Women and Retirement Security

Retirement security is an important issue for both men and women as we are living longer, spending more, and saving less than prior generations. Nationally, one-half of middle class working families will run out of money during retirement, and women will represent the majority of those who will be financially insecure during their retirement years.

The Heinz Family Philanthropies and The Women’s Institute for a Secure Retirement (WISER) have electronically published a book, entitled "What Women Need to Know about Retirement." It includes information on savings, Medicare, long-term care, and related resources. This is an excerpt from this document, along with published data from The New Hampshire Women’s Policy Institute. These reports are also available in our free lending library. For more information on this important topic, join us at the Resource Center on the evening of September 30th for the presentation “Creating a Financial Action Plan for Retirement – What Every Woman Should Know.”

What the numbers tell us

The statistics show why women are at a disadvantage when it comes to retirement. Their role as primary caregivers reduces their income dramatically over the course of their working life. That, in turn, reduces their Social Security benefits and pension benefits, if they were fortunate enough to have an employer-offered pension. In addition, women typically have longer life expectancies than men. Studies have also shown that women do not have the financial education they need to manage their resources. This is critical as a large percentage of women will become the sole financial decision-makers, living alone as they age.

Some facts to consider

• Nationally, social security is the only source of income for 25% of unmarried women. In New Hampshire, 62% of older women living alone have incomes below what is needed to cover basic costs of living, which is estimated to be $20,000 per year.
• On average, women spend 27 years in the work force while men work almost 40 years. Women’s lifetime earnings are lower due to differences in pay rates, part-time versus full-time work, as well as women’s primary role as caregivers for family and others which averages 12 years out of the workforce. The estimated lifetime cost of this care-giving is $719,686.
• A woman who reaches 65 can expect to live until 84 or 85, about four years longer than a man.

Building a financial base

The key to a secure retirement is to start building a sound financial base – and remember, it’s never too late to start. Here are 5 goals to strive for:

• Balance your basic bills. Start with what’s most important – your basic necessities. These include your rent or mortgage, utilities, insurance, car payment, regular medical bills, day care, basic food allowance, and any legal obligations. Generally, you should be able to cover these expenses on 50 percent of your take-home income, so that you have enough left over to save for your future. If these basics are taking more than 50 percent of your pay, it may be time to cut back on expenses to get as close as you can to that mark.
• Pay off your debt. This is a two-part process. The first part is to stop taking on new debt. It may be time to give your credit cards a rest and stop making new purchases for non-essential items. Then it’s time to start tackling the old debt, paying off your old bills, one at a time, until they’re gone. Meanwhile, keep on making your minimum monthly payments on the other debts. If you are spending about half your income on your basic necessities, earmark 20 percent of your paycheck to debt repayment and savings.
• Build your emergency savings. This is your safety cushion when things go wrong in life. Aim to save about three months' pay.
• Work towards paying off your home. When it comes time to retire, you can live rent-free which means that your Social Security and savings will go a lot further. Consider squeezing out some extra money from your monthly spending and put a second check in with your mortgage payment. If you don’t own a home, you should still keep saving. The money you would have used to pay down your mortgage should go into savings.
• Create a retirement fund. Sign up for your retirement plan at work if you have one, and take advantage of any matching contributions your company may give you; or open an IRA (Individual Retirement Account) on your own. How much should you put into your retirement accounts? Roughly 10 percent of your take-home pay is recommended.

How to make financial plans for the unexpected

One the best plans women can make to avoid financial disaster is to establish financial independence. If you are living with a spouse or partner, the idea is not to create a split, but rather for you to have enough financial self-sufficiency to act on your own in an emergency. The following six steps can help you accomplish that independence in the event of job loss, a health crisis, divorce, or death of a spouse.

• Maintain files of basic financial information. Be sure you have copies of:
  • All current assets
  • Bank account numbers
  • Safe deposit information
  • Insurance beneficiary information
  • IRAs and other retirement accounts records
  • Tax returns going back seven years
  • Mutual fund statements and copies of stocks and bonds
  • Copies of all insurance policies
  • Lease or mortgage information on your home
  • Copies of wills, trusts, prenuptial agreements
  • Copies of birth and marriage certificates
• Have your name on the checking account. If your partner dies suddenly, it could be difficult to resume payment schedules if the checking account and home purchases are listed only in his name. If you are married, you should also open checking and savings accounts in your own name in case a will is contested or some other complication arises.
• Establish and maintain good credit. Good credit is essential to any sort of financial independence. Get credit in your own name through a personal credit card. Make sure your joint accounts are paid on time to maintain your own good credit, or get your name off those accounts that are not paid on time.
• Assess your insurance needs and buy enough to protect yourself. This would include life insurance, homeowner’s insurance, health insurance, and car insurance.
• Create and agree on a will for you and your spouse or partner. Make sure that wills are drawn up. Keep the notarized original copy, and send other copies to a lawyer and a safe deposit box. Review and update your will every five years or when your life situation or assets change.
• Save, save, save! One reason for the high rate of poverty among older women is the lack of personal savings.

It’s your tomorrow

If you spend some time planning for retirement, it can become a much richer phase of life. Maybe you have travel in mind, or want to spend your time on a favorite hobby, or you want to help your family, or just want a paid-for house with plenty of time with the grandkids. No matter what the details, creating a financial plan for retirement can help you live in comfort and dignity. This means having money to cover your basic needs without calling on the charity of others, or working longer than you are physically able. And with a little luck, it can mean having money for your dreams as well!