Published: 10/01/2011 by Sue Lynn Sasser
You may remember the iconic commercial that proudly proclaimed to women, “You’ve come a long way, baby.” That statement may be more accurate when applied to progress in the home, workforce and voting booth rather than when discussing women and money.
While many women today are earning an income and are eligible for retirement benefits, it seems few are adequately prepared for a financially secure retirement.
The following findings from the National Center for Women and Retirement Research should raise concerns:
• Nine out of 10 women will be responsible for their own finances at some point in their lives.
• More than 75 percent of the women in the United States are widowed at an average age of 56, and one-fourth of them will be broke within two months of their husband’s death.
• Only 15 percent of the women who are married or living with a significant other assume responsibility for their retirement planning.
• Only about 40 percent of women who work participate in their employer’s 401(k) retirement plan.
• Almost 90 percent of the elderly living in poverty today are female.
Another study released last summer by Prudential shows that while 95 percent of women are actively involved in making financial decisions for their families, only 15 percent of them are the primary decisionmaker. That’s significant, because when you are not in the driver’s seat at least some of the time, you get accustomed to being a passenger. Interestingly, less than 20 percent of those in the study reported they are “comfortable” making decisions about investments, which is an important part of retirement planning.
Prudential’s report also found that about 50 percent of the women in the study said they did not feel a need to understand their investment portfolio as long as the value was increasing.
Other studies show that women are more accustomed to living with less than their male counterparts, settling for a lower standard of living. Perhaps that’s not surprising, since the vast majority of women (92 percent) are not financially prepared to live into their 90s, which is currently the gauge for longevity planning.
What It Means
These findings are important for two reasons: first, women, on average, live longer than men and second, because they live longer, they tend to incur higher health care costs as they age. The life expectancy for women in the United States today is 81 years compared to 76 years for men.
With that in mind, with a very conservative estimate of $2,000 a month for expenses, that gap represents an extra $120,000 women can expect to pay for their basic needs. However, because women tend to be younger than their husbands, it is not uncommon for older women to outlive their spouses by as much as 15 years, meaning that very conservative estimate explodes to $360,000. Based on longevity alone, women tend to need more savings than men to sustain themselves during retirement and prevent a decline in their overall standard of living. And, these estimates fail to consider price changes or inflation rates.
Closely related to greater longevity is health care. Because women live longer, their potential need for health care increases — and this type of care can be extremely expensive. For example, women tend to require specialized services such as home health care or care provided by a long-term facility. The demand for these services can also be directly related to monthly income because women with limited funds will be much less likely to pursue preventative health care measures, seek medical care until it is an emergency, or take their prescriptions as needed. They may also have failing health due to poor nutrition, dental care and a variety of other related issues.
The Society of Actuaries has reported that one third of the individuals between the ages of 45 and 80 either currently relies or will rely primarily on Social Security for retirement income. Another third has or will have some additional income for retirement, while only the top third will have sufficient income to live comfortably in their retirement years.
For women, specifically, the numbers are even bleaker. Some reports show that eight out of ten women plan to work longer than expected because they cannot afford to live on their retirement income.
What’s a Woman to Do?
Women have traditionally relied on men as providers, often sacrificing their own retirement funds for other family needs. Regardless of gender, age or income, it is important for everyone to consider their own financial health and wellbeing and take the steps necessary to ensure financial security today and tomorrow.
The following are a few steps to consider when securing your financial situation:
• Stop and think about your future. While retirement may seem far away when you have children at home, planning today will ensure you have the financial resources needed when the time comes.
• Consider working longer. There is nothing magical about retiring at any specific age. Many older adults enjoy the socialization as well as the income. However, preparing now for your future needs will make it easier to decide what to do later.
• Pay off debt (and avoi d incuring more). Reducing your debt today will make it easier to retire tomorrow.
• Save Early and save often. Get used to paying yourself in the form of savings, and take advantage of any matching programs your company offers for retirement accounts. It is never too early to start saving for your retirement years.
Sue Lynn Sasser, PhD, is the director of the Center for Economic Education and an associate professor of economics at the University of Central Oklahoma.