For women, ensuring a well-funded retirement can be doubly difficult. On the accumulation side of retirement, they face obstacles not encountered by men. On the withdrawal side, they have to make sure money lasts over longer life spans. This double whammy has retirement planning experts cautioning that women need to plan differently and more carefully than do men.
Numerous hurdles combine to make it more difficult for women to save for retirement, says Debra Whitman, executive vice president, policy, strategy and international affairs with Washington, D.C.-based AARP.
First, because women live longer than men, they have a greater number of retirement years to fund. Women who are 65 this year are expected to live about two years longer than men that age, Whitman says. In addition, that age group of women tended to marry men on average about three years older.
"Not only are they going to live longer, but they are also less likely to have that protection of a spouse being around," she says. "Sharing the expenses makes a big difference in financial security, and we find some of the highest poverty rates are among widows, particularly if you look at 85-plus widows."
AARP also has determined women spend more time out of the workforce than men, caring for family members. As a result, women will spend an average of 12 fewer years in the paid workforce over their lives, AARP reports.
In the workplace, women still earn lower salaries than their male counterparts, says Catherine Collinson, Los Angeles-based president for the non-profit Transamerica Center for Retirement Studies, dedicated to conducting research and undertaking outreach on the latest retirement issues and trends. "The less disposable income people have, the harder it is to save," she says.
The center just released "Fourteen Facts About Women's Retirement Outlook: Select Findings from the 14th Annual Transamerica Retirement Survey of Workers." In last year's survey, the report stated, respondents were asked about their most significant financial priorities, Collinson says.
A larger percentage of women than men — 56 to 46 percent — reported their greatest priority was "just getting by," or paying off consumer debt.
Another Los Angeles expert, Forbes contributor Phil DeMuth, who has a Ph.D. in clinical psychology and authored "The Affluent Investor" (Barron's Educational Series) believes there is another reason women are challenged in retirement saving.
"Everything you need to know about women's and men's investing you could learn by watching an episode of 'The Honeymooners,' " he says. "Ralph Kramden, the bus driver, wanted to be a big shot. And every episode, he had a get-rich-quick scheme. His wife Alice was incredibly level-headed. And it was her role to go in at the end and pick up the pieces. That's men and women in a nutshell. Men tend to be risk takers, and women tend to be risk averse."
Men's overconfidence is greatly overrated in investing, which makes women innately better investors. But women's risk aversion presents dangers when planning for retirement. "You can't keep all your money in a passbook savings account and hope to retire in 30 years on that money," DeMuth says.
Despite the hurdles faced on the accumulation and distribution side of retirement planning, there are positive signs for women, says Brennan Miller, Charles Schwab Michigan Avenue branch manager in Chicago.
Women's earning power is increasing, and they are earning bachelor's, master's and doctorate degrees in greater numbers than men, he says.
"And a greater number are the breadwinners in their households," he adds. "So they will be more involved in their finances. Because their prospects on the job front are getting better, and their earning potential is increasing, their Social Security benefits will be increased, and they will probably be participating in company 401k plans. As they become breadwinners, they are going to be able to take advantage of these benefits that supply a secure retirement."
Steps to take
Women can combat retirement funding hurdles a variety of ways. First, says Miller, they should formulate a comprehensive retirement plan, examining expenses expected to be faced in retirement, as well as income from dividend-paying stocks, CDs and cash, proceeds from strategically-rebalanced portfolios, and income from a personal pension with funds from an annuity.
If their employers offer the ability to save through their paychecks, they should take them up on the offer, Whitman reports. "Never miss the match on the table," she says. If no offer exists, set up an individual retirement account.
Social Security planning
is also important in retirement planning, and should be designed to maximize Social Security streams. Women should delay claiming Social Security benefits as long as possible, Whitman says.
For every year claiming is delayed, benefits increase by six to eight percent for the remainder of the woman's life. Says Whitman: "It's a wonderful annuity that you can hardly buy on the private market."
Also consider long-term-care insurance. Need for long-term care is a very real scenario for women, Collinson says.
Outside of a 100-day window at onset of an illness requiring skilled nursing care, you are not covered by Medicare, she reports. "If you don't have long-term care insurance, it becomes an out-of-pocket expense, and can be a tremendous stress on families."
But when shopping long-term care plans, be careful comparing prices.
"The long-term care insurance marketplace is starting to price policies differently for women than men, because they're seeing women are more likely to use (the benefit)," Whitman says.
The long-term care insurance decision should be made in the early- to mid-50s, Miller adds. After that age, costs increase substantially.
A final suggestion is to use one of the many online calculators to calculate how much you will need.