. One, a woman 65 or older is 80% more likely to be impoverished than a man of that age. Two, the incidence of poverty is three times as great for a woman as it is for a man by age 75.1,2
Why are women so challenged to retire
comfortably? You can cite a number of
factors that can potentially impact a woman’s retirement prospects and
retirement experience. A woman may spend less time in the workforce during her
life than a man due to childrearing and caregiving needs, with a corresponding
interruption in both wages and workplace retirement plan participation. A
divorce can hugely alter a woman’s finances and financial outlook. As women
live longer on average than men, they face slightly greater longevity risk –
the risk of eventually outliving retirement savings.
There is also the gender wage gap,
narrowing, but still evident. As American Association of University Women
research notes, the average female worker earned 79 cents for every dollar a
male worker did in 2014 (in 1974, the ratio was 59 cents to every dollar).3
What can
women do to respond to these financial challenges? Several steps are worth
taking.
Invest
early & consistently. Women should realize that, on average, they may need more years of
retirement income than men. Social Security will not provide all the money they
need, and, in the future, it may not
even pay out as much as it does today. Accumulated retirement savings will need
to be tapped as an income stream. So saving and investing regularly through
IRAs and workplace retirement accounts is vital, the earlier the better. So is
getting the employer match, if one is offered. Catch-up contributions after 50
should also be a goal.
Consider
Roth IRAs & HSAs. Imagine having a source of tax-free retirement income. Imagine having
a healthcare fund that allows tax-free withdrawals. A Roth IRA can potentially
provide the former; a Health Savings Account, the latter. An HSA is even funded
with pre-tax dollars, as opposed to a Roth IRA, which is funded with after-tax
dollars – so an HSA owner can potentially get tax-deductible contributions as
well as tax-free growth and tax-free withdrawals.4
IRS rules must be followed to get these
tax perks, but they are not hard to abide by. A Roth IRA need be owned for only
five tax years before tax-free withdrawals may be taken (the owner does need to
be older than age 59½ at that time). Those who make too much money to
contribute to a Roth IRA can still convert a traditional IRA to a Roth. HSAs
have to be used in conjunction with high-deductible health plans, and HSA
savings must be withdrawn to pay for qualified health expenses in order to be
tax-exempt. One intriguing HSA detail worth remembering: after attaining age 65
or Medicare eligibility, an HSA owner can withdraw HSA funds for non-medical
expenses (these types of withdrawals are characterized as taxable income). That
fact has prompted some journalists to label HSAs “backdoor IRAs.”4,5
Work longer
in pursuit of greater monthly Social Security benefits. Staying in the workforce
even one or two years longer means one or two years less of retirement to fund,
and for each year a woman refrains from filing for Social Security after age
62, her monthly Social Security benefit rises by about 8%.6
Social Security also pays the same monthly
benefit to men and women at the same age – unlike the typical privately funded
income contract, which may pay a woman of a certain age less than her male
counterpart as the payments are calculated using gender-based actuarial tables.7
Find a
method to fund eldercare. Many women are going to outlive their spouses, perhaps by a decade or
longer. Their deaths (and the deaths of their spouses) may not be sudden. While
many women may not eventually need months of rehabilitation, in-home care, or
hospice care, many other women will.
Taylor McClish may be reached at (503) 239-3060 or taylor.mcclish@cunamutual.com.
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Citations.
1 - bankrate.com/financing/retirement/retirement-women-should-worry/
[3/1/16]
2 - blackenterprise.com/small-business/women-age-65-are-becoming-poorest-americans/ [3/18/16]
3 - tinyurl.com/jq5mqhg [6/8/16]
4 - bankrate.com/finance/insurance/health-savings-account-rules-and-regulations.aspx
[1/1/16]2 - blackenterprise.com/small-business/women-age-65-are-becoming-poorest-americans/ [3/18/16]
3 - tinyurl.com/jq5mqhg [6/8/16]
5 - nerdwallet.com/blog/investing/know-rules-before-you-dip-into-roth-ira/ [1/29/16]
6 - fool.com/retirement/general/2016/05/29/when-do-most-americans-claim-social-security.aspx [5/29/16]
7 - investopedia.com/articles/retirement/05/071105.asp [6/16/16]
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